OP-ED: Sato Doesn't Add Up For Air Shareholders

<B> OP-ED: Sato Doesn't Add Up For Air Shareholders</B>

By John Noble

<i>John Noble is chairman of both Northwestern Travel Management in Minneapolis and Woodside Travel Trust in Bethesda, Md.</i>

The issue is simple: SatoTravel is owned by public airline companies, and shareholders of those companies deserve to know why airline management pays SatoTravel more than is necessary to distribute tickets. Tickets are one product in common between SatoTravel and other traditional agencies. Beyond tickets, we could talk about who is better at providing cost savings, reliable management reporting and world class service. We could talk about who helps travel managers and travel arrangers look better. We could talk about who contributes most to the peace of mind of travelers. But let's focus on maximizing shareholders' return on investment.

ROI motivates airlines to offer net fares, deal direct with corporations and, presumably, support SatoTravel. These are efforts designed to maximize shareholder returns.

As an airline shareholder and travel agency owner, I see no conflict in my argument that SatoTravel is not helping to maximize shareholders' ROI. I know what shareholders pay to have Northwestern Travel Management distribute a ticket. I know what portion of that is the cost of considering travel managers' interests.

Guaranteeing substantial savings; providing reliable information; saving them and their travelers time; providing realistic electronic solutions and world class customer service; making everyone look good and then doing more--are ways travel management companies consider travel managers' interests. I was surprised recently to learn that airline shareholders pay 1.63 percent more for SatoTravel to distribute tickets than for other travel agencies to do the same thing.

SatoTravel states its distribution costs as 11.29 percent. A poll of representative Woodside Travel Trust agencies (including Northwestern Travel Management) showed the highest base commission rate of 8.16 percent for the first six months of this year. After adding in the 1.5 percent average override commission, 9.66 percent is the highest overall distribution cost of nonairline owned agencies--1.63 percent less cost to airline shareholders than the cost of SatoTravel.

Distribution of tickets and consideration and travel managers' interests will always have a cost to airline shareholders, notwithstanding emerging electronic efficiencies. The issue of maximizing airline shareholders' ROI should focus on why shareholders are paying 1.63 percent more for SatoTravel than for other agencies.