Until recently, if you asked any major airline if they offered special discount travel deals to large corporations, you would be told that the airline would be happy to make a charter deal on a specific one-time flight, but that was it. No airline wanted to discount what it considered the most lucrative segment of its traffic -- business travel.
Not any more. In the last two years, major U.S. corporations, conscious of the high cost of business travel, have sought ways to cut their expenses. In the wake of deregulation, one solution that is being attempted is rebating through direct deals with individual airlines (getting them to shave prices) or with travel agencies (who are being asked to rebate part of the commissions they receive from the airlines).
For example, the regular coach fare from Los Angeles to Atlanta on Eastern Air Lines is $426. However, the Harris Corp. -- a communications and graphic arts equipment manufacturer based in Melbourne, Fla., -- will pay only $289 for an employe's ticket.
Why is the fare 30 percent less for employes of the Harris Corp.? Because Eastern and Harris have a corporate discount contract. The Harris Corp. has agreed to give all of its air travel on routes flown by Eastern -- worth approximately $20 million annually -- to that airline in return for a 30 percent discount below coach fares.
If you are an employe of Bell South, you also could be entitled to a substantial discount.
And if you work for IBM, don't book your flight just yet. IBM, which last year spent more than $500 million on travel expenses, is aggressively seeking to make a major rebating deal with U.S. travel agencies and has invited competitive bids. (If the giant corporation is given a 3 percent rebate on its travel budget, it could save at least $15 million a year.)
Following the corporate lead, a number of individual travelers who fly frequently have approached travel agencies with the same rebating request, and in some cases agents have reluctantly agreed.
With travel costs continuing to increase, virtually every major corporation with any travel business clout is cutting special discount or rebating deals with travel agencies and airlines. But such deals haven't always been easy to strike.
"We won't do it," said a Trans World Airlines spokesman in 1980. The president of USAir officially opposed the idea of corporate travel rebating and in 1981 sent travel agents a letter notifying them that they must "adhere exactly to our filed fares and applicable rules." However, 1981 also was the year in which the Civil Aeronautics Board issued a ruling that essentially made rebating legal, subject only to prohibition by individual airlines.
Less than a year later, the president of the International Air Transport Association (IATA) expressed official concern at rebating and urged member airlines to wage a voluntary battle against the practice. IATA enforcement officials had found five travel agencies in California selling tickets to their large corporate accounts at from 20 to 25 percent off the listed price.
But it was too late. In the wake of airline deregulation, there was only official posturing by the airlines.
For a brief moment in 1983, in a futile effort to end travel agency rebating, American Airlines and TWA announced they were reducing agency commissions from 10 to 9 percent. The move lasted barely a week. Travel agents' reactions were so swift and negative that both airlines reversed their positions.
Then, USAir changed its rebating policy and told travel agents it would "no longer restrict" them from rebating if they found such actions to be "a competitive necessity." Then, United Airlines, admitting it was impossible to police the 24,000 travel agencies in the United States, said it would delete language prohibiting rebating from contracts it has with travel agents.
It was only a matter of time before someone broke the ice.
The ice was virtually shattered last year when Delta Air Lines announced it had made special travel arrangements with General Electric, in which G.E. received a 30 percent discount on full coach fares on 28 Delta routes. In return, G.E. agreed to purchase at least $3 million worth of travel from Delta in one year.
Eastern Air Lines chairman Frank Borman reacted quickly to the Delta-G.E. deal with the announcement of Eastern's discount arrangement with the Harris Corp. And full-scale official rebating was off and running.
According to a 1984 survey of 92 corporate travel managers done by Runzheimer and Co., a consulting firm that specializes in managing travel costs, 39 percent of the corporations surveyed were receiving some type of rebate. The average rebate was only 3 percent.
"Deregulation has allowed the big end users -- corporations -- to do volume buying or dealing for discounts," says Peter M. Sontag, chairman and chief executive officer of Sontag, Aniss and Associates, an independent consulting firm that specializes in the travel industry. "The more you buy the less you pay is a law of economics, so it should apply to the travel business, too."
There are three separate levels of sophistication in corporate volume buying of airline tickets, according to Sontag. The first level is rebating. The corporation says to a travel agent: You are getting a 10 percent commission and your service is only worth 7 percent to us, so we want the 3 percent back.
The second level is discounting. The corporation accumulates and manipulates data to determine future usage. Then they approach a vendor and promise to use that airline for a certain amount of travel. The discount from the airline is usually 30 to 50 percent of the standard coach fare, depending on the choice of departure and arrival cities and the volume. "The longer the haul, the higher the discount," says Sontag.
The third level involves the initial management budgeting process. A corporation knows there are price advantages when they buy in bulk. "The corporation says we wrote a check for $100 million to you last year. I only want to spend $85 million this year for $100 million worth of travel. You are the experts; you are the gurus; you figure out how."
