Legislature(2001 - 2002)
02/21/2002 08:02 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 300-PROCUREMENT OF TRAVEL SERVICES Number 1305 CHAIR COGHILL announced the next order of business, HOUSE BILL NO. 300, "An Act relating to the procurement of certain travel services." Number 1296 REPRESENTATIVE HAYES, sponsor of HB 300, explained that the proposed legislation would allow businesses in the state to have equity. Currently, the state executive branch doesn't allow travel agencies to charge a fee to certain entities such as the court, transportation, and administration. REPRESENTATIVE HAYES explained that [prior to the terrorist activities] of September 11, 2001, airlines were paying travel agencies approximately 5 percent for each ticket sold. After September 11, 2001, that price [was capped at] $10-$20 for a one-way or roundtrip airfare, respectively. Because of the cap, it became necessary to request that the state actually pay for the services it receives. REPRESENTATIVE HAYES noted that currently the travel agencies have to sign a waiver saying they won't charge the state a fee, in order for state agencies to use their services. Representative Hayes said it seemed unacceptable because the agencies are providing a service to the State of Alaska and, therefore, should be paid for those services. Number 1145 REPRESENTATIVE HAYES indicated two letters. The first, from a travel agency in Fairbanks, read in part: The state should not be exempt from paying for services from any business. We provide a valuable service. I do not want to see our public servants wasting time and money trying to be travel agents, when a call to professional and efficient travel agent can have a state employee off the phone and the Internet in minutes. Currently, the state does not pay for a service of ticket deliveries, or the additional cost if the ticket has to be changed and reissued. REPRESENTATIVE HAYES pointed out the final paragraph of a letter [dated August 29, 1991] from [then-Representative] Fran Ulmer to then-Governor Walter Hickel, which read in part, "While I applaud your efforts to find efficiencies, it is no benefit to Alaskans to pinch pennies while taking away jobs." Representative Hayes said while he also applauds efforts to find efficiencies, the result has been to hurt the [travel] industry in Alaska. He stated his belief that [the legislature] needs to find ways to pay for the services that the industry provides to the state and its citizens. Number 1045 REPRESENTATIVE WILSON mentioned "that waiver that they signed." She said in [Wrangell] the agency gets paid. She asked why the agency would get paid in one town and not another. REPRESENTATIVE HAYES replied that the university, the Alaska Railroad [Corporation], and the state legislature can pick and choose which agencies to use. He continued: We, in effect, subsidize the other part of state government, because we pay for those services and the State of Alaska executive [branch] does not. ... I do believe in 1988, when this was actually put into place, ... all the officers received a memo stating that we should use travel agencies that do not charge the State of Alaska. And a lot of our legislators were upset by this, and they'd say, "I will prefer to ... use whatever travel agency I've always used." So, they couldn't enforce the provision on us, so we could use whatever travel agency we choose to use as legislators. But for the executive branch - courts, administration, corrections - (indisc.) they did not have that purpose. Number 0925 REPRESENTATIVE WILSON referred to the fiscal note and questioned whether the amount paid will be only $8 a ticket, instead of the $10, $15, or $20 being charged. She requested an explanation. Number 0882 REPRESENTATIVE HAYES said that was the amount the administration determined would be fair and equitable. CHAIR COGHILL suggested that there were people present to testify who might be able to answer the question [of whether the $8 on the fiscal note is for a one-way or roundtrip ticket]. Number 0752 REPRESENTATIVE FATE asked Representative Hayes to clarify that this doesn't speak to the charges of the travel agent, but solely to the availability. REPRESENTATIVE HAYES replied that he didn't think that was the case. He stated that the purpose of the legislation is to exempt travel agencies from the procurement code, so that individual agencies can choose which [travel] agency they would like to use. By doing so, he explained, those [state] agencies would have to pay a [fee] to those travel agents. Currently, he reminded the committee, the work done is subsidized by "other portions of state government." REPRESENTATIVE FATE remarked that his interest in this is because over the last several years there has been a "pullback" on the amount of travel agents' commissions from the airlines. He asked if that commission would be standardized throughout the entire industry, including the State of Alaska administration, for example, or whether there will be a surcharge on top of that. He suggested it is a huge question because of the current charging practices of the agencies. REPRESENTATIVE HAYES suggested that question might be better answered by the representatives from travel agency. Number 