The airline industry is helping to shift more of the cost of business travel away from the booking phase — the stage at which costs can be managed most easily — to the trip itself when expenses are incurred on the fly. This creates challenges for corporate travel managers — and the federal government, which wants to make sure it gets its bite at the apple in the form of taxes.
Fees incurred on the road, which can include anything from hotel mini-bar charges to airline fees, are substantially more difficult to control and manage, according to Albert Taras, managing director of global travel management firm TCG Consulting.
Airlines are creating a growing list of optional fees for services like priority boarding, extra leg room, checking luggage and booking over the phone, to name a few. The U.S. Government Accountability Office (GAO) said in a July 2010 report that commercial airlines in the United States collected $7.9 billion from baggage fees, reservation fees and cancellation fees in 2009, even as they reported a collective $4.4 billion in losses. Those fees are not subject to excise tax, as base air fare would be. Presumably, air fares — which bring in tax revenue — would rise if airlines could not collect revenues in the form of add-on fees for services like baggage handling and pre-boarding. Industry and government officials expect the variety and amounts of fees to grow. “Unbundling is here to stay,” Taras said, referring to the airlines’ relatively new practice of charging for services that once were part of the base air fare.
“The downside of this new unbundling of fees is that it’s now part of the portion of the trip expense that may be out of control of the travel manager,” Taras said. “It puts more responsibility on the traveler and the travel expense approver and the company’s audit and compliance functions.” Compare the relatively simple accounting for an all-inclusive airline ticket to going through and approving or denying many lines of individual charges ranging from on-board meals to Wi-Fi access while in the air, liquor purchases, to upgrades. Aside from accounting, employers have to craft policies dealing with these charges. Taras noted that traditionally, hotels were the biggest source of direct charges that came in the post-booking phase of a trip, but now airlines are contributing to the growth of that figure.
Business travel expenses that come after the booking phase are less visible until the expense report is presented for reimbursement, that is, post-expense, noted Taras, and travel managers generally cannot negotiate volume discounts or deploy the other expense management tools that can be more effective on the front end of the trip, Taras said.
The U.S. Department of Transportation (DOT) proposed a rule in July that would require airlines to disclose more detailed information about fees for optional air travel services. “The department wants to make airline pricing more transparent to consumers and airline analysts,” it said.