S HUTTING the stable door after the horse has bolted – that was one industry executive’s succinct assessment of TMCs’ call for a move to subscription models during the height of the pandemic. With revenue from transaction fees plummeting almost overnight while TMCs continued to field enquiries and perform non-revenue-generating services, the rationale was perfectly logical. A subscription fee set-up – which come in many guises – would better protect TMCs and ‘share the risk’ with customers. But would anyone beyond the most benevolent of corporates see value in the set- up? For all the hype surrounding the model, corporates appear unconvinced. In a survey of more than 150 buyers conducted by BTN Europe last year, only six per cent said they had a subscription arrange-
travellers or cost centres and that prevents the shift. So it’s financial accounting that prevents change.” A second barrier to adoption, Park believes, is the possibility of further events that could disrupt travel in the future. “If you have a high subscription fee and then there’s a month or months of no travel… that’s expensive for the buyer who is paying just to keep the lights on.” Park does however like the idea that a subscription fee could be reduced if a corporate’s online adoption increases or its average call times fall. “They might say ‘ok, we can reduce your fee because you’re not causing too much noise in the machine’,” he says. Caroline Strachan, managing partner at business travel consultancy Festive Road, offered a simple analogy during a breakout session at GBTA Europe last November. “If you’ve ever paid for a gym subscription, been there lots in month one and month two and then not so much in month three for whatever reason, it’s an expensive subscription. That’s the issue I think buyers have with the model.” She added: “The commercial model conversation came up during Covid purely because of the massive revenue drop that TMCs faced. I think it’s almost a non-issue as we exit the pandemic.” Nevertheless, she suggested that alternatives to transactions fees or management fees need “comfort factors” built into the contract such as a get out clause after a year if the arrangement is not working for either party. Some companies have a central budget so they can choose their model more freely
customer and our suppliers as well. If we’re not able to be healthy and service the customer at the end of the day, if we don’t have any revenue to do that, if we don’t have any revenue to develop tools and products for the future, it’s going to be bad for everyone in the long run,” said Snyder. Snyder said his preference was a cost- plus model “where you have your basic cost covered and then you have a markup on top of that”, while “subscription pricing would also have a good place”. American Express Global Business Travel CEO Paul Abbott offered a similar assessment in the midst of the pandemic: “High demand and low revenue is not a great balance. I do think the transaction fee model needs to be looked at.” Amex GBT has not formally launched a subscription offering but says it offers
“nearly every pricing solution imaginable” with “almost every customer ending up with a hybrid of transactional and non-transactional pricing elements for the various aspects of
ment with their TMC. In a similar survey conducted by BTN this spring, the figure was just two per cent. In both surveys,
around two-thirds of buyers said they operate on a transaction model. “There’s been very little movement [away from the
our A spokesperson for the TMC said that services”.
subscription fees can work well for established programmes, with relatively predictable demand, or for delivering a defined set of products and services, paired with a central budget. COST ALLOCATION It is the last point, a central budget, that is a sticking point for many corporates, says Ben Park, senior director procurement & travel, Parexel: “Some companies have a central budget so they can choose [their model] more freely, but in most companies, the costs need to be distributed to the
transaction model]. If there’s anything that I regret, it’s that we haven’t gotten more aggressive with changing the pricing model through the pandemic,” said BCD Travel chief executive John Snyder at The Beat Live in December last year. “It was very clear for the first couple of years of the pandemic that the transaction pricing model was broken; it doesn’t work. TMCs were not getting fairly compensated for the work that they were doing. “[A pricing model change] benefits the TMC for sure, but it also benefits the
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SPRING 2023 | businesstravelnewseurope.com
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