0660 REPRESENTATIVE STEVENS asked Representative Hayes if "we" were experiencing any difficulty finding travel agents willing to take on the responsibilities of making arrangement for the State of Alaska. REPRESENTATIVE HAYES responded that he did not know of any [difficulties in that regard] previous [to September 11, 2001]; however, after that date, and after the airlines reduced their fees from 5 percent of the total ticket to [$10 to $20], he said, "You're looking at businesses that ... are working on very thin margins." He continued: By the airlines' reducing that margin even more, ... what I fear is that we're going to run businesses out of business in ... Alaska, all over the point that ... [there is] $285,000 that travel agents would be receiving from the State of Alaska for providing a service that they currently provide to the state. And, again, my ultimate problem with this is: If you receive a service, you should ... pay for that service that you're receiving. And that's ultimately why I brought this forward. Number 0554 GAYLE PAUL JANECEK, Accounting Supervisor, ABC Travel Time, Inc., testifying via teleconference, told the committee that company has been serving Alaska for 24 years, with offices in Palmer and Wasilla. She surmised that the days of travel agents' being paid airline commissions will soon be over, partly because airlines are "operating on the edge of [impoverishment]." Ms. Janecek told the committee that on the national level, almost all remaining agencies are charging service fees or reservation processing fees to their clients in order to continue providing "a reliable, nonbiased source of travel information." MS. JANECEK noted that in her 14 years with [ABC Travel Time] she has tracked several loyal, local Alaskan state employees who rely on the agency to "go the extra distance" for their travel arrangements and who pay the agency's service fees out of their own pockets. She said, "Doing business on a local level assures them that they are trusted people who can quickly and efficiently handle the state's routine or problem travel." MS. JANECEK said she could understand the difficulty in reconciling the state's travel-credit-card account to determine which charges align with which state employees for what dates of travel, for example. She suggested perhaps the process could be streamlined by e-mailing the information as transactions occur, thereby alerting the "finance department" of the pending charges. Denying economic opportunity to serve the State of Alaska because of "reconciling problems," she said, seems discriminatory against small, local businesses. Ms. Janecek urged enactment of this legislation. She indicated this is not a handout or monetary relief as a result of September 11, 2001, but is about being paid for work performed and services rendered. CHAIR COGHILL told Ms. Janecek he appreciated her testimony. Number 0325 DAVID BERG, Representative, Viking Travel, Petersburg, testified via teleconference. He informed the committee that Viking Travel has represented the State of Alaska for approximately 20 years and presently has a contract to provide travel services for state agencies in Petersburg. The contract allows the agency to charge modest service charges to cover its cost of doing business, "in light of reduced airline commissions and caps." Mr. Berg said the experience of [Viking Travel] is that many state agencies refuse to pay service charges. He remarked, "When agency employees use our services, the agency requires that the employee pay services charges out of their own pocket." MR. BERG explained that under its existing contract [Viking Travel] is paid by the state to provide the lowest-cost travel arrangements for the employee. He said, "If the traveler does not decide to use the contract agent, the state has no guarantee or impartial source of information that travel is being obtained at the lowest cost to the state." He opined that a bill proposing that state agencies procure travel services should contain language requiring state agencies to use contractors for travel where contracts are in place, to ensure that the state is getting the lowest-cost travel services in the market. CHAIR COGHILL said he thought the state would be considering how it might take advantage of Internet bookings. He asked Mr. Berg whether that is an issue of concern for travel agents and, if so, how it is being addressed. MR. BERG replied that he sees almost daily examples of airlines "telling you what they want to" on their web sites. He noted that there are mistakes in pricing of transactions. He said he has known individuals who have bought tickets from Petersburg to Sitka, for example, and the airline system will not (indisc.) the connections that are necessary; consequently, the ticket is issued at twice the value of the appropriate pair. Mr. Berg stated his belief that until these problems are addressed, the state needs an impartial judge, which is what the travel agents can provide. Number 0085 KIM GARNERO, Director, Division of Finance, Department of Administration, told the committee that while she is no expert on procurement issues, she is familiar with the business relationships between the State of Alaska and travel agencies. She