At least one corporation hasn't bothered to worry about rebating with travel agencies. Last year, when Polaroid and TWA announced a promotion that offered a 25 percent discount off most TWA flights with the purchase of a camera, the NCR Corp. in Dayton, Ohio, purchased 2,000 Polaroid cameras. They bought the cameras for gifts to corporate clients and employes, and kept the discounts for their own corporate travel, according to a company spokesman.
Not surprisingly, most travel agencies are not big rebating fans, since it cuts into their commissions. Still, more and more of them have been forced to do it in order to stay competitive.
The pressure is, indeed, mounting. Now even the state of California is taking bids for its estimated $20 million travel account. The state is looking for discounts either directly from airlines or from travel agents on both intrastate and interstate city pairs (the most common city pair being Los Angeles to Sacramento, generating about 52,900 one-way trips per year).
There are, of course, a number of travel agency holdouts. "We don't feel we need to give away part of our profit margin to do a good job," says Bill Howell, general sales manager of Rennert World Travel in San Antonio, Tex. "There is not that much there anyway, so why give it away?" Only 30 percent of Rennert World Travel's business is corporate.
"A rebate is giving a service that the client does not pay for," says Dorothy Kucera, director of sales and marketing for Foremost Travel and Tours in Chicago, where 70 percent of their business is corporate travel.
"We are trying to convince corporations that they are already getting rebates -- such as limousine service to the airport, mailing or hand delivering of tickets, flight insurance or carrying a customer for several months on our accounts receivable. They don't pay for those things," Kucera says. "We can't afford to give them anymore. But they don't see it that way. They still have the nerve to ask for cash back."
"We don't give rebates," says Bob Diekmann, executive vice president of North Western Business Travel in Minneapolis. "We invest in worthwhile services that give long-term benefits. In the Twin Cities, companies such as Pillsbury are insulted when you offer them a rebate. And it doesn't make good business sense to give your profits away -- what little there are in this business -- when you get nothing in return."
Diekmann, whose business is 90 percent corporate, however, is not as adamantly opposed to rebates as Kucera.
"If there are mutual benefits, we would give rebates," says Diekmann. "We don't always oppose it. Part of the problem is that neither Northwest nor Republic Airlines, who have about 80 percent of the business in the Twin Cities, pay override commissions to travel agents , which is where rebate money comes from." (When agents generate business worth more than a certain amount, an airline may agree to increase the regular commission paid them; that increase is the "override.")
The one airline that currently has a specific discounting agreement -- Eastern (with the Harris Corp.) -- declined to comment on the subject. "The people in sales and marketing are not interested in giving interviews at this time," says Paula Musto, director of corporate communications. "It's a touchy issue."
One reason the airline is a little sensitive these days is an agency named Reid Travel in Boca Raton, Fla. It is one of the agencies that lost its share of the $20 million IBM account when it came up for renegotiation. The agency alleges they were told by Eastern that they would lose their plates (the equipment, owned by an airline, that is used by an authorized agent to issue valid tickets on airline ticket stock) if they agreed to rebate to IBM. Now it says that Eastern looked the other way when two other agencies bidding for the account agreed to rebate to IBM. Reid Travel and Far Horizons Travel are suing Eastern for $600,000 each in damages. Eastern has declined to comment on the case. Depositions have been taken but a trial date has not been set.
Prior to losing the IBM account, Reid Travel was 70 percent corporate. It is currently 55 percent corporate, although losing the IBM account is not the only reason the corporate percentage has dropped.
"We made a conscious effort to reduce it," says William Jacob, president of Reid Travel. "We don't want someone to do it to us again. In vacation travel we don't have this sort of problem."
If all of these agencies oppose rebating, then who is supporting it?
Just ask Ask Mr. Foster, which has 313 locations nationwide -- $900 million in volume -- and is the largest single travel agency in this country.
"We have determined to be competitive in the marketplace and so, I assume, would most travel agencies," says Hans de Lange, president of Ask Mr. Foster. "Rebating weeds out weaker and less-well-managed travel agencies. The well-managed, lean, mean agency will survive and be competitive. Bigger agencies are getting bigger. The small, boutique-type agencies will survive, but the intermediate travel agencies will suffer."
"We didn't start rebating, the intermediate travel agencies did," says de Lange. "We waited almost two years to enter the competition. In late 1982 we started losing accounts and then we made the decision to fight fire with fire."
If you travel more than a few times a year, and are a shrewd shopper, it's possible you may find a travel agency that will work with you on rebating.
In 1982, a woman bought four first-class United Airlines tickets valued at $6,000 from Suburban Travel Agency in West Hyattsville, Md. She got a $180 rebate check from the agent. The agency temporarily lost its plates from three airlines for rebating.
Today, that agency would not be punished.