Looking at HRG's results is always instructive. As a publicly quoted company, it is obliged to give fuller information than a privately owned TMC such as Carlson Wagonlit which is always happy to give top line figures but refrains from sharing the bottom line data.
Just as it did for the first six months of 2015-16 HRG reports growth in both profits and profit margin despite a fall in revenues. The reasons why underline the market trend.
Revenues are down in every region of the world but the biggest drop (£9.6 m or 4.5%) from last year is in Europe. In fact revenue is only up in HRG's technology and expense management subsidiary, Fraedom. None of this is surprising — markets around the world are facing economic challenges and this is especially the case in Europe. At the same time automated, technology-based solutions, which will save either time or money or both, are increasingly sought in all sectors.
European travel managers should note that HRG CEO David Radcliffe reiterated some of the points he made when presenting the first half year results six months earlier, namely that travel management revenues will remain under pressure because of aggressive pricing in the sector and clients continuing to move from offline to online solutions.
So HRG is responding to market conditions and continuing to take out back-office costs and restructure its business while also aiming to drive more revenue from existing clients by offering other services to compensate for the universal downward pressure on fees.
Fraedom's success and the healthy outlook for its growth tells us a lot of where demand is increasing in this market. HRG's Fraedom is a "a technology company which specialises in providing SaaS solutions for payments, expense and travel to existing and new clients, either direct or through third party travel and payment providers".
Saas (software as a service) businesses host software centrally which is then licensed out on a subscription basis. It is a big growth area. Clients get the benefit of access to a system which would otherwise be very expensive to develop and implement. It is a business model in which providers get a steady stream of revenue at very little marginal cost.
Fraedom's success in relation to traditional travel management also shows us what to expect in the future.
No TMC should focus on booking when it describes what it does. Booking is an automated process which can be delivered by virtually anyone — hence the pressure on distribution channels and the downward pressure on fees. But there are some kinds of automated processes that are not universally available but deliver the service, efficiency and savings that benefit business. Payments and expense management is one such area. And it operates on higher margins.
In the future the process of payments and data collection will increasingly be key for travel managers.
As HRG's business illustrates.