testified as follows: State government has a long history of relying on a private sector for professional travel services. Until a few years ago, these services were provided for free to travelers, because travel agencies relied on commissions from travel providers such as airlines and hotels. Because no public funds were spent for these services, each state office was able to use a travel agent of their choice, and strong loyalties developed. In October 1999, airlines cut travel agent commissions from 8 to 5 percent. This 37.5 percent reduction was an early step in a trend that continues to place severe economic pressure on travel agents. With ever- declining commissions from airlines, more and more travel agencies are responding by initiating fees for their services. When fees are introduced to travel services, the issue of competitive procurement arises. The State of Alaska spends over $16 million a year on airline tickets, so a fee as low as 1 percent results in $160,000 a year spent for these services. [The end of the tape cut off a portion of Ms. Garnero's testimony; however, the content was later provided to the secretary and read as follows: "Current procurement law requires formal competitive bids for purchases of this size. The result is that all state travel purchases are then made from the successful bidder."] TAPE 02-15, SIDE A Number 0001 MS. GARNERO continued as follows: Our policy has been to obtain travel agent services without paying fees wherever possible. Toward that end, the Department of Administration has maintained a web site listing travel agents willing to provide services free of charge to state agencies. State agencies may use any of the listed travel agencies, or any other travel agency willing to waive fees for their service. But in communities where no travel agencies are willing to provide free services, we competitively established a travel agent contract in accordance with the procurement code. This has resulted in single- award contracts for the communities of Juneau, Wrangell, Petersburg, Haines, Cordova, Seward, and Dillingham. Fees paid under these contracts range from $5 to $20 for an airline ticket. Number 0098 MS. GARNERO informed members that she was responsible for writing the fiscal note. She explained that the $8 is not necessarily "reasonable" amount, but rather an assumption "based on what we've seen in these contracts we've picked out so far." She continued as follows: If the legislation passes, travel-related services would be exempted from the procurement code. In that case, the Department of Administration will meet with industry representatives to establish a reasonable fee schedule, which would become the benchmark for doing business with the state. Any travel agency willing to provide services at or below the benchmark would be eligible to do business with the state, and state employees could then choose to use any eligible travel agency. But to sum up, passage of HB 300 will eliminate the requirement for competitive procurement in order to pay fees, but it would not prevent establishing [a] future travel agency contract when that's in the state's best interest. It also will have no effect on our existing ... travel agency contracts, since they are preexisting and legally binding. MS. GARNERO offered to answer questions. Number 0207 REPRESENTATIVE STEVENS asked what benefits exist to travel agents to provide services free of charge to the state. MS. GARNERO answered that the travel agents still receive 5 percent from the airlines; she mentioned that she thinks hotels and rental car agencies are paying them. She admitted that she doesn't fully understand the travel agency revenue structure. She said there are still commissions left; however, she referred to previous testimony regarding the inevitable trend of reducing commissions. REPRESENTATIVE STEVENS asked if Ms. Garnero was finding disinclination on the part of travel agents to continue this arrangement with [the state] at no charge. CHAIR COGHILL commented, "I think the testimony to a bill is pretty resounding." MS. GARNERO mentioned the October 1999 reduction. She said after that reduction, [the department] wrote letters to 170 travel agencies around the state, asking if they were willing to waive fees for their service, "after we first put that web site together." Noting that perhaps more than 80 travel agencies were listed at that time, she said many have gone out of business, and the number is now 40. She mentioned the following numbers of travel agents currently listed: 13 in Anchorage, 9 in Fairbanks, and "1 or 2 shops around the state." Number 0344 REPRESENTATIVE WILSON indicated the fiscal note and asked if [the $8] reflected [a fee] for one-way or roundtrip travel. MS. GARNERO answered that her intention at the time she wrote the fiscal note was that [the $8] was for a roundtrip ticket. She reiterated that she didn't know if that was reasonable. She said [the determination] would come from discussion with the travel industry representatives. Number 0400 REPRESENTATIVE FATE asked if his understanding - that this would take out procurement and open the door to agency competition - was correct. MS. GARNERO replied, "I'm not sure that it opens the