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Travel category exclusive: Tony O’Connor explores the ramifications of Amex GBT’s acquisition of CWT

Amex Gbt Cwt

In this exclusive article for PASA, Tony O’Connor, managing director at business travel advisory Butler Caroye, explores the ramifications of Amex GBT’s slated acquisition of CWT.

The Travel Management Company (TMC) is still the most important entity in your business travel supply chain. 

It’s the TMC that largely determines your travel costs, service levels, risks and carbon. It’s the TMC that packages up and integrates a whole range of systems and services. 

What the TMC does, charges and offers, and how it behaves and operates, largely determines things.

Get big or go under

Why are takeovers and mergers happening in this industry? 

TMC concentration is being driven by a few factors:

Firstly, it is an industry in decline. 

TMC revenue per business trip is declining as solutions continue to shift online, but the cost of winning and keeping business is fairly constant. 

People costs are falling but IT costs are rising. The combination of less revenue and a persistent cost base means it’s harder to survive if you’re small.

Secondly, more and more TMC services require IT that is new. The competitive arms race in travel IT means that it is getting more expensive to grow a TMC business.

Thirdly, TMCs make most of their money from sales commissions from travel suppliers and that’s where their biggest problem lies. 

Commissions are in long-term decline as the alternatives to TMC and travel agency distribution progress. New Distribution Capability (NDC) was largely designed to enable a ratcheting down of commission costs for the airlines. 

For TMCs, bigger spend provides bigger bargaining power to defend commission income.

The numbers

So, to the big event, let’s refer to the combined Amex GBT and CWT entity as CWTamex.

Here are the global travel sales market share numbers, based on 2022 data:

  • Amex GBT had 10.6 percent
  • BCD had 8.5 percent
  • CWT had 7.9 percent
  • FCL had 5 percent

Adding the first to the third, we have CWTamex with 18.5 percent, which is 120 percent larger than BCD and larger than the next five TMCs combined.

If you adjust the CWTamex figure to a percentage of business travel only, they would have around 40 percent of the market. 

That is a position of great strength, more than is permitted in many industries in many countries.

Dominance where?

The global TMC industry is made up of 50 separate marketplaces, but with a global overlay. It’s similar to airlines, where competition does or doesn’t happen on a per route basis. 

Amex GBT and CWT already have the strongest global networks, with a top-tier presence in most countries where travel management is in play. 

Combined, there would be few places where they were not the largest player.

Concern in two directions

There is obviously a concern about reduced competition, which I will discuss later. 

In the case of an intermediary in a supply chain, one that sells and distributes on behalf of the suppliers, there is a second type of concern; excessive influence and control over the suppliers. 

Here in Australia, there is currently a lot of discussion about the power that the two biggest supermarket chains have over prices and also over suppliers. 

CWTamex would raise the same two concerns, but instead of ‘the big two’ we would be dealing with ‘the big one’ – and on a global scale.

Impacts on competition: pricing

TMCs are problematic because they are opaque. For all the talk of open-book transparency, there really isn’t much transparency at all. 

Clients have clear financial vision only of the fees. They don’t see the commission flows and most don’t even know about hidden mark-ups, which can add up to more than the fees. 

The point is that in this fog, a TMC emboldened by market dominance and limited competition could not only raise fees aggressively but also double down on the mark-ups.

If its strength enables it to also raise and restore commission levels, these would feed back into higher airfares plus hotel and car rates.

Impacts on competition: supplier bias

Higher commissions would also drive greater bias within the TMC booking process. 

They would create a bigger incentive to push business towards higher paying airlines and hotels at the expense of the customer getting the best fare and rate offers.

Impacts on suppliers and supply

I remember when Ansett cut their domestic base commission level from 5 percent to 4 percent. 

Flight Centre said they would ‘de-favour’ Ansett. Ansett reversed their decision the next day. It was fun to watch!

CWTamex would have even greater clout with travel suppliers. The risk of being de-prioritised by them would likely tame and check supplier behaviour.

Smaller TMCs would probably get inferior commission deals, making it harder for them to compete and prosper, thus feeding further concentration.

Impacts on competition: the runaway effect

Concentration in markets tends to have a tipping point. If the dominant player reaches a degree of market power where it is impossible for competitors to compete, all riches can then flow to the king.

Duopolies and oligopolies are often stable, but the sudden emergence of a very dominant player can trigger a sprint towards monopoly. 

This is more likely in a distressed competitive industry that is also in a state of flux, such as TMCs.

