When buyers are looking to achieve the minimum cost for each different transaction type it will inevitably lead to a complex fee structure
Guy Snelgar, Advantage: With so much uncertainty around travel volumes over the last couple of years, it is not surprising that there hasn’t been a big move to some of the new fee models like subscription fees – it was hard for a corporate travel manager to make any commercial comparison while people weren’t travelling. However, they have not gone away and we have seen more TMCs announcing alternative models recently. There is still a disconnect between the value that a TMC delivers from the total management of a company’s travel pro- gramme and a fee structure which is based heavily around the booking of each individual transaction. As business travel establishes its ‘new normal’, I do expect to see a move towards some more inclusive models that recognise the whole service a TMC provides. Do you think there is a discernible shift in the way TMCs make money? James Stevenson, GlobalStar: I think many TMCs would like there to be a shift in how they make money! The management fee model is usually the preferred option, but in reality, clients are asking for a transaction fee model. It’s interesting as the mix between supplier revenue and client fee revenues will vary depending on the TMC – and those who weight towards earning from supplier revenue are always providing less choice for their clients. But the landscape has changed. Suppliers simply don’t have the same amount of cash in their model today that they had pre- pandemic. Costs and margins are irrevocably altered. TMCs can no longer rely as heavily on a blend of listing fees, marketing revenue and performance- driven incentives. Guy Snelgar, Advantage: There’s not so much a sea-change here as a gradual evolution that has been happening for some time. Certainly some suppliers, post- pandemic, are reviewing how they incentivise and remunerate agents, but as always that varies across the industry.
While many supplier partners are offering new commercial incentives, others are reducing or limiting access to these. The impact of these changes varies from TMC to TMC, depending on their model, which is leading many to review the profitability of some products and whether existing client fee levels are sustainable in some cases. Clive Wratten, BTA: This very much depends on the model that the travel management company uses as the industry continuously adapts to market conditions. TMCs are adept at adjusting their business models to reflect the commercial landscape which explains the shifting emphasis on where the profit is derived from. Are TMCs’ increasingly long and complex fee menus and surcharges damaging customer relations, or is it a case of ‘needs must’ for TMCs’ welfare? Guy Snelgar, Advantage: There is a necessity for TMCs to cover the changing – and often increasing – costs associated with processing different booking types and content sources. In a model where corporate buyers are looking to achieve the absolute minimum cost for each different transaction type, that is inevitably going to lead to a complex fee structure to match. For example, if a booking fee has been sliced so thinly on a product that might not deliver any commission back to the TMC, then the removal of a GDS incentive, or additional costs incurred from having to manually process changes to the booking, can make that fee unsustainable without a surcharge or increase. James Stevenson, GlobalStar: It is definitely not a ‘needs must’. It’s a choice. We choose to not to entertain it, preferring to place emphasis on great customer relations. Our model is pretty simple. Our fee menus are neither long nor complex, and we don’t have surcharges, unless it is a third party surcharge, such as NDC, which we pass through at cost, obviously. Our makeup adds
to the simplicity of our model. Complexity is created because the industry doesn’t have a standard way to book. That means that larger TMCs and especially the mega TMCs can and will charge extra for anything and everything that is outside standard service. They have to try to cover all bases as far as client needs – today and in the future – are concerned. A ‘pay as you go’ menu that is long and complex is their solution. This article was first published on businesstravelnewseurope.com in February 2023 as part of the Spotlight Series: Travel management companies report
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SPRING 2023 | businesstravelnewseurope.com
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