door to agency competition, because what we're speaking of doing is setting some benchmark at which we would pay, and I don't know that we would get many that would charge us less than that." REPRESENTATIVE FATE noted that there are many factors which are hurting the [travel] agencies, including the cutback of commissions and the increasing acceptance of Internet ticketing and electronic ticketing. He asked what would happen to the system when, inevitability, several of these agencies go out of business for one reason or another. MS. GARNERO responded that her mother owned a travel agency for 20 years, which closed 2 years ago; so she herself is aware of what is going on in the industry. She explained that when she procured the information for the fiscal note, 23 percent of the tickets bought last year were purchased directly from Alaska Airlines. She added that she was certain many of those were purchased over the Internet. She said she didn't have data for early years, but was sure the numbers for next year would be higher than 23 percent. MS. GARNERO noted that the macroeconomics of travel agencies is changing because of the consolidation of smaller agencies into bigger ones, for example, and because many agencies are closing their doors. REPRESENTATIVE FATE asked if that would make ticketing by the state more difficult. MS. GARNERO answered as follows: Last year in Juneau, our last few travel agencies that were waiving fees for us said they could no longer do it. We did a procurement. We had several bidders and ended up with a contract with a large statewide agency. We're paying ... $5 for a ticket to Anchorage roundtrip, and $8 for a ticket anywhere else roundtrip, on that contract. I would imagine in our larger urban areas, procurements would yield similar results. MS. GARNERO noted, "The only community we were not able to get a contract in - that wouldn't waive fees - was Bethel." CHAIR COGHILL commented, "With this law, it would allow us some flexibility in discussing things with travel agencies, but it would not mandate it. I mean, we could look for other areas for cost savings if we had to." MS. GARNERO said yes. She added that it would also put the choice back in state agencies, which she said they like. Number 0758 KARA ALTMAN, Owner, Kara's Cruise and Travel, told the committee she is a lifelong Alaskan and a Juneau resident who has worked for most of the last 15 years of her career in the travel industry at Southeast Executravel. She noted that Southeast Executravel was forced to close its doors on December 8, 2000; eight employees lost their jobs that day, with about two days' notice. She said this was a direct result of the state's refusal to compensate the travel agency for work done on its behalf. MS. ALTMAN said no agency in town could absorb eight agents suddenly out of work; some of those out-of-work agents had to rely upon state public assistance to provide for their families - yet another cost to the state. She recounted that she and her colleague [Cyndi Isaak] had set up home-based travel agencies at their own expense. Not charging a fee would be the death of their businesses and livelihood, she emphasized. MS. ALTMAN said she knows of no other professional in the world that offers services at no charge. She explained that [the travel agency] was able to do that when commissions were 10 percent, but they have been cut to 5 percent over the years, which means a 50 percent cut in pay. In regard to capping tickets at a $20 maximum, she said it costs an agent approximately $35 in overhead costs; therefore, the agents lose $15 minimum for each ticket issued. MS. ALTMAN referred to an aforementioned comment regarding [commissions paid] on cars and hotels. She told the committee, "Cars generally do pay us 10 percent, but not for the state; for the state, we only get 5 percent." Hotels, she said, will often say that government fees are non-commissionable, after the travel agent has made a long-distance phone call at his/her own expense to book the reservation. MS. ALTMAN said the $8 charge is per ticket, whether "a roundtrip to Timbuktu or a one-way to Anchorage," no matter how many segments are in the itinerary. She noted that when booking travel for "regular citizens," many agencies charge $20, but she said, "Our fee is $10." She pointed out that charging $8 to the state would be, in effect, giving the state a discount. She added that [travel agents] can and always have been able to issue electronic tickets, so that is not an issue of concern. Number 1020 CHAIR COGHILL asked Ms. Altman to describe some of the areas in which her work can "overrule the e-ticket world." MS. ALTMAN replied that a travel agent has access to all airlines, cars, and hotels at once, and can get the client the best rates. A person can e-mail the travel agent and spend very little time working on travel plans. She said all [agents] know that for the State of Alaska, Avis Car Rental Agency has the contract, for example. If an employee has to go on the Internet or hold on the phone with an airline, the airline will give that person its rates, but not the rates of other airlines. She mentioned the time involved in making one's own reservation. She said, "You're going to pay your