The Knowledge > Supplier perspective Costs, earnings and profits...
Keith Haynes DIRECTOR OF SALES, CORPORATE TRAVEL, CHAPMAN FREEBORN AIR CHARTERING Keith laughingly describes himself as a veteran of the travel industry, having clocked up 37 years to date. His career includes a start in British Airways reservations, then Air Malta sales, followed by British Caledonian in various UK and overseas management roles. Following the takeover of Bcal by BA he moved into P&O Travel for 16 years heading up sales and marketing. A spell of four years with Radius then led to him joining Chapman Freeborn Air Chartering where today he heads up sales to the TMC and corporate market for private passenger jets and group air charters.
JIM Royle’s catchphrase from The Royle Family here in the heading seems somehow to cover the topic that has been causing issues down the years within our beloved industry. It’s an issue that always seems to open up wounds between corporate buyer, agent and supplier. Toss in also the vital ingredient of GDS fees and credits and the powder keg is ready for explosion. It has become fashionable in our industry for corporate clients to ask for, and suppliers to offer, open book transparency on costs, earnings and profit. This trend became fashionable and picked up momentum during the transition from agents receiving a supplier commission to charging fees for their services to corporate clients. The move to Open Book really took off when the procurement of travel became commoditised and price became king. But how many other walks of business
do similar? The main reason for 'Open Book' was and is to gain a competitive advantage in a very competitive market whereby supply outstrips demand in terms of the number of agents and airline suppliers. How many of us would dare to ask
“If we do not like the end price and service then we either do not make the purchase or we buy elsewhere”
in our corner shop how much the wrapping, distribution, chocolate and caramel in a Mars bar costs, or what the shop bought it for and what the profit was? Add on top of that the question of paying for it in a month’s time and it’s a non-starter! If we do not like the end price and service then we either do not make the purchase or buy elsewhere. This is the simple economics of
supply and demand in play. Many RFPs list sections on
direct and indirect earnings including “soft pounds marketing funds and GDS credits and earnings” which I still contest is simply a method of ring-fencing commission earnings away from the corporate wanting their return.
I recall an incident at P&O Travel on the Reckitt and Colman account when they wanted a route deal with British Airways. The Reckitt management continually requested flat rate fares on their major
OPEN BOOK TRANSPARENCY, MY ARSE! A supplier or TMC having to declare what their figures are is unacceptable, and the simple economics of supply and demand should prevail, says Keith Haynes of Chapman Freeborn
routes. Our man from BA tried to explain that due to yield control they sold seats at various rates depending on global region. The client struggled on this concept and insisted on driving for global single route fares. BA asked the client if the cost of a tin
of their shoe polish was sold by them at the same price in the UK as it is in India? “No” was the answer, owing to variations on market and currency differences. “I rest my case,” said the man from BA, adding that a conclusion on a route deal was not possible! Another incident involved the global consolidation of car giant Fiat. We all travelled to Turin to present to the Fiat global procurement team who were all be ex-global TMCs who knew the ins and outs of GDS credits, marketing funds and other destabilisers of Open Book. I remember well the point of negotiation when our incumbent agent from Brazil was marched up to a blackboard in the meeting room to explain his earnings and asked to show his GDS credit payments, but to no avail. A translator calmly walked up to him
and started looking up his suit sleeves, shaking them over the table to make a point of “what is up your sleeves”! A funny moment but also serious in the quest for Open Book. Today there seems to be an uneasy peace between corporate, TMC and supplier in terms of costs, earnings and
profit, and daylight between the big global TMCs pricing against the smaller specialist agent. Yes, transaction fees and management fees still exist in various models, but how often does a corporate client actually audit TMC invoices to see if there are hidden earnings or an incorrect billing? In my lifetime as a TMC it has only happened once and one discrepancy was found for £15. The result wasn’t worth the squeeze. From the supplier side it is harder
to generate loyalty of purchase. The advent of CAT 35 consolidated air fares has perhaps once again forced TMCs underground on earnings whereby they mark up the CAT 35 fare at an undisclosed amount to the corporate. I wonder if a double earning of mark up and transaction fee is ever charged? Airlines have now entered a policy of
pay for what you want as a strategy to make money on non-core service sales. Has this activity gone too far whereby up to five different charges are applied on top of the basic air fare? Such additional charging is now used to supplement low basic fares as competition for sale rages. One thing that I have found refreshing
in the air charter business is that there is no GDS, no marketing funds, no commissions from airline operators, no IATA or BSP. Just good old fashion buy at one price and sell with a mark up, which is either disclosed or not. Remember these days folks? Simples!
12 I THE BUSINESS TRAVEL MAGAZINE
BIGSTOCKPHOTO.COM
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