Why is business travel so expensive?

Mikha’il Ernest

We spoke to Ernest about why business travel, then, turns out to be so expensive despite these amazing deals.

Beyond the cost of travel being high itself, why is business travel such a great expense for governments and corporates?

Mikha'il Ernest: Well, firstly, I'm sure most would know that travel comes only second to salaries on most companies' expense list. Secondly, and perhaps more alarmingly, is that travel agencies being appointed by government and corporate companies are completely unaware of the 'hidden' mark ups and additional income streams travel agents are making whilst making their bookings.

Would you say procurement managers, who are under the impression that they have scored great deals with travel management companies, are often disillusioned when the final price is calculated? Why?

Ernest: Of course, the question they constantly ask is why the price they received from their agent is so much higher than what they've found when searching online? Well, what's obvious then is that those ''too good to be true'' service fees and proposals we received are perhaps just that, too good to be true.

However, many of us don't always look at each fare with a fine tooth comb, which is unfortunate because that is exactly what we should do, especially when we have appointed only one service provider. Once a service provider sees that they are not being audited and compared, they take advantage of this.

What are some of the hidden mark ups and commissionable income streams travel agents are making that procurement managers are not aware of?

Ernest: Almost every agency earns a commission and kick back from selling air tickets, and land arrangements. Yes, whilst I am sure many would have felt a pinch with the airlines cutting on commissions, it still remains the bread and butter of any travel agency, the bread and butter that most don't disclose.

You stated that "there is no transparency in the world of travel (seller) vs. corporate/government (buyer)". Why is that and what can be done to address this issue?

Ernest: Most government and corporates base a lot on the trust of their relationship between themselves and their TMC, and audits which should be done regularly are not done. Comparisons and audits keeps the agent on their feet. Without comparison agencies are too comfortable. Procurement teams should try their utmost not only to learn the travel industry but to ensure that at RFP and Tender stages the excess mark ups are fully disclosed and TMCs should be penalised if they do not comply.

At Travelstart we started from the bottom and that's why we urge the empowerment of smaller agents and giving them an opportunity. In most cases we find that the agents charging the higher transaction fee is in fact probably the most transparent.

You said the reason why online flights may be cheaper than agency quotes are that the multiple added mark ups may not have been disclosed at RFP/Tender process and are neatly tucked away and embedded into fares and 'taxes'. Are agencies not legally obliged to disclose this kind of information in their quotes? Elaborate.

Ernest: It's a situation where legally charging a mark up and not disclosing it may not actually be an illegal practice. Yes, transaction fees would need to be disclosed and as long as the mark up is in close parameter to market related fares then you would not have much of a case. It is partly because of that, we find agencies taking advantage of their clients.

What role does or will Travelstart and neXt play in exposing this to the business world, in addressing these issues and in promoting healthy competition in the industry?

Ernest: If we look at South Africa, we're looking at a country disillusioned by corruption and attempts to cut spending, however, we're yet to achieve the cost containment goals set out by Treasury. And many within the travel industry are partially to blame, as travel is one of the highest expenses on any company's list.

Some of the biggest culprits lie in the very TMC's appointed by government sectors and corporate companies. As neXt and Travelstart we will look to create a more equal and competitive market. Where the dominance of the travel agencies do not lie solely with a handful of competitors. We'll tackle this until we see more transparency in business travel.