September 2022, Virtual
September 29 2022, Virtual
Now in its 27th year, the Business Travel Awards
This year marks the 10th anniversary of the culmination of BA’s ‘Fresh Approach’ initiative – a time airline commissions in the UK market were effectively removed by all carriers.
This changed the relationship between TMCs and their clients. Historically, travel management was treated as a profit centre. Commission income was typically around 9 per cent, with the cost of service from the TMC accounting for 7 per cent and the remaining 2 per cent returned to the customer as a rebate. When commission was removed, travel management effectively became a cost centre. TMCs initially set their fees to try and replace lost airline commissions, but due to market forces, these levels were unsustainable.
Since 2005, the dynamics of the managed travel landscape and the respective fees charged have now changed beyond all recognition. This set me thinking: 10 years on, what is a fair price to pay for your TMC and what now represents true value?
When I visit prospective customers, the same items are always on the agenda. They all want to see an improvement in the service they receive and the online travel tools they have access to; they want greater insight into their expenditure; they want faster response times and they want to try and reduce their service fees. It is a case of better, faster, cheaper.
This presents a challenge: to continue to improve service standards, TMCs have to invest in training and pay a premium for the best staff. To provide the most up-to-date technology, TMCs have to invest in innovation. To offer faster response times means having the latest, often costly, telephony and email systems. Offering the widest range of choice often means investing in the development of systems to run alongside the GDS. All these things cost money.
So what is a fair price to pay? At the crudest level, the formula is very simple for any TMC: the number of transactions multiplied by respective transaction fee equals total operating costs plus profit. Yes – profit.
Many of us were taught the parable of the wise and foolish builders. When selecting a TMC, the fact that they are profitable is the rock. It is a firm foundation for a sustainable service that will continue to effectively meet your programme requirements over time. If you take the profit out of the equation you are left with a house built on sand.
It’s my belief that true value essentially comes from two key areas. First, a TMC should be able to manage and reduce the actual cost of travel. Second, it should be continually looking to create new efficiencies within your travel programme.
TMC costs now typically account for somewhere between 3 per cent and 5 per cent of the total travel budget, down from the historic 7 per cent. It is, therefore, within the remaining 95 per cent of expenditure that there is a real opportunity to achieve significant reductions in cost. TMCs not only need to have access to the very best fares and rates, but also they need to have the right operational infrastructure and approach in place to truly deliver in this area.
Having the right tools in place to provide cost transparency is also essential. Business intelligence, pre-trip approval and genuine benchmarking are the order of the day. Gone are the days of benchmarking against the full, published fare to show sky-high savings. In fact, now we would rather highlight fare declines and out-of-policy activity to highlight any customer overspend.
When it comes to creating efficiency, system integration and the resulting time-saving opportunities are no longer the preserve of larger companies. Increasingly, we are seeing SME customers looking at technical integration.
I strongly believe that in 2015 a TMC should be able to prove their worth. There should be substance behind all engagement and a TMC should be able to demonstrate true value and ROI that they deliver. In short, customers should be able to see the value and be happy to pay a fair price.
Warren Dix is Hillgate Travel’s director of sales and marketing. Leading a 16-strong team, he manages Hillgate’s business development, marketing and account management functions. Prior to joining Hillgate Travel, Warren held senior positions at BCD and Expedia Corporate Travel.