Mature industry sectors often consolidate in
ebbs and flows with periods of high activity followed by periods of digestion.
The larger aggressor companies need a couple of years to assimilate the new
businesses and stabilize balance sheets. The TMC sector looks as if it might
need a breather at the moment. But I think the opposite is happening: Activity
is accelerating. It's fuelled by a renewed need for scale, necessitated by
three main factors.
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Tony O'Connor is the managing director of business travel consulting firm Butler Caroye. He is also the founder of airfare auditing company Airocheck. Reach out to him...
First,
the technology gap is doing a U-turn. When online booking tools and other
systems became expected deliverables from TMCs, large outfits had an initial
advantage. But as IT became cheaper and ubiquitous, every TMC could afford
systems good enough to compete, at least at the local level. Stage 2 has begun
and it is all about OBT globalization—universal crossborder booking systems. The
fastest developing mega-OBTs are either in-house or preferentially tied to
global TMCs. Amex GBT now runs KDS. CTM owns Lightning. Egencia and Tripactions
are TMCs themselves. Cytric largely lives off Amex GBT, BCD and CWT. Also, it
may be that the well-funded OBTs attached to large TMCs will win in the area of
seamless online T&E management, offering integrated AI-enhanced approval,
risk and expense management functions.
As the
percentage of bookings able to be made via OBTs heads towards 100 percent, the
terms that a TMC has for its OBT supply become a bigger determinant of its
profitability. Smaller TMCs are at an early disadvantage again, but this time
they might not have access to competitive OBTs soon enough or cheaply enough because
of the greater control large TMCs have over the next generation of OBTs. And
this time the financial impact will be greater because more bookings are being
made online.
The second and third factors are NDC
related. Surprise surprise.
TMCs will have to spend serious money to
connect with NDC-based booking channels. Reintegration will be a cost, and it
looks like TMCs will have to foot the bill. If GDSs do the job (which seems to
defeat the airline industry’s purpose a bit), that cost will be passed onto
TMCs anyway. The cost of integration was historically subsidised by the
airlines. And the airlines are in the process of removing the subsidy. One way
or another, this will hit TMCs in the form of higher IT costs, again favoring large
TMCs.
The third factor is a simple financial
impact. In many cases, NDC means that TMCs no longer receive substantial commissions
from GDSs in the form of segment fees, which have accounted for a third to a
half of their profitability. Large TMCs have been making background
compensatory deals with airlines to soften the impact. These are confidential,
but given the lack of complaint from major TMCs about the impact of NDC on GDS
segment fee revenue, the compensation must be reasonably generous. Small agents
and TMCs are not receiving the same level of transitional assistance, putting
their balance sheets under further strain, making them less competitive, and
making them more eager to sell up.
I thought at one stage that my three-factor
consolidation model might be a bit theoretical. It sounds good, but is it
really happening? I stopped worrying when I heard that a mid-sized US-based TMC
had been knocking on doors trying to buy small mixed retail TMCs in Australia.
The fish are hungry and roaming far and wide.
My concern for travel buyers is this: The next
season of TMC consolidation could happen too quickly for the industry to
maintain good service levels. Takeovers can cause serious service disruption for
the acquired and the acquirers if not
done well. This is true for any industry. It takes resources, care and time. TMC
services are quite fragile by nature, and would be susceptible to internal distraction,
indifference or interference.