Two corporate travel firms see benefit in caps (2/20/2001)

By Jerry Limone

'We are much more a travel management company now than before the caps.'
Andrea Ritchie
Northwestern Travel Management

NEW YORK -- Time sure does fly. It's been six years since Delta instituted the first round of commission caps.

Upon reflection, two corporate travel management companies remember those times as tumultuous but believe their businesses are better off not relying solely on commissions and charging service fees to corporate customers.

"Now there's more of a direct relationship between what we do and what the corporation pays for," said Mary Gould, national director of account management at McCord Travel Management in Chicago.

Months before the first round of caps was instituted in 1995, Chicago-based McCord Travel Management said it alerted corporate clients that there was an excellent chance airlines would do just that.

Despite fair warning, some corporations experienced "sticker shock" when the amount on their monthly rebate checks took a hit after commissions were capped, said Gould. The rebates were a percentage of commissions passed on from agency to corporation.

The rebate reduction was just the beginning. McCord, like other travel management firms, knew the airlines would cut commission percentages. In order to stay in business, McCord had to find a new way of doing business. Service fees were the way he chose to go.

Bruce Black, McCord's chief executive officer, alerted corporate clients, in a humorous way, that times they were a-changin'.

"He said, 'Please don't shoot your account managers,' " recalled Gould. "We had to educate clients as to why we were charging transaction fees. We had to equate our business to other service businesses."

McCord bundles services like ticketing, quality control, reporting, accounting, international faring and 24-hour customer service into its fee structure. If a corporation does not require a specific service, Gould said McCord will remove that service and adjust the fee accordingly.

Changing a business model is never easy, but in retrospect, the change was worthwhile, said Andrea Ritchie, president of Minneapolis-based Northwestern Travel Management.

"We are much more a travel management company now than before the caps," she said. "Customers are paying for a service and they're concerned with getting the right service. We are subject to more scrutiny than when we [were earning solely through commissions].

"When the caps were first announced, for an instant we said, 'Oh, my God,' " continued Ritchie. "But it's survival of the fittest, and we've had a lot of success since then."

Looking back, Ritchie said Northwestern was able to "turn it around quickly" because the agency already was cost-conscious.

"Determining what to charge corporations certainly was a challenge," she said. "Since we had been tracking our cost per transaction since 1988, we already understood our costs, which was very important for us."

Northwestern and McCord, like many travel management companies, pass on airline commissions to corporations to offset the cost of service fees. Ritchie said 90% of her company's ARC revenue is passed on.

(Reprinted from twcrossroads.com)