Editorial: Buyers As Focus Of Dereg Story
<B> Editorial: Buyers As Focus Of Dereg Story</B>
By David Meyer, Editor-In-Chief
When U.S. lawmakers deregulated airline pricing and routes 20 years ago, they did more than just stimulate competition among air carriers, they created an environment in which an entirely new corporate discipline could thrive: business travel management. The Airline Deregulation Act, signed into law by President Jimmy Carter on Oct. 24, 1978, ended the practice of having the government create standard prices and determine which airlines could fly where, and made it possible for travel agents and businesses to leverage their spending volume to negotiate discounts.
When the law went into effect two decades ago, however, there was hardly a land rush toward business travel management. An enterprising few travel agencies and business travel buyers seized upon the new opportunity to negotiate right away, but it took the better part of six years for the supplier community and Corporate America to tool up to do a significant amount of business under new rules.
For those who didn't work in the travel industry during the era of rigid regulation, it's hard to believe how crushing that type of regime can be to the imagination. With the "they'll never let you do it" mentality in full effect, people didn't try to dream big ideas. Even when deregulation became reality, it engendered not a sense of excitement, but rather fear that one's own livelihood might be in jeopardy.
Once freedom to create became a way of life, however, there was no stopping the flow of ideas about ownership of companies, ways of doing business and new products. Interestingly, the development of the personal computer began in earnest about 1977, paralleling the deregulation era and providing the technological wherewithall that helped many of the new concepts become reality.
Actually, the new climate for travel management wasn't created directly by the deregulation law. But the deregulation movement did spawn the Competitive Marketing Investigation in 1983, in the course of which the Civil Aeronautics Board decided to strip antitrust immunity from the Air Traffic Conference. That decision gave rise to the Airlines Reporting Corp., which was formed by the airlines to serve as the U.S. bank settlement plan for travel agencies, and spurred the development of the discipline of travel management.
In the meantime (see the timeline), the major computer reservations systems had installed equipment in travel agency back offices and at a handful corporate locations, giving them the means to track the plethora of flight schedules and prices, and eventually an apparatus with which to communicate negotiated fares.
Still, business travel management didn't begin to attract any staunch proponents until 1984, the year that the CAB phased out, making way for ARC. That was also the year that American Express launched its travel management service division to focus on both the corporate card and travel management, and the year that Business Travel News published its first issue.
In retrospect, the ways in which most industry participants interacted back then seem crude and convoluted. A kind of voodoo economics emerged, with those on the supply side of the table distributing money back to buyers, and travel agents using rebate checks to win corporate business. In addition to the commissions that airlines paid travel agencies, they also developed overrides as a reward for moving market share. Within this house of cards, business travel departments became profit centers offering their services "for free."
As this complicated model evolved, so did the profession of business travel management. Prodded by the 1987 recession, many large and travel-intensive companies began employing full-time travel managers. These professionals in turn developed their own networking and educational associations. The old National Passenger Traffic Assocation became the National Business Travel Association and the Association of Corporate Travel Executives was founded. Travel agency accounts began to be awarded on a national and even an international basis for the first time.
With the growing sophistication of travel managers, corporations began to consolidate their travel purchasing. In some instances, they centralized from several hundred agencies to just one or two. This helped spur the trend toward agency consolidation through mergers and acquisitions, and the spread of franchising and consortia that continues to this day.
As the business matured, the level of rebating and commissions reached its peak. With the Gulf War slowing travel and escalating fuel prices, however, the airlines took a nosedive, losing billions of dollars--more in fact than they had made in profit since they began operating. They needed to change the equation. With the growth of the Internet and the promise it held of a new distribution channel, the solution they fixed on was to cut travel agency commissions.
The cutting of commissions brought down the house of cards and ended the shell game. Agents cut off rebate checks and switched their clients to transaction fees. Once on a fee basis, business travel buyers were able to negotiate fares net of commissions and overrides.
The evolution of the business travel business to date has reflected the airlines' struggle to identify the real mover of market share. That's what led the airlines to offer commissions and overrides to travel agents, frequent flyer points to travelers and discounts to corporations. The priority the airlines have placed on these programs has fluctuated with the carriers' perception of who has the most influence in the decision-making process. After a 20-year odyssey, it appears that they finally are recognizing that the most critical business travel customer is the business travel manager.
As net fares and corporate intranets and extranets proliferate, the predominance of the travel manager will be even more clear in the 20 years ahead.