Committee Reports > List of Committees > Dáil > 1984 > Committee on Public Expenditure > Report - Review of Exchequer Costs of Travel and Subsistence

APPENDIX IV

Letter to Clerk to the Committee from Lep Travel Limited

Further to our attendance at the Committee Meeting held on the 10th July and the Committee’s request for clarification of certain further points, I now set out below the said clarification as requested.

1.Description of Open Tender System Proposed

In the first instance the normal practice is for the person or persons responsible with the Department or State Sponsored Body to prepare a short and precise document to be given to those companies tendering, which would outline three main points.

a)The budget allocation expected in any one year as to the purchase of air tickets, rail tickets, ferry tickets, hotel accommodation, hire car and other related travel purchases.

b)In the event that any such traffic is directed to specific destinations on an ongoing basis, it would be most helpful to know of the destinations concerned, i.e. the majority of traffic is to say Brussels.

c)It should contain certain other ancillary information such as:

To whom the tender should be directed in the first instance.

In operation day to day terms who would be responsible within the appropriate Department or State Sponsored Body for issuing instructions to the travel agent.

What parameters would apply to the expenditure of that budget in terms of special entitlements i.e. first class, club class, economy class travel.

To whom statements of account and other related information should be submitted on an ongoing basis.

Once the above document was prepared it would be a matter for the Department or State sponsored Body then seeking tenders, either via advertisements or direct approach to the travel industry, indicating to those interested parties that if they wish to make a tender for the travel account they would apply in writing to the appropriate person, so that the appropriate document could then be forwarded to the interested parties on which they would then prepare their tender.

The tender documents or proposals by the travel agents would then be submitted in the normal course of events to the person responsible, after which time a decision would be made on the basis of the documents then submitted, as to which travel agents would be called for further oral or written evidence with the intention of then deciding on the final choice of agent to handle that department’s travel requirements on an ongoing period normally specified for either one or two years.

As to the actual tender document we felt it may be helpful to the Committee if if we submitted a tender proposal of our own based on our experience in such matters in other countries as this tender would be the type of tender that we would submit if the opportunity presented itself to a Department or State Sponsored Body and here we have based our tender as an example on what we could offer to say the Department of Foreign Affairs.

2.How would the Contract System Operate in Practice?

We hope it will be seen from the previously mentioned and enclosed proposal how in fact, particularly on a day to day basis, the contract would be operated in practice and indeed as to what services the contractor would supply to the area concerned. Naturally as the previously mentioned document is relatively detailed it would not we feel be appropriate or of perhaps particular interest to the Committee to go into lengthy written explanations on every point. However one would hope that once the Committee has had an opportunity to look at this particular document it would then be the time to submit perhaps further oral evidence on any points that may be raised by the Committee in regard to this document.

In overall practical terms therefore the travel agent concerned would in conjunction with the appropriate staff within the Department or State Sponsored Body be then responsible for all the travel requirements of that said area for a period again as previously mentioned for one, two or three years depending on what length of contract the particular Department or State Sponsored Body would feel appropriate.

It should also be noted that it is not general practice within the travel industry, certainly elsewhere, that a full contract is then drawn up and signed between the two parties concerned. In effect all that is normally produced is a letter of appointment by the appropriate body to the travel agent concerned, notating the fact that they are appointed to handle the travel arrangements etc. for a certain period. This gives the added advantage to the body concerned that they are not then linked by any binding agreement, to that particular travel agent, and can withdraw their custom, so to speak, at any time, in the event that they are not satisfied with the arrangements that are then pertaining.

3.How Would Discount System Benefit the Exchequer in Terms of Domestic and Foreign Travel?

As again will be seen from the enclosed proposal document, it is normal practice that the agent tendering for such traffic will offer a percentage bulk rebate scheme to the area concerned, which will be based on all the traffic that is generated through that travel agent - this rebate scheme being repaid to the area concerned either quarterly, half-yearly or yearly in the form of a credit note. An example of this would be say that a particular department spent £500,000 on travel purchases from a travel agent on which they were then offered a 4% bulk purchase rebate, which would give a direct saving on the £500,000 of £20,000. It should be noted here also that of course this rebate would cover all areas of travel and not just be restricted to one, for example air travel.

Secondly above and beyond the standard bulk incentive scheme, a professional travel agent such as ourselves would expect to make further substantial savings by creative use of the current fare structures, but also in our own particular case because of our international connections, we have access to a wide range of specially negotiated arrangements.

We would also contend strongly, as we did in our oral submission, to the Committee on the 10th July, that the present arrangements pertaining to travel requirements within various Governmental Departments would not seem to be particularly conducive or indeed be under any pressure as far as the question of cost savings are concerned, a point I believe which was borne out by the comments forthcoming from the Civil Service also in attendance at this committee meeting.

