business travel audit

The real cost of legacy business travel !!

Business travel audits identify 5 top malpractices that add 10%++ indirect travel costs!

Do you operate a business travel program in India and emerging markets?

Does your travel agency normally prefer

  • Email / “call to the book” or “implant” led fulfillment?
  • Manual operations to technology-led operations?
  • Offer you a free implant/s + extended payments facility + free reporting + free account management staff  +  low transaction fees + a “beck & call” service ?

This article speaks to industry malpractices that are often seen in emerging markets like India. These are inherent in legacy business travel operations that deploy limited technology in self-booking, payment automation  & expense management. We will cover only those elements that increase the direct costs of the customer ….. the indirect costs are additional !!

Note :

This article does not intend to make a sweeping generalization for the entire market. In India and many emerging markets, there are very high quality ethical & professional travel management company ’s(TMC’s) who run very successful operations nationally and globally.

In our experience as an independent business travel consultant specializing in emerging markets like India, there are 4 primary malpractices that frequently occur. These came across on recurring instances as we conducted business travel audits, for national and global client operations in these markets

A. Creative Ticketing 

Creative Ticketing refers to an industry practice where a travel agency staff quotes an airfare that’s higher than what’s the actual lowest logical airfare Such a situation can have multiple manifestations in actual practice 

Situation 1 – Delayed ticketing approval 

The client asks the travel agency to reserve an airfare. The airfare is quoted at US$X. The client then takes a couple of hours or days to give the final go-ahead. 

the airfare now is modified from US$X to US$ Z.

( Original Fare $X + Markup $Y  = Final Fare $Z ). 

  • There can be a valid operational reason for such a hike
  • However, given the absence of visibility for the client, nothing stops a travel agency from adding an arbitrary markup since there is a valid operational reason that can justify the increase.

Situation 2 – Intentional upselling by the travel agency

i. The Travel agency deliberately tickets a higher fare level. This is generally the due point of sale ticketing incentives extended by the airline to the travel agency. Or simply to secure greater commission if the airline offers one.

ii. An airfare is available at US$X. The agency staff, instead adds a markup of US$Y and sells it to the client at US$Z ( Z = X+Y). The actual ticket masks the mark-up. There have been recorded instances where travel agency staff and supervisors are actually incentivized to promote such sales.

iii. A client prefers airline A. The Travel agency responds to the client that airline A is not available ( though in reality, it is) and asks the client to shift to Airline B. Airline B is promoted by the travel agency as it receives a point of sale incentives & productivity linked bonuses based on targets achieved

Such instances occur more often in international travel now, as against domestic air travel, which has to some extent now moved to self-booking. If you consider a small business travel program which generates around 1000 international tickets annually, a 5% occurrence can of such malpractice nationally, can add significantly to your direct costs.

In a legacy business travel program, there is almost no way that such malpractices can be detected by the client. Most contracts, are inadequately structured and don’t protect customer interests. Consequently, there is no ability for the client to audit vendor operations or penalize them for malpractice, should such an instance come to light.

Most corporations never audit their vendor so the malpractice continues undetected, for years !!

B. Abuse of corporate negotiated rate agreements.

Most corporations today generally secure airline corporate negotiated rate agreements. This is done with the intent of securing discounts on usage/productivity linked bonuses on the overall business. These contracts also secure waivers on fees & penalties that may arise. Additional value adds like luggage/meals onwards / frequent fliers program benefits are some of the additional benefits that are consequent on such agreements.

In the course of multiple business travel audits that we have conducted (please refer our earlier article https://bit.ly/37KPynf), we have found severe gaps in contract compliance by incumbent travel agencies

  1. Most such contracts are shared manually with the travel agency.
  2. It’s expected that the agency will ticket using the specific codes that the airline has assigned to the client.

     3. The corporate negotiated rate codes are not necessarily incorporated in the global distribution system (GDS) used by the travel agency.

   4. If the client operates nationally, airlines place multiple different codes that apply to different points of sale. These are often never correctly updated or aligned with the central/national code.

   5. The problem of contract leakage is further accentuated by the inertia of airline sales staff. Airlines who don’t generally conduct monthly/quarterly reviews with the client, regionally/ nationally. The absence of quality reporting from the travel agency further compounds the problem.

C. Cancellation penalties

In the case study referred to  https://bit.ly/37KPynf, the client incurred almost 4% of their domestic air spend in cancellation penalties. Due to the absence of consolidated reporting by their two incumbent travel agencies, this matter slipped under the radar.

The travel agencies defaulted to using market rates vis-a-vis the corporate negotiated rate program, in a majority of instances. As a result, whenever the client canceled, a cancellation charge applied, on the ticket issued. This was a cost that could have been wholly been avoided!

On questioning the incumbent vendor, they stated that they found the airfare cheaper on the market promotional rates versus the negotiated rates, so market rates were used. No one evaluated the real cost of such a change.

