It’s common for travel management companies to charge extra when booking a supplier requires more work or generates less revenue. This is the basic idea behind American Express Global Business Travel’s additional $10 per transaction fee for certain airlines, revealed here on Tuesday. Sources contacted mainly by email during the past 24 hours indicated that other TMCs have not taken such a program this far. GBT, they said, is charging a lot. Its program is broad, and formal. The TMC execs among them like it.
“Southwest is the most expensive airline for us to work with,” according to Christopherson Business Travel president Mike Cameron. “Amex GBT is correct in their assessment of the inverse cost/revenue relationship between booking non-GDS airlines and those airlines using industry-standard methods.” He said costs are higher and revenue is lower for the 17 percent of total Christopherson bookings processed outside global distribution systems.
While Southwest is represented in GDSs, it does not pay for full participation.
“We, too, have always absorbed the additional processing costs in order to maintain a simplified pricing structure,” Cameron continued. “There could be a tipping point where it is not possible to continue to do that. We’ve not reached that point yet.”
Tower Travel Management owner and president John Smith echoed Cameron and applauded GBT. “It’s very standard for TMCs to charge additional for Southwest Airlines bookings, either to pass through costs from online booking tools, or because they use BookingBuilder to book with live agents,” Smith wrote. “Amex is taking a step further.
“It does take more time to book all these carriers, and therefore adds operating costs, and clients should expect to pay for inefficiencies in the system,” Smith added. “As a general rule, our clients prefer to have a blended average fee that covers all airlines, with the notable exception of Southwest’s pass-through booking costs from online booking tools. However, if Amex’s strategy proves successful in the market, I think that would be a very good thing.”
A GBT client letter indicated that the new $10 fee “replaces and will not be in addition to any non-GDS fees previously implemented by GBT.”
“This is a fixed sum game,” noted Steven Mandelbaum, who runs The Advisory Board Company’s travel program as vice president for information systems. “If it takes more work, then theoretically someone needs to pay for it. If it isn’t overtly more expensive, then it’s simply buried somewhere else in the economic model and the fees that we pay to TMCs. Ten dollars is a big surcharge. However, booking tools have successfully charged for Southwest bookings for years, so perhaps it’s just the ongoing shift of the economic model.
“The real culprit is the virtual total reliance and dependency of TMCs on the GDS,” Mandelbaum argued. “They use it as their CRM and ERP. I believe that progressive agencies would find competitive advantage and be well served by leveraging the GDS for most content and fulfillment, but taking the CRM and ERP functions out so they can be more innovative and flexible.”
[Doing so wouldn’t be unprecedented. FCM, for example, has moved to Salesforce for customer relationship management. The company credits this in part for its ability to innovate on mobile technology.]
“The root cause is the GDS companies’ flawed business model that pays rebates to TMCs,” agreed consultant Donald Swartz of Corporate Travel Buyer Resources. “This practice only antagonizes travel suppliers and vendors by sending a message they are paying too much in GDS fees if there’s money left over to rebate.”
Swartz said GBT’s program appeared more formal and expensive than what he has seen before.
KesselRun Corporate Travel Solutions partner Brandon Strauss said the $10 fee “will not be seen by many [clients] as nominal. At first glance, the fee seems high but perhaps GBT is also providing a value-add for qualifying segments.”
Swartz said the outcome of GBT’s new policy is hard to predict. While the TMC is a giant handler of demand for many airlines, he said he wasn’t sure “if that will be enough to get the impacted travel suppliers’ attention. It’s also difficult for the industry to accurately measure the net impact (loss or gain) to the targeted travel suppliers and vendors from this surcharge practice.”
Mandelbaum said he was “somewhat struck by the blunt approach; it seems designed as punitive for those who are using these carriers and theoretically a disincentive for doing so.”
GoldSpring Consulting partner Mark Williams speculated that the surcharge on some airlines may be meant to steer traffic to others. “Is there a play here for Amex GBT, or any other agency, to push more volume to those with which they have preferred relationships — by making those other airlines more expensive — to increase their override commissions?” he asked. “Seems like it might be.”
Swartz warned that the program could backfire by further alienating surcharged airlines or driving clients to book directly.
Airlines named in GBT’s program that offered statements in response to the news appeared unmoved.
According to a Frontier Airlines official, “We’ve made decisions for our business that help us keep our costs low allowing us to pass those savings, with some of the lowest fares in the industry, along to our customers.”
According to a Southwest representative, “We’re aware of the recent changes by American Express. While we cannot speak for them, we remain valued partners and continue providing the best service for our customers through GDS bookings.”
Spirit Airlines replied, “The only reason we would be on the list is because we are definitely a low-cost airline. This appears to be [a way for] American Express Global Business Travel to collect a commission from their customers, as we don’t pay them a commission.”