Article: Spin a Fare Tale

fare tale Cost-saving schemes from corporate travel agents may not be all they are cracked up to be, Colin Brain warns

Reprinted from Supply Management

Travel agents have seen a gradual reduction in their earning rapacity over the past five, years because commissions from airlines have: gone down. In 1990, it was common far agents to earn 9 per cent for international airline ticket sales and 7.5 per cent for domestic fights, as well as bonuses for beating sales targets. Ten years on, the normal commission level is a flat 7 per cent, with a few carriers providing only 5 per cent and even fewer offering any form of bonus commission.

Since British Airways announced its intention to scrap commission for travel agents from 1 January 2001, many agents have been looking at creative ways to improve their income flows. One idea that, at first sight, would seem, to suit the corporate client is to share the revenue generated by improved savings - the rationale being that the agent demonstrates it is capable of reducing the client's travel costs by producing a "fare savings report".

The suggestion then follows that the agency could possibly improve the savings level. Working with the client, it agrees that savings achieved above a certain level - 5-l0 per cent or 15-20 per cent, for example - should either be shared between the two parties, or used as an incentive for improving the savings level achieved.

On the face of it, this looks like a great deal and the customer appears to be in a winwin situation. The only problem is that all the information that the arrangement is based upon - such as the base fare and the saving achieved - is determined by the travel agent.

This is not a problem if someone in your organisation has an intimate knowledge of air fares or if you trust your supplier 100 per cent. Unfortunately, recent benchmarking exercises undertaken by my firm discovered that the process was full of holes. Two of our clients - big companies with professional purchasing departments - were being seriously misled.

One had a corporate travel policy stipulating that the "cheapest possible, lowest fare" should be used at all times. But it turned out that the agent was registering the business class fare as the lowest in all cases.

While this might be acceptable in some circumstances - on some European routes, for example - it certainly is not the case on transatlantic flights or those to Asia. In these cases we discovered that business class base fares were being compared with economy class apex prices. This practice allowed the agent to show savings of an incredible 90 per cent.

Clearly this could become a serious problem if the agency stands to increase its earning capacity from the corporate client, particularly if that ability is linked to false information.

My advice to purchasing managers who are concerned about their travel agency's approach to fare savings is to consider seeking some professional help from a fare-validating source such as Bare-Audit or Topaz, or from an independent corporate travel consultancy capable of providing a fare-auditing service.

(Colin Brain is director of Management Solutions UK ,and a consultant Member of the Institute of Travel Management.)

Management Services (UK) Ltd  |  35 Abbots Gardens, London N2 0JG  |  T.: 020 8444 7788  |  email us    © Management Solutions UK Limited