While this was the official reason, as the business travel auditor, we felt that this approach by travel agent added to their actual airline productivity on their own airline-specific contracts.

This was an intentional approach to generate additional incentives, based on their existing airline & travel agency incentive program.

D. Refund mis-management

This is a massive issue with clients who operate without a credit card form of payment.

The problem becomes more pronounced when a client operates a multi-location business travel program with no real control or tracking of cancellation requests. In such a situation, individual travelers may send back tickets for cancellation or route it through a central implant or agency representative.

Generally, there is no automation or systemic tracking. Apart from the tracking, there is a clear challenge for the client to know what cancellation charges would apply.

Given the myriad airfares and related conditions, it’s nearly impossible for a client to know upfront, what are the actual charges that will apply. Further, in a legacy non-credit payment system, the refund is given by the airline to the travel agency, who had done the ticketing.

It is up to the agency to refund or credit the client’s account with the correct refund value. In practice, this is an exception !!

Most travel agencies have refunds as a significant revenue stream. Given that contract’s leave a lot of gaps, clients remain ignorant and if they do find out, they lack contractual commitments from the vendor to recover the actual refunds

E. Invoicing integrity

One of the most startling issues we came across when conducting business travel audits, were the frequent instances where invoices reflected arbitrary costs and charges. These related to

  • Mis-match between the actual ticket price and the invoice amount charged
  • Incorrect service charges recovered from the client, as per invoice
  • The actual credit note value did not match with the airline refund actually issued
  • Absence of relevant data fields in the invoice

In some audits, we found over 11% of invoices that reported a difference with the actual amounts. Given that business travel adits are not a standard operating process in India and emerging markets, the mind boggles at the impact that such un-detected mis-matches have on the actual program costs.

Act now !!!

a. Employ a business travel consultant

Business travel is a complex specialized function. Securing an independent supplier agnostic business travel consultant & market specialist is a vital component in your success.

b. Conduct a business travel audit annually

Ideally, such an audit should be a mandatory annual affair similar to a statutory / tax audit. Conducting such an audit is a very specialized affair as it requires domain expertise in business travel, understanding travel agency operations, airline reporting and reconciliations, and IATA BSP reporting.

The audit can take different structures and scope given the wide scope. This could include

  • Overall T & E process – gap analysis. This can include the travel policy, requisitioning, approvals, advances, refunds & supplier/employee reconciliation’s
  • Travel agency contract audit to ensure it has inbuilt safeguards & due diligence
  • Invoicing integrity audit
  • Full commission & IATA BSP audit

There are several reasons for TMC’s and travel agencies to encourage their clients, to independently audit their operations :

1. Modern client/vendor relationships should be based on trust and transparency.

2. Conducting an audit successfully and validating your relationship with a vendor, allows you to develop deeper and more strategic partnerships with them.

3. There could be no better way to identify ethical & professional business partners

Any program generates bugs and inefficiencies as it runs its lifecycle. Given that Business travel is the 2nd largest controllable cost for most organizations, it’s important to debug the program &  ensure that the interest of all stakeholders is optimally aligned.

            Want to set up your 30-minute FREE consultation with a ProKonsul business travel expert?

                               Drop us an email  prokonsul@prokonsul.in or call +91-9873196115.

                                                We would love to work with you! Call us now !! 

 ProKonsul ® optimizes the business travel lifecycle of its clients. It delivers domain expertise in enterprise business travel. Established in 2014, it is the pre-eminent business travel consultant firm in India, Asia & emerging markets. We are located in Gurgaon, India. ProKonsul ®  advisory services are supplier agnostic & governed by a robust integrity policy. 

                                                        2020 © ProKonsul – All Rights Reserved 

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Pay “Peanuts”, Hire “Monkeys” – Is this smart buying ?

Legacy business travel systems can add 10%++ in direct costs!

                                                                     

Do you operate a business travel program in India and emerging markets?

  • Does your travel agency give you a free implant/s + extended payments facility + free reporting + free technology + free account management staff  +  low transaction fees + a “beck & call” service?
  • Why does your travel agency normally recommend manual systems like email / “call to the book” or “implant” led fulfillment?

Note:

This article does not intend to make a sweeping generalization for the entire market. In India and many emerging markets, there are very high quality ethical & professional Travel Management Company’s (TMC’s) who run very successful operations nationally and globally.

There are no free lunches!

If your answer to the questions above is YES, you have a serious problem. Our suggestion as a business travel consultant is for you to either conduct your own validation of the operational & financial processes deployed by your incumbent travel agency or engage an external business travel audit.

In our markets, buyers place a very high focus on fees & transaction fulfillment. Hence they end up working with a travel agency V/s a TMC, primarily due fee pricing attributes. The general preference is to choose the lowest fee vendor.

A good way to get started is to ask your incumbent vendor to present a full  P&L for your account. This should give you several pointers, on how operations are being run.

No one does business at a loss!

