OP-ED: New ARC Program Contradicts Trend

<B> OP-ED: New ARC Program Contradicts Trend</B>

By Lee Turner

<i>Lee Turner is executive vice president of relationship management & business development at BTI Americas in Northbrook, Ill.</i>

<hr><b><center><FONT COLOR="#2D6E33">Click here to respond to the following editorial on the BTNOnline Bulletin Board

<hr></b></center>Much has been written about the upcoming Airlines Reporting Corp. test program that will allow selected corporate travel departments to function as independent agencies. The program will enable participants to sell travel to the public and other corporations as long as their "primary" focus is on providing travel services to their own travelers.

The phenomenon, which industry analysts and the trade media have dubbed "insourcing," differs from existing "rent-a-plate" arrangements in that participating corporations may own accredited ARC numbers without an agency relationship. The supposed benefit of such a strategy would be to ensure that the travel department is a profit center for the corporation.

ARC's announcement has garnered more than its fair share of headlines, but the program lacks the credentials to warrant consideration by most corporations. Here's why:

The ARC program contradicts recent trends in corporate America whereby successful companies focus on what they do best while outsourcing other activities. We've seen this outsourcing trend not only in travel, but in advertising, information technology, telemarketing and other support functions. I would wager that building a successful travel agency--just like building a successful advertising agency, information technology or telemarketing agency--falls outside the goals and strategies of most best-in-class corporations that are not in the advertising, information technology or telemarketing business.

Establishing a successful agency requires huge capital expenditures for facilities, hardware and other infrastructure requirements. Sophisticated technology tools must be developed and deployed. An ongoing training program is required to keep employees abreast of industry trends. Some type of network, domestic or international, may be required to provide the highest level of service.

All of these items require repetitive investments which, for most corporations, are impossible to spread out over a large enough base to be cost-effective. And in this era of commission caps and negotiated fares, these operational costs will likely outweigh the revenue benefits that exist for most corporations, thus debunking the "internal travel department as profit center" myth.

Clients I've spoken with have absolutely no interest in undertaking an effort such as ARC proposes; why should they when there are excellent outsourcing alternatives available? When closely examined, the case for outsourcing travel almost always outweighs the alternative.

The primary people I foresee jumping on the "insourcing" bandwagon--in addition to ARC itself--are what I term "old-school" travel managers: Those with some knowledge of the industry who want to exert control over their corporate domain. Despite these individuals' travel industry credentials, their employers will still be stuck with the infrastructure and other costs described above, making "insourcing" a less-than-wise investment.

If any of this sounds like sour grapes, consider that the concept of corporations running their own travel agencies is not inconsistent with BTI America's Managed Travel philosophy. But always, our primary concern is enabling corporations to maximize the return on their investment in travel. I just don't see the ARC program as a means to this end, at least for most corporations.