Two months after global distribution systems reduced incentive payments to agencies, many buyers still are embroiled in negotiations, likely to continue for months, as to the subsequent fees that agencies will charge them.
Aside from contractual issues and a reticence to welcome any cost increase, the major sticking point for many buyers is the lack of transparency in agency costs and revenue streams that make them and their senior managers question whether they are being asked to pay a fair amount.
Buyers are unhappy with the way they have been left out of the discussion about bearing these additional costs, with little more in return than assurances that they will have access to full airline inventory for the next several years. With clients of agencies other than American Express seeing Amex claiming to hold their colleagues harmless from these charges, the new financial terms are prompting many to consider the possibilities of bypassing GDSs through direct deals or at the very least seeking fee customization from their agency.
After GDSs said they would reduce agency incentives, following their airline negotiations, mega agency Carlson Wagonlit Travel and a few others announced they would charge a flat transaction fee
(BTN, Aug. 14). Other TMCs are handling negotiations individually.
"I've been in this business for 30 years, and this is the first time I have ever seen an issue being dealt with on a case-by-case basis, except for Amex clients who seem exempt from this," said Jeffery Miller, an attorney with the Columbia, Md.-based Miller Travel Group. He said the issue would linger for some companies another six to nine months and attributed the delay to two factors: "One, with the larger corporations, the decision of whether or not to accept the cost is not being made by the travel manager," he said. "It's a financial issue, so it's being sent upstairs. Plus, you've got to teach senior management what it is. Two, with so many corporations, it's taking time for agencies to get to them all. There are only so many vendor representatives."
Of 10 buyers with whom BTN spoke, all had talked with their TMC about the pass-through cost and were reticent to discuss details of negotiations and/or terms. Some said they had come to terms with their agency, but others are holding steadfast in negotiations, at least until seeing the first invoice that includes such charges.
"At this point, it's our budget that's taking the hit," said Rita Visser, global executive travel manager at Oracle and a Carlson Wagonlit client. "We can't do anything with it until CWT sends us the first bill. We know it's going to be a challenge, we just don't know how big of a challenge."
Omaha, Neb.-based travel management company Travel and Transport, one of a few TMCs to follow Carlson in setting a $2 fee, determined it would identify the cost as a line-item surcharge. "If our fee to a client was $25, we don't send a bill to them saying, 'It's $27 multiplied by your number of transactions.' We say, 'It's $25 times your number of transactions per our contract and then it's an additional $2 GDS fee, multiplied by your transactions, which equates to $27. We break it out,' " said Bill Tech, Travel and Transport president and chairman of Radius, a network of travel management companies.
Tech claimed that as of late last month all his customers had accepted the new fee. Part of the success of that effort, he said, was in being able to assure clients the $2 fee would be fixed and ensure content availability for the next five to seven years.
"In all of our contracts, we have a cost of living increase," Tech explained, "so we're not going to make that $2 part of our base $25 fee and get an extra 3 percent each year. That will stay flat. Our price increases will be based on our negotiated fee."
Tech said all Travel & Transport contracts have had 30-day cancellation provisions in them ever since the first commission cap in 1995. Many buyers without such clauses in their contracts, however, are insisting their agency honor the existing contract until it expires.
Some consultants said some clients who accepted the cost now are preparing to go back and renegotiate airline contracts, while others are considering booking directly through carriers' Web sites.
In a survey of 189 members for its 2007 Business Travel Overview and Cost Forecast set for release in the next two weeks, the National Business Travel Association found that 34.4 percent of respondents plan to explore shared distribution savings via direct connections and global distribution system alternatives in an effort to trim costs. Furthermore, 41.9 percent said that they would push their travel management company to implement direct connections in order to keep costs down.
"If you do a lot of business with one or two folks, you can bypass the agency and get what you want, within reason," said Miller of The Miller Travel Group. "A lot of the airlines made the first move, which I found surprising. They want to keep that business. It's one of the crazier things I've seen because you've got so many players."
Even clients of American Express, which claimed its customers were immune to such fees due to its internal distribution solution, Travelbahn DS, admitted to not having all the answers. Two midmarket American Express clients with whom BTN spoke could not clearly determine whether or not they would be charged for bookings made with suppliers that do not participate in Travelbahn, which includes Delta, Northwest and US Airways.
Many larger clients, however, already have been given assurances. Amex client Cynthia Teufel, sourcing manager of procurement for corporate services at pharmaceutical giant Merck in Whitehouse Station, N.J., said, "My clear picture is that we're not going to be assessed another fee."
Industry experts advised buyers to protect themselves with contract language. "If it wasn't in there now, cut the best deal you can and make sure that there's language in there to protect you, and if the market is such, look to go direct," said Miller.
Buyers need to ask the right questions, according to Teufel, a former National Business Travel Association president. "How long are these fees in place? Will they be charged additional fees in the future and what happens if it goes in the online environment, which we all know it's going to?" she asked. "Either it costs something or it doesn't, so what's the point of all this?"
Many buyers are unhappy to have been left out of the industry negotiations that ultimately resulted in them being handed a new bill.
"The fait accompli doesn't sit well," said John Caldwell, president of consulting firm Caldwell Associates in Washington, D.C. An even bigger issue for many is the apparent lack of transparency in assessing the fee. "The lack of auditable proof that the impact has been negative on the TMC presents a problem. Most clients are sympathetic, but they want hard proof—including proof of their own segments."
Others cry foul at what seems to be the agency standard of not allowing buyers to see supplier agreements that are deemed confidential.
"This is your money," said Laurence Smith, an attorney with Wolff & Samson PC in West Orange, N.J. "It's disingenuous to make sure these agreements are cloaked with confidentiality, knowing full well that many of your corporate customers are going to say, 'I want other commissions and rebates and other revenues to flow back to me,' " he said. "Unless the corporation has the time and resources to contract directly with the GDS, do they have total confidence that all the GDS revenues minus the technology expenses are coming back to them? I don't think so. We're far from total transparency."