00-2    Travel Agency Services and Associated Implementation of Service Fees


December 14, 1999

MEMORANDUM

TO:                Executive Committee, Department Chairpersons, Directors, and Administrative Heads

FROM:          Wayne E. Reed
                      Director of Business Operations and Material Services/
                      Travel Coordinator

SUBJECT:     Travel Services Bulletin 00-2 and Related Exhibit A
                      Travel Agency Services and Associated Implementation of Service Fees

During the period from October 1994 to October 1999, several changes have occurred within the travel agency industry, resulting in a series of commissions reductions to travel agencies from the airlines.  (See attached Exhibit A, for specific details.)  Through this period of change, until recently, The University of Texas Health Science Center at San Antonio and other U. T. components have been fortunate in maintaining travel agency contracts which have continued to provide travel agency services to our business travelers without service fees.  However, in recent months, many of the travel agencies serving U.T. components, as well as travel agencies serving as state contract travel agencies, and other travel agencies nationally, have begun the requirements of service fees to continue providing their services.

Effective December 20, 1999, both of  UTHSCSA's contract travel agencies, Corporate Travel Planners, Inc. and Rennert World Travel, Inc., will begin assessing fees for their services to our business travelers.  Corporate Travel Planners will implement a $9.00 service fee per ticketed airline reservation and Rennert World Travel will implement a $10.00 service fee per ticketed airline reservation.  Neither Corporate Travel Planners  nor Rennert World Travel will charge for hotel or rental car reservations, nor include additional fees for exchanges, refunds, or voids of airline reservations.  The travel agency service fee will be charged to the same account as the account to which the cost of the airline ticket is charged, whether the amount is charged to one of UTHSCSA's central bill accounts or to an individual charge card.  The fee will be considered as a reimbursable business expense, and may be reimbursed through an expense reimbursement voucher, when charged to an individual charge card.

Use of either Corporate Travel Planners, Inc. or Rennert World Travel, Inc. is necessary when utilizing University central bill accounts and when utilizing state contract airfares for UTHSCSA business travelers.  As noted in Travel Services Bulletin 00-1, during December 1999, UTHSCSA is transitioning to Bank of America for both central bill travel accounts and individual business travel corporate charge cards. Upon receipt of the new Bank of America Mastercards, cardmembers from UTHSCSA will need to update their traveler profiles, by providing their new BOA Mastercard accounts when making travel arrangements through Corporate Travel Planners or Rennert World Travel, to be charged to the new Mastercards.

UTHSCSA is participating in a U.T. System-wide Request for Proposal (RFP) process, targeted at the selection of a partner travel agency, as well as approximately five alliance travel agencies to provide travel agency services to U.T. components.  This RFP process is a result of recommendations from a U. T. System-level consulting project, which gained support among U. T. components, including UTHSCSA, after review of the consultant's recommendations by a U. T. system-wide travel services task force, which included broad-based faculty and administrative representation from the U. T. components.  The RFP focuses on: 1) maintaining high quality travel agency services, while 2) minimizing the cost of travel services and 3) maximizing the advantage of U.T. system's travel volume in arranging various business travel related contracts, such as contracts for international airfares, hotel lodging rates, etc.  The target date for a potential U.T. System contract award is May 2000, with several U. T. components participating over time, as their current travel agency contracts expire.

The attached Exhibit A includes summary information concerning changes within the Travel Agency Industry and U.T. System's efforts in maintaining travel agency services, as provided by Ms. Clare Hansen-Shinnerl, of Academic Travel Consulting.

If you have questions or need additional information, please contact the Travel Services Office, at extension 2037.

Thank you.

WER/tlv

Enclosure
 

c:    Assistants to the Deans
       Departmental Administrative Staff
      Christy Richardson, President, Corporate Travel Planners, Inc.
       Michael Sauder, President, Rennert World Travel, Inc.
 
 


Exhibit A


 


Academic Travel Consulting Summary of Travel Issues for Consideration

From:  Clare Hansen-Shinnerl

Date:  November 16, 1999

Re:  Travel Issues for Consideration
 

Current Effects of October 7 Commission Cut:
The commission cut was not unexpected; it occurred sooner and was more severe than anticipated. The October 7 cut reduced net agency commissions --literally overnight -- by 37.5%. (In 1994, travel agencies earned 10% on domestic and 15% on international transactions. After a series of five commission cuts, commission earnings on both domestic and international transactions are now each less than 4%.)   Until October 7, only a segment of the travel agency community was charging service fees (a surcharged in addition to the cost of the ticket). Since October 7, agencies across the country – big and small – have had to institute a service fee in order to survive.  During an October 27, 1999 UT System Travel Council Meeting, it was determined that the majority of Components had received notices from their contracted agencies, requiring a transition to a fee-based agreement.

