Introduction to CTDs

A CTD is the most cost effective method  for managing a large business travel program. Most companies outsource their internal travel operation to external travel agencies, paying them fees which include the agency's profit, overhead, and many other indirect costs. Some companies receive reimbursements for agency commissions earned from their bookings. Financial reconciliation is done by the agency. This arrangement breeds several conflicts of interest and other inefficiencies that are very costly for the company as detailed further below.

Companies can now significantly reduce costs and enhance service by replacing their travel agency with an independent, airline-accredited travel department called a CTD (Corporate Travel Department). The CTD establishes a direct purchasing relationship between the company and its travel suppliers. The accrediting body, ARC (Airline Reporting Corporation) authorizes the company to function as its own "travel agency" and controls the financial settlement.  ARC is owned by the nation's major airlines.

There are approximately 200 CTDs with annual airline spends ranging from hundreds of thousands to hundreds of millions. Another 60 have applied. Most important is that very few companies activating CTDs have gone back to being agency managed in the seven years CTDs have existed. A short list of CTD pros and cons are below. A detailed overview of the conflicts of dealing with travel agencies and the CTD solution follows.

PROS: The most compelling aspect of a CTD is that, unlike most business decisions, there are no negative tradeoffs. CTDs simultaneously: 

• maximize cost performance (through elimination of unnecessary agency costs and reduction of travel supplier rates)
• service quality (travel department staff serves only one master...the host company)
• travel program control (enforcement of company travel policy is absolute, supplier relationships are direct)

CONS: There are three major objections to becoming a CTD and responses for each.

•  CTDs are a non-core activity for most firms. (Business travel is a non-core activity for most firms, but an essential one. Why insert an outside intermediary whose primary objective is to maximize their profit from the relationship?  Why not use the best option available to manage this essential activity?)
•  Many firms are reluctant to hire additional personnel. (Some or all CTD staffing can be service contracted.)
• The process of establishing a CTD is complex. (A specialized consultant can facilitate this process. Travel Consultants Group specializes only in CTDs and does not receive compensation from any other source than our CTD clients.)

THE CONFLICTS AND COSTS OF DEALING WITH TRAVEL AGENCIES

A contracted-agency relationship is fundamentally a profit center for the agency with many conflicting agendas for the client.  Most companies currently pay transaction or management fees to travel agencies, with commissions sometimes being paid back to the company. The agency controls most or all of the client's travel resources and filters the flow of cash related to the client's earned commissions. The agents themselves, whether located on-site or off, have a dual loyalty to the client and the agency. This results in the following conflicts of interests, which can be very costly to the clients:

The fee process exists to compensate agencies. The agency transaction fee process is an expensive and often confusing system imposed strictly for the benefit of travel agencies to collect their client fees quickly. Reconciliation of these fees is a costly and time consuming process for clients especially when there are ticketing changes and other agency fees. It is difficult to validate the accuracy of agency fees paid and any commissions reimbursed.

Agencies benefit from the new fee-based environment. There are two predominant types of fee-based arrangements; transacation fees and management fees. Both arrangements heavily favor the agency as detailed below. Most agencies also levy additional charges for voids, refunds, exchanges, waivers, upgrades and other services. 

Transaction fees benefit agencies by ticketing as much as possible. (The more tickets that are issued the more the agency earns.) Transaction fees are usually charged regardless of whether the ticket is ever used. These fees accumulate, especially if frequent rebooking occurs. The airlines' shortened ticketing deadlines have severely exasperated this problem by increasing the number of tickets needing to be voided and reissued. Split tickets often generate multiple ticketing fees.

Management fees benefit agencies when travel spend increases. (The higher the overall client travel spend, the more the agency earns.) With a management fee, the client pays the agency a percentage of their travel spend. This creates a disincentive for the agency to minimize supplier pricing.

Online booking fees are higher with agencies. Online booking fees from agencies include their profit, overhead and other agency cost compontents. The cost of live support is additional, sometimes as high as an agent-initiated reservation. There is little or no control over what causes an online reservation to revert to becoming an "agent-assisted" reservation. (i.e. Was there a complex reservations change or did the traveler simply add a note to the record for the agent to try to find them a better seat?)

