Article: Secretive Agents

secretive agents In the wake of the BA fine, Colin Brain urges purchasers to ensure that travel agents are giving value for money

Reprinted from Supply Management

The European Commission's decision to fine British Airways £4.5 million over its travel agent commission policy has focused attention on some of the murkier aspects of the travel industry. But airlines aren't the only ones guilty of dubious practices: many travel agents are also taking their corporate clients for a ride. With business travel typically the fourth biggest area of spend for larger companies, involving hundreds of thousands if not millions of pounds a year, this is not something that purchasers can afford to ignore.

Reduced commission paid to travel agents by the likes of BA has certainly shaken up the industry in recent times. With agents getting a smaller slice of the cake, the days when a company could expect to get a rebate on its travel budget by splitting a "guaranteed" commission with its agent are numbered. Like their counterparts in the US, many UK agents have now switched to a management fee model. Although in principle they may adopt an open-book approach to this, in practice it can be hard for purchasing managers to judge whether they are being charged a reasonable rate.

Direct costs - staffing, national insurance, training, and so on - are relatively easy to identify, as are office costs. But too many travel agents are loading up their charges with ambiguous "central" costs for things like technology support and account management. Quite apart from the fact that these are difficult to validate, why should you be charged for costs that the agent would incur regardless of whether you choose to do business with them?

Another problem for purchasing staff is that they often lack the specialist knowledge needed to assess whether they are really getting the best price, or whether the travel agent is simply recommending an airline or hotel with which it has a beneficial financial arrangement.

However, this imbalance in access to information is shifting. In the US, where sheer size results in vastly more air travel, transaction costs are transparent. Agencies and companies can tell exactly how much time and cost is involved in, say making a booking, issuing and delivering a ticket, or producing management information.

Since licensing regulations were changed in the US last year, large companies such as stockbroker Charles Schwab have set up their own corporate departments to negotiate deals and make reservations direct, thus cutting out the agents altogether. It can only be a matter of time before the same happens in Europe. In addition, the boom in electronic commerce over the Internet also offers new opportunities to streamline purchasing decisions and cut costs.

Of course, travel agents, like anyone else in business, have the right to make a profit. But in a rapidly changing environment, they will have to work hard to convince corporate clients that they offer real value for money. Purchasing people need to ensure that they do.

(Colin Brain is director of Brain & Co, a consultancy specialising in corporate travel and expense management.)

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