Most companies book through a Travel Management Company (TMC).
That’s because they have to in order to access their corporate discounts to airfares, hotel rates and car rates. It’s also because TMCs provide many useful systems and services, including online booking tools (OBTs), data, account management, risk management, policy compliance and after-hours service. And by consolidating the air, hotel and road components, the TMC provides a single unified booking that can be efficiently managed.
The other key service that a TMC provides is integration. They gather and present fares and rates from various sources. The TMC also integrates several systems for you into a “technology stack”. This includes the OBT, a duty-of-care system, profile management, trip approval, policy compliance, data and reporting, all plugged into the TMC’s “mid-office”.
Procuring the components separately and combining them into a usable system yourself just isn’t practicable.
So, as things stand, you need a TMC. But TMCs are now standing less steadily due to the commercial ravages of the pandemic. They have two problems … two things that you should be aware of and two things that you can act upon.
The staff problem
TMCs cannot find staff. Having let so many go by necessity, they now can’t lure them back. Even with the modest recovery we’ve seen in domestic travel, corporate and government buyers tell of serious delays and servicing issues. When international travel resumes, because most of it still needs to be booked and serviced by an experienced human and not an OBT, the demand for new staff will treble.
One TMC is already trying to recruit 500 staff with little success. Salaries offered are reportedly over 50% higher. One TMC is saying the problems are only in its sibling leisure division but that’s untrue.
The same TMC’s old formula of low base pay plus high profit-based bonuses is no longer attractive. Many experienced booking consultants seem to have settled in new pastures.
The financial problem
Secondly, and even more problematically, TMCs’ viability is being hit by a double whammy. Wages, their biggest cost, are rising due to the staff shortage. The new higher salaries offered are dragging everybody’s demands up. And you can’t just “offshore” client facing positions to a cheaper country. It doesn’t work. But the even bigger financial problem is on the revenue side.
Over 70% of TMCs’ revenue has come from sales commissions from travel suppliers, just like retail travel agents. It’s not discussed. And you won’t find the fact in the sea of figures in their annual reports. But it’s how they’ve made most of their money. Most of the commission income is in the form of over-rides and other confidential benefit streams. Suppliers, airlines in particular, were putting downward pressure on commissions even before the pandemic. Even if reducing distribution costs was not the primary purpose of NDC, it was its major effect. (NDC)
The long downturn has wounded TMCs more than airlines and there’s been an effective power shift in the supply chain towards the travel supplier. Commission income is now likely to fall significantly. For example, Qantas’ visible international “base” commission falls from 5% to 1% in July.
To compensate for the reduction in their main revenue stream, TMCs will have to significantly raise fees and/or increase hidden charges, such as hidden arbitrary mark-ups to fares and rates. Mark-ups have been a problem for years, with some TMCs being more guilty than others. In larger accounts, they can add several million dollars to the cost of travel annually.
What the travel buyer can do
To ease the impact of the staff shortage you can do two things. Firstly, get in first and lock them in. If you’re a larger travel buyer with sway, or perhaps even if you’re not, you can try to contractually secure a good service team. This could be done either with your incumbent TMC or as the result of a tender. It is not an easy task. It depends on spend, approach and wording, and is more likely to work in the competitive heat of a tender.
The other solution is to use your OBT whenever possible. You should use the OBT for nearly all domestic and trans-Tasman bookings, and 10% to 50% of international bookings depending on destinations and complexity. In 2022 we’ve seen a shift away from OBTs as domestic bookers want to deal with a human in times of uncertainty. This usually isn’t necessary and the OBT will do a fine job.
Managing your TMC’s financial stability issue is a more difficult task. By 2023 you’re probably going to have to accept higher fees. But vigilance is needed regarding hidden mark-ups. Those you cannot accept. New, flexible and collaborative fee arrangements are on the drawing boards in large tenders overseas. For example, one I’ve been involved with has a cost-plus profit/loss share structure per service type.
Generally, the situation will force a more robust assessment of the real benefit and value of TMC services. And that requires an informed and active approach from the travel buyer.
The times also promote the idea of putting the OBT first and foremost in the travel procurement arena. The relative importance of the OBT in the travel supply chain will rise in the recovery, to the point where perhaps it makes better sense to tender first for the OBT and then for compatible TMC-type services. That’s also on the drawing board.
Tony O’Connor has been an expert commentator for PASA for more than 20 years covering travel procurement in depth.
Tony is Managing Director of Butler Caroye and the CEO of fare auditing company Airocheck. Established in1998, Butler Caroye is the region’s leading independent management consultancy specialising in the corporate travel supply chain.