Future Effects of October 7 Commission Cut:
The UT System’s Travel Council takes seriously its obligation to keep service fees at a minimum.  Much of this is will be accomplished through the UT System’s redesigned travel program, which reduces the number of travel agencies the University uses for business travel (economies of scale).

Although the goal is to negotiate the most competitive financial agreement, there is a direct correlation between an agency’s service quality and an agency’s financial resources. The UT System cannot expect to create a travel program that focuses on quality service without being charged a fee. Given today's travel commission structure, the expectation that any agency can offer a revenue sharing or even a zero fee agreement is entirely unrealistic. Any proposals suggesting revenue sharing or a zero fee would doubtlessly end up compromising the UT System’s service expectations. Hence, the UT System’s E-RFP financial section is soliciting service-fee proposals.

Because travel agencies are, as their name implies, agents of their principals, travel agencies have no control over their commission income.  Hence, when the direct supplier cuts commissions, travel agencies are left with no alternative but to seek compensation from other sources (e.g. their customers).  Commissions are expected to continue to drop; therefore, the UT System must anticipate that financial renegotiations during the course of a contract will periodically be required.  It is not feasible for the UT System to prohibit agencies from raising their prices during the course of an agreement because agencies cannot require the same prohibition from their principals.

Value of a Travel Agency Given Today’s Environment:
With the introduction of service fees, some may question the value of a travel agency.  Despite the fact that agencies are charging fees, more tickets are being issued by agencies than ever before.  There are at least five compelling reasons for using a travel agency.
1) Agents represent all airlines and are considered an objective distributor.  On the contrary, a traveler who chooses to purchase directly from airline “A” can be assured that airline “A” won’t tell the traveler that a lower priced or better routing option is available through airline “B.” To get the most competitive rate from a direct supplier, the traveler will have to contact each airline separately, which is a time-consuming (costly) process.
2) Most current GSC negotiated rates (and all future UT System negotiated rates) must be reserved and ticketed through a contracted travel agency.
3) The travel industry is very complex.  There are 100,000 airfare changes every 24 hours (globally) and there are many purchasing rules and restrictions. It often takes a travel agent’s guidance to sift through the options.
4) Travel agencies play a critical role in issuing tickets in accordance to the UT System’s travel policies.
5) The UT System prepays for approved airline purchases.  This service can only be offered via a travel agency, as the UT System requires that certain controls be in place. The prepayment feature also requires a travel agency’s assistance in reconciling the UT System’s central bill account.

The UT System’s Inclusion of a World Wide Web Self-Booking Product:
With the introduction of service fees, some may also question whether there exists a long-term economic business model for traditional travel agencies and whether everything will soon be purchased on the World Wide Web. Rapid advancements in travel self-booking products have made purchasing travel on-line an attractive option, especially for simple, point-to-point domestic airline tickets. Given that 85% of the UT System’s business travel is for domestic travel and given that most academic travelers and planners have easy access to the World Wide Web, an at-your-finger-tip resource will be made available as part of the UT System’s new travel program.

The UT System’s E-RFP requests agencies to propose self-booking products that would be available to the University (most agencies are now distributors of self-booking products). Self-booking products have also become the lower-cost alternative to full-service travel agencies. Although self-booking products still require a travel agency interface (to quality control), the on-line transaction can be secured at a significantly lower cost than a full service transaction.  Self-booking products won’t entirely replace a travel agent (at least not in the foreseeable future) as international and multi-segment itineraries are still cumbersome to self-book.

Unlike commercial products that are available to the general public (e.g., Travelocity), there are a half a dozen corporate products that could be fully customized for the UT System. Unlike commercial products that display “published” (e.g. public) rates, the corporate product selected by the UT System would calculate and display all of the GSC and UT System’s direct-supplier discounts (airlines, rental cars, hotels, etc.) and integrate the UT System’s travel policy.  To make certain that all on-line reservations are properly self-booked, all reservations will be quality controlled by the University’s Partner Travel Agency.



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