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Follow our step-by-step guide to the questions buyers should be asking suppliers in an environment where the unbundling of services is complicating data collection

WE ARE living in very different times from two years ago and the way we go about collecting data, negotiating contracts, paying for analysis and arranging market share agreements have all been turned on their head in 24 turbulent months. Buyers now have to ask very different questions of their suppliers, particularly if they want to get the right data.

This entire issue is the bête noir of Susan Hopley, industry liaison at data management company TRX. She outlines below the ways in which buyers should be going forward in
a post-recession market.

“As with most industries, business travel is bogged down with catch-phrases: 'if you can’t measure it you can’t manage it', and my personal favourite, 'it’s not about logic', are commonplace,“ says Hopley. “I use the latter to explain to someone outside the industry why it costs more than twice as much to fly half the distance on a one-way versus a round-trip!

“The processes and procedures we have taken for granted and capture in these industry catchphrases may be due for re-evaluation. This is particularly true when the landscape of data availability is changing rapidly and is reinforced by the 'unbundling' of services that is multiplying data collection points,” Hopley explains.

STEP 1: Existing travel policies and the challenges faced.
It has always been considered a best practice to have a company travel policy and I can’t see a day when this will change. We say: 'no policy, no policing.' But this best practice is being undermined. Why? Travel managers are now suggesting there is no point in having a policy on unbundled airline offerings. They argue that the amounts are too small and the effort to collect the data too cumbersome. This was underscored in a recent ACTE survey (see chart, right) measuring three things surrounding non-core services such as baggage collection: companies with a policy covering extra fees for ancillary services; companies who collect the corresponding data; and those who go the extra cost saving step and negotiate a preferred vendor contracts. The research shows a significant number of companies have policies, but far fewer collect the data and even fewer still negotiate rates based on the data.

The hot item for negotiations is hotel internet – less than 30 per cent of companies are negotiating with vendors to reduce the cost. Items not included in most policies are those recently emerging: baggage fees, priority boarding, seat selection and airport internet fees. The greatest challenge to managing these fees according to over 70 per cent of the respondents was not traveller compliance or a lack of resources, but the lack of accurate data collection.

STEP 2: Developing a new style of company travel policy.
How is it possible to develop a policy on the use of unbundled services anyway? Who gets early boarding? Who gets a blanket (Jet Blue $7)? Everyone, or VP and above?

One way forward is for a travel policy by carrier. Some carriers offer corp-orations 'bundled' unbundled offerings: early boarding, no middle seats and coffee for one price, or 'early boarding, no middle seats, coffee and two suitcases for a higher cost and possibly a partridge in a pear tree.'

Many travel managers have contracted for different services on different carriers. How will the traveller know what he or she is entitled to? Nobody carries much more than a confirmation number anymore, let alone a cheat-sheet of service offering agreements by carrier: excellent, I’m flying KLM today so I get my preferred vendor free pillow!

STEP 3: Scrap the travel policy?!
In the face of this web of chaos it may seem that the adage, 'no policy, no policing' makes sense. The very idea of convening worldwide travel management teams to agree a global policy on such topics as blankets seems a glorious waste of time.

STEP 4: New-style data collection.
This doesn’t mean it is not worthwhile collecting the data! The airlines know very well the yields from ancillary services. IATA predicts airlines will collect US$58billion in ancillary fees in 2010, even after excluding most low-cost carriers from the calculation. This represents 12.2 per cent of global airline revenue. Among low-cost carriers this figure may well be closer to 20 per cent. The Q3 2009 revenue from ancillary fees over Q3 2008 was up a staggering 36.4 per cent. 'No policy, no policing', perhaps seems intuitive but look at the consequences of not tracking these expenses and understanding the inevitable shortfall in corporate travel budgets. Not only will budgets set for this year be under fire as ancillary fees increase, but consider the tax consequences too.

Tax policy on meals on planes versus those purchased pre-boarding and extra bags are completely inconsistent. Under the old rule a meal that came bundled as part of a ticket was covered in the ticket tax. Today, a meal purchased on a plane may not be included in ticket price and therefore is subject to VAT.

Rates differ by country, obviously, as do rules on this tax. Ironically, while ancillary fees represent more taxation to corporations, they mean exactly the opposite to carriers! Consider extra bags on travel to the US – these extra fees are not covered by US tax paid by the carrier. In January 2010, American Airlines took around 40 ancillary service scenarios to the IRS who ruled that the vast majority of the new unbundled items were not subject to the same 7.5 per cent excise tax as tickets. As it happens, fuel surcharges were. Have you noticed fewer of these appearing lately? Essentially, every extra pound made in ancillary fees is more valuable to the airlines than a base ticket price increase and every such pound spent by the corporation less valuable.

Before you know it fees and costs could be out of control as they become unbudgeted and the source of numerous probing questions from senior management. The data generated is also being collected by others, such as Guest Logix who sell onboard retailing benchmark reports back to the carriers. Where could this lead? Like frequent flyer programmes that know who flies where and when and have tailored offerings to fit, will this data be used in other ways? Have corporations given permission for this data to be collected? Do they share in its value? Clearly the saying 'no policy, no policing' is out of date and a new maxim is needed. No policy, perhaps, but police the data more carefully than ever before because the horse has bolted.

STEP 5: How best to proceed.
There are some actions you can take to slay the monster of ancillary fees. Firstly, research the top ancillary fees so you can revise policy accordingly. In descending order they are usually: ticket change fee, checked bags, seat selection, early boarding, inflight food, blankets and pillows. Remember, only around 30 per cent of all ancillary fees are charged at the actual time of booking.

With these in mind, update your company policy to define clearly what constitutes discretionary and non-discretionary charges.
Ensure employees understand how to categorise items, for instance purchasing food pre-flight to be consumed in-flight is not usually considered an ancillary charge, whereas purchasing food in-flight can be considered so.

As much as is practical, update expense reporting tools to track actual ancillary spend. As a stop-gap measure, set a guide sum on airline payments at least by card – for example, any airline charge under X amount equates to an ancillary fee. This helps manage budgets.

Keep the pressure on airlines, GDS’ and other suppliers to offer full standardisation and reporting capabilities for the new fees and ensure you are working with the most proactive vendors out there.

Finally, keep engaged with the press on this frequently changing landscape. For example, The US Department of Transportation announced in June this year a wide range of new consumer protection around flying, namely a requirement for full and prominently displayed disclosure of baggage fees as well as refunds and expense reimbursement when bags are not delivered on time, fair price advertising, prohibiting price increases after a ticket is purchased and mandating timely notice of flight status changes.

The rule-making also embraces increasing compensation for passengers involuntarily bumped from flights, and allowing passengers to make and cancel reservations within 24 hours without penalty.

Organisations such as US-based Business Travel Coalition, lead by Kevin Mitchell, have lobbied for the Secretary to clarify and affirm that Section 399.85 of the Notice of Proposed Rulemaking requires that all unbundled fare information be shared with global distribution systems, travel management companies and other suppliers.

We can now invent a new adage. Instead of 'changing times', we might consider adopting 'costly times', particularly for the uninformed who do not have their data!

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