Commission reimbursements to clients are slow and incomplete. While agencies collect their full fees immediately, client reimbursements are usually delayed and deficient. Hotel commissions, the largest source of client reimbursements, are often paid through master accounts making it difficult to for agencies to allocate commissions from individual bookings back to their respective accounts. Clients receive commissions based on a relationship of trust with the agency and can lose hotel commissions due to any of the following reasons. The commission item is available but not produced, produced but not collected, collected but not allocated, or allocated but not paid. There is minimum motivation and limited resources for the agency to collect and reimburse the client's commissions.

Other agency revenue sources that conflict with the interests of their clients:

Airline Overrides: (The higher the spend on the agency's preferred airlines, the more it earns.) Agencies earn overrides at increasing levels based on their market share with a particular airline in comparison with other agencies in their geographic regions. Since these earning targets "float", every agency must blindly drive as much volume as possible into their top few airline partners. Non-GDS bookings rarely count toward their goals. Due to the magnitude of these override earnings, it is essential that agencies influence all of their agents to book the agency's preferred airlines.

(note: If overrides are paid back to clients, it is challenging for them to validate that their share is accurate since most agencies protect the confidentiality of their override agreements.)

Reuse of non-refundable tickets: Agencies do not earn new overrides on reissued tickets, but they do earn additional overrides on newly issued tickets. This creates a disincentive for agencies to reissue unused non-refundable tickets versus issuing new tickets.

GDS earnings: Agencies receive compensation for long-term agreements with their reservations systems called GDS (global distribution systems). These contracts include up front signing bonuses and ongoing segment incentives (pay per segment booked).  Increased incentives are paid to agencies for higher productivities ususally measured as monthly bookings per workstation. These commitments disincentivize agencies from making non-GDS bookings such as Internet direct airline or hotel bookings.

Airline consolidators: Agencies use wholesale sources such as airline consolidators that buy travel inventory at substantial discounts. These reservations are then marked up several hundred dollars or more to the client. Most agencies also charge a ticketing fee in addition to the markup.

Supplier incentives: Most air, hotel and car rental suppliers provide marketing incentives including soft dollar accounts, complimentary reservations, upgrades, and club room passes, etc. Most of these incentives are managed through the client's agency, which substantially limits the amount filtered through to each client. Many are used by the agency.

Agencies offer limited resources. As with most businesses, agencies have limited capital forcing them to restrict their investments into one or two options per travel service category, such as online booking automation. Agencies often select systems that are most compatible with their other automation. Clients are encouraged to use the agency's bundled systems when other alternatives might work better. Agencies benefit from their clients' eventual reliance on these systems as a means of "locking in the client".

Agency employed staffing. Travel agency personnel have a dual loyalty to the host company and their agency employer. They are in the compromising position of comparing company-preferred versus agency-preferred suppliers. All agents, whether on or off-site are continually informed of the agency's preferred and non-preferred suppliers. Some are measured and sometimes even compensated according to their success in booking the agency's preferred vendors. Dedicated agents' job security with any particular client is limited to the term of the agency's contract. Therefore these agents are challenged with "retaining the client" by keeping its travelers content, while enforcing company travel policy with individual travelers that have might have contrasting personal interests.

THE CTD SOLUTION: 

Fundamentally, a CTD is a cost avoidance center dedicated only to the company. The company procures and pays for exactly what it needs to manage its unique program. CTDs retain the three most valuable assets that agencies offer; reservations automation, the expertise of the agents themselves and the ability to earn supplier commissions. By eliminating the agency intermediary, CTDs save significant operating expense and most also acheive substantial supplier savings. Listed below are many of the benefits CTDs give to their company owners:

CTDs eliminate the agency fee process. Companies are freed from agency fees, fee allocators, expensing of fees, and reconciliation of fees. However, should the company want to use a fee process to allocate the cost of their CTD or to billback travel costs to their clients, a fee allocation system is available through ARC.

