TMCs? I Can Do Better Myself

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Author: Tony O’Connor

A guy at the tennis club recently described to me how he found a fare that was a thousand dollars lower than the one offered by his TMC. My academic sister-in-law says the same sort of thing, even before we open the shiraz. Tales of maverick savings triumphs are not uncommon. So is it true? Should we just forget about TMCs and book directly ourselves?

Almost all companies and organisations that spend over, say, $50,000 use a TMC. Let’s consider why. There are several advantages.

Firstly, discounts from airlines, hotels and car firms are only available if you book via a TMC. That is how the industry is everywhere structured, for now at least. The suppliers need a way of identifying the bookings and tracking the spend.

Secondly, TMCs provide useful services, such as 24 hour assistance, emergency service, VIP service, account management and reporting.

Thirdly, TMCs package and provide useful systems and processes such as traveller tracking and risk management, policy and compliance filtering, traveller ID and profiling, and unused ticket and credit management.

And lastly, the corporate online booking tools that include these systems still need human oversight and support. They cannot manage the entire booking process and need TMCs to “fulfil”, and to integrate them with other systems and services.

So far so good for convention. But does this come at too high a high cost? Apart from their fees, do TMCs impose the additional cost of not always booking the lowest suitable fares and rates? Are you likely to consistently find cheaper travel yourself?

The word “consistently” is important here. If, on occasion, you beat the TMC on price, it doesn’t mean you always will, and it doesn’t mean that on average you will be cheaper overall. And the stories, and even your memory and opinion will tend to focus on those times when you were cheaper.

Also, cucumbers need to be compared with cucumbers. The cheap retail fare you find directly might not be compliant with travel policy. It might be a different fare type with unacceptable restrictions. It might take longer or have added stopovers. It might have exclusions. It might even be for a different date. And it might not include all taxes, charges and fees.

But let’s say that you are consistently better than the TMC at finding cheap cucumbers. How could this be?

In principle, you should not be able to do so. The TMC commits to finding the best-value travel for its clients. This means scouring the travel market with every booking. And the TMC is armed with a range of discounts that you don’t have. These are your company’s negotiated supplier discounts plus those that the TMC has negotiated itself for use with any client. You shouldn’t be able to win.

There is a fundamental difference between retail travel agents and TMCs. Like any retailer, a travel agent is trying to charge you as much as possible while still getting your business. Whatever the breakdown of fare, mark-up and fee might be, the total cost is the total cost and you are free to walk away and try the next travel agent or website. But the TMC already has your business. You must use it. And it is meant to be saving you money. That’s what the sales pitch said. It might even be stated or implied in a contract. TMCs promise it and buyers expect it.

There are two possible breaches to the handshake. Firstly, and more controversially, a TMC might deliberately offer higher priced travel. It might do so because it receives percentage based commissions. Commissions have fallen but they are still a substantial revenue source. (See note below) For the same reason, it might at times favour commission-paying items over your self-negotiated commission-less net fares and rates. Worse, it might mark-up wholesale fares and rates where you can’t see the original level. Mark-ups must be particularly tempting given the potential returns.

Secondly, a TMC might just happen to not locate the cheaper product. The travel market is large, complex and fragmented. Searches may fail due to sub-optimal systems or sub-optimal people. The booking systems need to connect to as many sources of travel inventory as possible, not just the GDS. The quality and experience of the TMC’s booking consultant also makes a difference. The ranks of experienced people are thinning, and you need someone who is skilled, knowledgeable and diligent.

So, in principle at least, two types of best-value-breaches are possible; the wilful and the unskilful. What should you do?

At the risk of sounding like my broken record player, start off by running a thorough tender. (We can help!) Anticipate that all of these things might occur even if they are not necessarily common. Then address them explicitly in the contract. Then monitor and manage. It’s worth it.

And a word to the TMCs before I get physically assaulted on Collins or Pitt Street. Mentioning bad things isn’t saying that everyone does them, but it’s a buyer’s duty to be wary. I agree that the wilful breaches are not common. But I believe that they do occur. And it is increasingly difficult to provide well-skilled and long-experienced booking consultants. That’s understood.

 

A note regarding commissions: Even if you were to receive all the commissions, or even if all your travel product carried commission-free net fares or rates, (both are unlikely) commissions could still exert an in-principle influence on your bookings. This is because many commission levels are tied to the TMC’s overall “performance” with the supplier. They can rise or fall based on reaching target levels of overall revenue or growth. Therefore every booking counts, even the net fares and rates.

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