state employees for one or two hours booking their own travel, when you could pay a travel professional a - in my opinion - miniscule $8 to do it for you and have it done." CHAIR COGHILL said he was looking for that answer and told Ms. Altman she'd done a good job in representing her industry. Number 1103 CYNDI ISAAK, Owner, Cyndi's Cruise and Travel, told the committee she'd previously worked for 12 years with [Southeast] Executravel and "saw what happened with that agency." A mother of two who'd worked out of her home for the last six years, she said that when her employer's business folded, she was encouraged by her large clientele to open her own business. MS. ISAAK noted that she has run her own agency since April 2001. When she opened her business, she offered to make travel arrangements for the state at no charge because she knew the state wouldn't pay a fee for the large clientele who wanted her to continue her services. She added that she did charge her "other" customers fees [to avoid the same fate as Southeast Executravel]. She remarked, "When the state went out to contract, I actually was not included on that contract, because the person who put out the bid used the old phone book." She clarified that it wasn't to say that she'd have bid on the entire State of Alaska, because she'd have had to hire more employees and probably have a storefront agency. MS. ISAAK said she has "extended that" to a few other agents who want to work out of their homes in order to be with their children. She noted that although she doesn't have high overhead, rents, and salaries, the fee is still necessary. She told members, "If you read all the travel agency trade, they will eventually go to zero. I mean, we have been forced into this position." MS. ISAAK said she guessed she was before the committee on behalf of her clients who don't like being in a contract with one agency in town and don't have a choice. She continued: I have some who say, "I'm a little rebellious; I don't want to use them, I want to use you." They can't even use me if they want to pay the fee out of their pocket. I had somebody try yesterday, and because they have a contract with another agency in town, they can't, even if they want to pay the fee themselves. So, what they're doing is using state time and spending hours on the Internet trying to figure out their own travel. MS. ISAAK recalled that one of her clients had booked the same flight that she herself was booking, while on the phone together, and the price quoted to the client was higher. She said [a travel agent's] job is to search for the greatest rates [from immediately available sources] and that it is imperative to charge "the little fee." MS. ISAAK said because the airlines have capped "us," she would agree to the state's saying, "Okay, we will use you if you only charge us $8, or $10, or whatever it turns out to be." Then, she noted, there would be the flexibility to say "yes" to taking on the state. She told members it isn't fair for one agency to be able to "have the entire State of Alaska." Furthermore, not all the little agencies that exist now can handle the entire state. In conclusion, she said, "I'd love to have my people back, and I know that they would like their choice, as well." Number 1317 RAMONA OXENDINE, Vagabond Travel, testifying via teleconference, told the committee she thought [travel agents] had been well represented [by the previous testimony]. She said all she could add is, "Ditto, ditto, ditto, ditto." Stating her hope that [the committee] could see the writing on the wall, she remarked, "I do not think the Internet is your friend." If the time comes when [travel agents] are gone - which will happen unless there is a realization that the fees are necessary - people will be a captive audience with the airlines, Ms. Oxendine said, and airlines will give people [only] the information online that they want people to see. Number 1409 YULANDA JOHANSEN, Northern Lights Travel, testifying via teleconference, concurred that everyone had spoken well. She said, "I do hope the state realizes the valuable service that we, as travel agents - professionals - do offer." She asked the committee to consider the bill. Number 1447 SHANNON WILEY, Manager, Goldbelt Family Travel, told the committee she has worked in the industry in Juneau for approximately 15 years, formerly with American Express. She pointed out that the airlines' move to cut commissions has, basically, "put the consumer on peg there, to have to carry the cost of the distribution," which she explained, is "what is happening with the fee structure that most companies have come up with." Ms. Wiley noted that travel agencies don't provide services solely to the State of Alaska and its employees; the wide range of services includes those for the tourism industry, "the third-largest economic factor" in the state. It hurts the entire industry when so many agencies are going out of business, she concluded. Number 1622 REPRESENTATIVE HAYES moved to report HB 300 from committee with individual recommendations and the accompanying fiscal note. There being no objection, HB 300 moved out of the House State Affairs Standing Committee.
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