In essence therefore above and beyond any direct savings that would be offered in terms of a bulk incentive scheme we would envisage that further savings in the order of possibly 10 - 15% could be achieved by utilising the services of a professional travel agent as against the methods employed today.

Lastly it should be noted that all the services as offered by a professional travel agent would be at no cost to the Department or State Sponsored Body concerned.

4.Please explain more fully how the Airline Pooling System operates in other countries

The system of pooling revenue between international airlines is particularly well established and in effect means that most international carriers, including of course Aer Lingus, are parties to such agreements whereby two international carriers will agree to share the revenue generated on a particular route of direct interest to those two carriers, which means in effect that regardless of which airline a passenger may choose to travel on, the revenue generated by that ticket sale and indeed all ticket sales, is placed in this pool which is then divided in percentage terms between the two carriers concerned.

An example of this is the pool arrangements Aer Lingus and British Airways operate on the Irish Sea routes. In other words all passengers who travel by air on these routes either by Aer Lingus or indeed by British Airways although they may for preference fly one or the other carrier, in effective terms the revenue generated by all the tickets sold by both carriers on this route is placed in a pool and then divided to the proportions of 49% to British Airways and 51% to Aer Lingus for flights originating from the Republic of Ireland and 51% to British Airways and 49% to Aer Lingus for flights originating in the United Kingdom.

It will be seen therefore the context of this particular paper that standing instructions by National Exchequers in regard to Civil Service Travel are negated by such agreements, notwithstanding the intent that the full expenditure made by such Civil Servants should accrue entirely to the national airline concerned, in effect this is not the case because of such pooling agreements. Indeed it is often the case that between two national carriers one of those carriers for reasons of popularity may in fact carry the larger proportion of passengers overall on that particular route but because of the pool sharing arrangements that will pertain between those two carriers, in terms of revenue this will not matter as both carriers will equally share more or less depending on the percentage arrangements, the total revenue overall therefore at the very least one can say without fear of contradiction that this system hardly promotes true competition between national carriers.

The pooling system as previously described is widely agreed between international airlines throughout the western world and in some cases elsewhere with the exception of the United States where anti-trust laws forbid American carriers to enter into arrangements either between themselves or with other international carriers as the American Government states that such practices are both monopolistic and are anti-competitive.

IN fact therefore International Airlines do not compete with each other but collaborate on a day to day basis as it must be understood that a point to point pool or other equal collaborative agreements will usually mean that in effect a shareholding will be held in other airlines’ pools.

This of course means that there is no true competition where there are interlocking pool agreements and indeed it has been said that the airlines make Swiss bankers look amateurs, as the interlocking systems that are currently in operation between these airlines can be transferred to almost any third party country.

Finally it will be seen from the financial point of view i.e. the Exchequer’s point of view in effect there is no benefit of having ones civil servants travelling on a national carrier as at the end of the day because of these pooling arrangements the Exchequer’s funds are equally subsidising the pool partner on that particular route, hence the reason that at our oral presentation on the 10th July, we stated to the Committee that if this ruling was to be put aside in light of the above disclosures, it was quite possible that more beneficial arrangements could be obtained from say Aer Lingus’ pool partners on the major routes used by Civil Servants, which would not only we believe open up further areas for direct financial savings on the overall travel budgets, but also and of equal importance, because of these pool sharing arrangements will have no or little effect on Aer Lingus’ overall revenue on the particular route in question.

5.What level of savings could be expected in terms of the expenditure at present allocated for travel and subsistence for the Government Departments and Offices?

I believe much of what I have said previously in this paper covers this particular area, however as a general statement, if one was to assume that the Irish Government, through its various Departments and of course not including the additional sums spent by State Sponsored Bodies, spent some £5m per annum on the purchase of direct travel requirements and that in future such direct travel purchases were open for tender from Irish Travel Agents, and on the basis that as will be seen from my previous comments, through a creative and professional service it would be quite possible to achieve overall savings of perhaps up to 15% overall which in financial terms represents a saving of some £750,000 on an expenditure of £5m per annum which of course would represent a substantial saving to the Exchequer on a per annum basis overall.

6.Would this service be suitable for the State Sponsored Bodies?

We feel obviously that indeed what is proposed would be of equal benefit to the State Sponsored Bodies as in effect there is no differential whatsoever either in the matter of open tenders or indeed further the matter of the day to day operation of such tenders between a Government Department and a State or semi-State Sponsored Body.

We trust of course that the aforementioned has answered as fully the questions by the Committee and of course we would reiterate that we would be available at any time to appear again before the Committee at their convenience to discuss these or any other points that may be subsequently raised.

Yours sincerely

Miss Florrie McKenna

Director

24 August, 1984.