Regulatory matters

The takeover is subject to regulatory approval in the US, but Amex GBT sounds confident that there won’t be major difficulties. 

There is no overarching international antitrust regime, but CWTamex could potentially run into a thicket of domestic antitrust measures in various countries.

The TMC industry probably isn’t strategic enough or prominent enough to initiate government action, especially with the precedent of a US-based approval. 

However, if CWTamex’s market share grew very large in a country with antitrust defences, a competing TMC or a courageous airline might initiate some action.

The long-term strategy: what’s next?

Amex GBT has been on a ‘get big and dominate’ path for a long time. 

It has been the most active and acquisitive player in the market, previously buying major global competitors Rosenbluth (2003), HRG (2018) and Egencia (2021), as well as many smaller entities. 

An Amex GBT director once asked me to keep an eye out for who they could buy in this region. I declined the offer but noted the appetite.

I wonder whether they will make another large purchase or two and build an unassailable dominance in the business travel industry. 

There are three things that make this a good idea (for them):

Firstly, the ‘bang for buck’ is greatest when you have a dominant but not overwhelming market share. Shifting from 40 percent to 70 percent brings big returns. Once you’re at around 70 percent, further market share typically has reduced economic benefit. 

CWTamex would be in this middle zone of high returns and hungry for more.

Secondly, the TMC industry is still suffering post-COVID. There has been almost full volume recovery but staffing remains an issue and there’s a lot more debt around. 

Furthermore, the drying up of cash reserves has left many TMCs with limited defences.

Thirdly, the pressure on commission revenue will likely get worse, putting weaker players into situations of worsening distress.

Digesting CWT will take 12 to 18 months. After that, there may be a play for another biggish fish. 

Asia looks appetising. And some of the ‘new age’ TMCs might be a good buy before they get too successful and expensive.

The counter to NDC plus other things

Airlines effectively consolidated via IATA with NDC, at least by way of agreeing on long-term strategy and action to regain bargaining power versus travel agents and TMCs. 

NDC and the shake up to the travel distribution system it enables is the first big challenge to the dominance of the travel middlemen. 

TMCs’ only fightback is size, with takeovers meaning concentration which equates to buying power.

Becoming THE industry platform

If you really wanted to dominate the business travel supply chain, you would become the ‘intermediary everything’; the TMC, the online booking tool (OBT), the global distribution system (GDS) and the irreplaceable systems platform that everything else attaches to including all the NDC pipes. 

Internal OBTs are being bought and built. GDSs have been wounded and their dominance as consolidators is arguably up for grabs – Sabre is a technology partner and shareholder already. Proprietary open platforms already exist. 

To become the ‘intermediary everything’, IT development isn’t the highest hurdle. What you really need is big travel volume to push through your set-up, then you attract everybody and everything else to your platform. An IT-rich dominant TMC is best positioned to claim the ultimate prize.

The large TMCs are forever looking over their shoulders at Big Silicon. TMCs scuffling with each other over diminishing returns in a turbulent industry are not very attractive takeover targets for players in higher margin industries.

However, if you dominate the TMC industry and own the main platform, your loveliness grows and so do the potential returns for the shareholders. 

Private equity firms specialise in making two plus two equal five…or seven. They set up to sell.

Advice for travel buyers

TMCs are opaque businesses. Even in the current landscape with reasonable competition in most places, you need to run informed tenders and contract management to prevent negative outcomes.

Your main enemies are systematic bias, hidden mark-ups, service level deterioration and lock-in.

Your best friends are sharp contract clauses, raw data, several measurable core KPIs, proper audits and easy practicable TMC turnover if required.

Make sure you own your data. Make sure you own and control your profiles. Be careful what you lock yourself into by way of systems and software. 

Run your own airline and hotel tenders, or at least direct the proceedings with full access. Manage your hotel program yourself. Keep an eye on the availability of your negotiated fares and rates, especially if they are non-commissionable. 

A bit of vigilance and effort has a high return in the travel category, with the return getting bigger as TMCs consolidate.

About the author

Tony O’Connor is a leading procurement consultant specialising in the travel supply chain. Since 1998, his consultancy Butler Caroye has assisted hundreds of corporate and government procurement teams to rationalise their travel supply, while managing cost, risk, service delivery and carbon. He regularly presents at conferences and appears in global media.

Tony will curate the program for the 24th Annual btTB Travel Conference & Awards, as well as acting as the event’s MC.

Don’t miss out on the region’s oldest, biggest, best and ONLY business travel conference, which will take place in August at Sydney’s Royal Randwick Racecourse.

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