CTDs are fixed cost models. (The more transactions a CTD produces, the lower the cost per transaction.) Savings opportunities, such as those provided by online booking systems, have a much greater impact on CTDs.

CTDs acheive lower supplier rates. With the agency middleman eliminated, contracted supplier discounts often improve. Employed CTD agents are not in the compromising position of comparing company-preferred versus agency-preferred suppliers or circumventing company policy for particular travelers in order to "keep the client".  It is much easier for them to enforce travel policy with their traveling colleagues. This helps to reach negotiated supplier targets thereby retaining and improving the agreements. Finally, CTD agents often search harder and are more likely to use alternative reservations sources.

Supplier relationships will improve. Supplier reps prefer to deal directly with ultimate user. Companies have the greatest control over their own buying behavior and thus have superior negotiating leverage with suppliers. Increased use of net fare contracts drives the discounts directly to the traveler's cost center.

Supplier incentives will increase. Supplier perks are received directly by the company instead of being filtered through the agency. This typically results in more supplier incentives for the company's travelers and ultimate control over their use.

CTDs operate at higher productivity levels. This is mostly due to the elimination of agency-serving processes and agendas. CTDs have extraordinary staff retention levels, which results in high levels of experience with the host company. 

CTDs improve policy compliance.  CTD agents are more easily directed to enforce policy and are part of the company effort to maximize profit. Travel costs can often be best controlled through a very simple policy of requiring "manager's approval" for any deviation from the CTD agent's choice of policy compliant travel options.

CTDs improve service quality. The mixed loyalty for travel agents is replaced by a singular loyalty to host company for CTD agents. As full colleagues, CTD agents receive greater respect and trust from travelers.

Online booking works better in a CTD. Companies with CTDs sign direct agreements with the online suppliers and pay only the supplier's direct pricing. Live support from the CTD does not incur fees. The primary savings advantage of a "self-booking" system is in the reduction of agent labor expense. Therefore the savings impact of an online system in a CTD is much greater, since approximately 90% of the total cost of a CTD is attributed to staffing versus an agency's 50%. Clients are free to obtain any self-booking system versus being limited to those supported by its host agency.

CTDs attract and retain superior industry talent. Experienced agents would much rather work directly for a company than for a travel agency. In a contracted-agency relationship, the agents' job security is limited to the term of the contract.

Companies have complete control over their travel operation. A CTD is free to obtain only the travel services it requires and the automation best suited for its individual needs. It is also free to hire (or contract for) the exact personnel it prefers. All of these staffing, service and automation items can be internalized or outsourced to reliable third parties.

State-of-the art automation. In a CTD environment, companies have unencumbered access to all available technology and can obtain the "best of class" systems. Also, by controlling their own automation, companies can have immediate access to their travel data, which is often a problem when dealing with agencies.

Improved cash flow.  In addition to eliminating agency fees, companies with CTDs earn offsetting commissions from hotels, car rentals and some airlines. Such commissions are much more likely to be received and payment is substantially faster due to an isolated ARC designation and direct payment to the company. It is also easier to track and collect unpaid commissions. Companies can also earn income from GDS segment incentives. Finally, companies now have full control over reuse of their non-refundable tickets.


All the benefits of a CTD are available for a minimal investment.

Typically, a total investment of only a few thousand dollars is required to establish a CTD. Few travel consultants specialize in CTDs since they are typically a one-time payout versus the consistent revenue stream of an agency RFP every few years. Travel Consultants Group specializes in CTDs and further distinguishes itself by offering the option receiving our compensation as a percentage of the savings obtained from the CTD.


Evaluating and establishing a CTD

In considering conversion to a CTD, companies should first evaluate its cost benefits. Travel Consultants Group can provide a detailed cost analysis of a CTD versus the company's agency arrangement. If the analysis provides sufficient cost savings projections to proceed, Travel Consultants Group will facilitate the development of the CTD including procurement of all required travel services and staffing.