The P&L presented must explain the profit that your vendor makes from your operations. If your vendor indicates that they make no money in managing your account or operate at breakeven, there is clearly an issue!

  1. Every business, especially a travel agency, conducts business with you, only if they make a profit!
  2. If any business claims that they will run your business at a financial loss or simply to achieve breakeven … you are getting ripped off somewhere else in the program!
  3. In the above statements, we have referred to a “travel agency”. This is deliberate. Normally an entity that supports your business travel operations is referred to as a travel management company (TMC). However, if your incumbent vendor operates similarly to the manner outlined above – they cannot be deemed to be a TMC!

Be aware!!

Make sure your vendor contract has explicit due diligence clauses that allow for:

  1. Client specified audits of travel agency operation at a time of the clients choosing
  2. Travel agency being obligated to allow inspection of all your specific account-related transactions
  3. Specific’s on how the agency will report and allocate direct & consequential revenue generated from your business travel operation. This would include, but not be limited to
    • Airline direct commissions
    • Ticketing point of sale incentives ( Overrides )
    • Airline productivity linked bonuses (PLB)
    • Direct hotel ./ accommodation revenue
    • Mark-up’s & transaction type-specific service fees
    • Any other direct revenue generated from your operations
  1. Penalties for creative ticketing, invoicing integrity & refund mis-management
  2. Adequate business continuity planning (BCP), should you need to induct a new travel agency?

Act now!!!

a. Employ a business travel consultant

Business travel is a complex specialized function. You need to be fully conversant with the intricacies of the industry & have the resources to navigate it. Engaging an independent supplier agnostic business travel consultant & market specialist is vital for your success. This is a worldwide accepted best practice; as such specialized knowledge may not be inherent in your travel administration team.

b. Legacy business travel operations are opaque

Legacy operations are generally promoted by travel agencies because they are opaque and allow abuse of systems to generate additional revenue for the travel agency.

Further travel agencies generally target clients based on price leadership rather than technology & best practice implementation. They don’t generally invest a lot of resources in such initiatives, which is also a reason why they can operate at such low fees.  Hence they promote legacy operations.

Creative ticketing, cancellation penalties, refund mis-management & invoicing integrity are some of the most common industry malpractices that the legacy system perpetuates.

This can result in a financial loss of over 10 % in your direct costs annually.

c. Technology delivers transparency & control

The penetration of self booking technology is very limited in India and emerging markets. This is largely due inability of the industry to articulate the value. In addition, an in-depth understanding of technology solutions is not an industry-wide feature as travel agencies don’t invest a lot in training their staff. Many solutions locally available are essentially mid office / back office automation tools that have been given a client facing interface!

Corporate buyers are hesitant to deviate from accepted business practices because of the fear of being a “first mover”. This inertia is a massive factor for the lack of innovation and radical thinking!  An excessive focus on costs to the exclusion of more strategic cost optimization results in selection off the lowest common denominator. Additional corporate leadership at the CXO level does not regard business travel as a strategic program, that requires management focus. 

Business travel self-booking technology, automated payment & expense systems automation have been around globally for over 2 decades. In our experience, if effectively implemented, this solution can effectively eliminate most malpractices that legacy systems lend themselves too.

d. Question your travel agency

Given the pressure of fees etc., travel agencies promote sub-optimal technology solutions. If your travel agency suggests low-cost self-booking options, as part of their service offering, independently evaluate the solution for

  • Adequate operational safeguards to protect your interest
  • Guarantees to stop fare & fee markups
  • User interface quality
  • Functionality & effectiveness of the mobile application
  • Ability to aggregate air + hotel + car rental in a single transaction
  • Reporting & MIS capability

To state the obvious, call for presentations of multiple solutions and benchmark the capability set offered by your vendor versus other solutions. Evaluate more advanced solutions to understand what else is possible, should you later plan to upgrade your program.

Implementing self-booking and automated systems for payments & expenses have far greater enterprise-wide repercussions and benefits …. It’s important to take a well thought out decision.

Smart buying strategies can ensure that you have a robust program. Be aware of what you may get into if you go by default with the “lowest cost vendor”. Having a supplier agnostic independent business travel consultant can help you navigate complex emerging markets like India.

High quality best in class program delivery has a basic inherent cost …

Beware of vendors who promise the moon, while being paid peanuts!!

They may be taking you for a royal ride !!!

 

Want to set up your 30-minute FREE consultation with a ProKonsul business travel expert?

                      Drop us an email prokonsul@prokonsul.in or call +91-9873196115.

                                           We would love to work with you! Call us now!!

ProKonsul ® optimizes the business travel lifecycle of its clients. It delivers domain expertise in enterprise business travel. Established in 2014, it is the pre-eminent business travel consultant firm in India, Asia & emerging markets. We are located in Gurgaon, India. ProKonsul ® advisory services are supplier agnostic & governed by a robust integrity policy.

                                                    2020 © ProKonsul – All Rights Reserved

Read more