Japan Deregulates Commissions, Enabling More Discounts

So far, the move toward improved business travel management in Japan is being led by suppliers and multinationals. Local firms slowly are noticing they might be able to streamline their travel expenses, but it still is too early to determine.

American Airlines' office in Japan has bucked the trend and decided to take advantage of a change in government regulations that allows it to offer its global customers up-front discounts at the point of sale, uncommon in Japan. Most discounts in Japan are more like reimbursements (back-end rebates) and paid back to companies two or three months after travel.

Theo Panagiotoulias, corporate sales manager in Japan for American Airlines, said global corporate programs from U.S.-based multinationals increasingly were extending to Japan.

"The big issue here is that there still is quite a lot of regulatory involvement, specifically in the way discounts can be passed on to corporations by airlines," he said. "The majority of carriers do not offer front-end discounts to corporations. But we do. We offer up-front discounts to global customers in Japan."

American made its move after the Japanese government allowed commissions to be deregulated from the previously stipulated 9 percent, enabling travel agents to claim the discount commission on behalf of their client—which also is the airline's client—and pass it on to them immediately, as well as their own commission and a fee for service from the client.

Commission capping also began in Japan in April. Guy Mackee, vice president of regional and global sales at JTB-CWT Business Travel Solutions in Japan, said Japan Air Lines was the first to announce a reduction in commissions from 9 percent to 7 percent. Japan Travel Bureau and Carlson Wagonlit Travel joint ventured to form travel and expense management specialists JTB-CWT Business Travel Solutions in December 2000.

"When the national carrier makes that type of announcement, it is more willingly embraced by everyone else," Mackee said. JTB-CWT subsequently introduced a fee for service arrangement for clients, and American Express and Nippon Travel Agency followed. Nevertheless, Mackee said he had noticed more awareness in Japan that managing travel and entertainment expenditure was not only of value, but a necessity.

"Increasingly in the past 12 to 18 months, companies are looking at how they can manage that more effectively, how they can have more sophisticated procurement policies and how they can negotiate direct airline contracts," Mackee said.

But the introduction of business travel technology solutions remains a challenge because of the multitude of global distribution systems used in Japan to make bookings. Unlike other countries, where two or three majors dominate the market, there is a mixture of global and proprietary GDSs that complicates the introduction of technology solutions for travel management, he said.

Some also are only in Japanese. However, with JTB's technological expertise, Mackee said he started making use of reporting tools this summer. He also said most of the demand for self-booking tools was coming from foreign multinationals that have decided to introduce the tools at their offices in Japan.

Yuki Obara, an independent public relations consultant specializing in hotels in Japan, confirmed multinationals were leading the way. Obara, a former regional director of sales for Mandarin Oriental, said the big Japanese companies did follow the practices of some of the foreign multinationals.

"In the past five years or so, they have started to make critical negotiations with airlines, but they have not touched hotels yet in a big way," she said. Obara believed this was because many of the people who had the job of purchasing travel within a Japanese company did not see it as their core function. They tended to concentrate on local or regional, rather than global, deals and were not taking advantage of their volumes globally as much as they could, she said.

That may be the case, but such hotel groups as Accor, which bought its first hotel in Japan about two years ago, have demonstrated that they can more than survive in the market.

Tony Virili, group general manager for Accor in Japan, said Accor had started construction of its first Formule 1 branded property in Japan, which it expects to open in December. The property is approximately 90 miles northwest of Tokyo.

Virili said travel agents certainly are starting to recognize the value of dealing with hotel chains and are encouraging their clients to do the same.

They received one big check at the end of the month or payment period, irrespective of where the hotel booking was made, instead of several. According to Virili, that's an advantage in Japan because it is expensive to cash checks.

Though Pamela Suckling, Asia/Pacific commodity manager in Japan for Motorola, has travel management organized, she said there is a lot of double-handling taking place at Japanese companies. "But what is bad for the gazelle is good news for the crocodile," she said. "There is a great opportunity to save money for clients."