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Management

BTA calls for change on TMC pricing models

By Mark Frary / 14 October 2020 / Contact Reporter
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Clive Wratten Business Travel Association

The BTA's Clive Wratten

The Business Travel Association (BTA) has called for the business travel sector to develop a new approach to TMC pricing to replace a system that has been in place for more than a quarter of a century.

It said it had recognised the need for change had been evident for some time but has been brought into focus by “the devastating impact of Covid-19 on the business travel sector”.

With industry consultants Nina & Pinta, the BTA has produced a white paper that outlines the pros and cons of three industry pricing models: transaction fees, subscription fees and management fees. The paper has been developed with insights and feedback from representatives from leading UK-based corporations and TMCs, it said.

Clive Wratten, CEO of the BTA, says: “In recent years, there have been growing calls for evolution in the way TMCs price their services. The impact of Covid-19 on our industry has made that need more vital than ever, and the BTA is committed to leading the industry with this catalyst for positive change.”

The paper calls for clarity on pricing and transparency about what each model includes.

Transaction fees, the dominant model in the sector currently, are “little liked” by TMCs because of the huge amount of work that goes on behind the scenes around a booking. Corporates tend to favour them because they ensure costs are allocated directly to budget centres and largely avoids the need for central costs.

A subscription model would ensure TMCs get paid for the services they provide but many corporates do not have centralised budgets. Another approach might be to charge subscription fees per traveller, with different levels applicable to regular travellers than those who take occasional trips. The question for many corporates is will it cost the same as the current model or will it prove more complicated and costly.

Management fees, where corporates are charged for the services TMCs provide at cost with a fair profit built on top, is simple in concept but can be difficult to manage in practice. Done correctly, it can ensure that the TMC’s goals are aligned with their corporate client’s. Again, the lack of centralised budgets may prove to be a stumbling block.

As the corporate focus on technology grows, there will inevitably be questions around who pays for the necessary investment in that.

“This is certainly up for discussion,” says Wratten. “The supply chain - airlines, hotels, tech companies - needs to get involved in this discussion. Where does this tech stack get paid for? It may be that the corporate could pay for the licence fee directly to the tech company with transaction fees for the services on top.”

Wratten is not pre-empting the outcome of the consultation.

“The purpose of this is completely agnostic; it could be all of them or something completely different. It is not our role to choose, it is to have the debate,” he says.

The need to look at TMC pricing has been on Wratten’s to-do list since joining the organisation last year.

He says, “When I first came into the role, l was struggling with what the value of a TMC is and the ever-changing distribution models. It was time to revisit everything we did. Covid has only made it more pronounced.”

Wratten says the need for change has been driven, in part, by increasing downward pressure on transaction fees. The increasingly procurement-led focus of companies when buying business travel has only accelerated this. 

"This race to the bottom doesn’t serve anyone," says Wratten. “Those who have raced to the bottom will have to race back to the top.”

Transparency on remuneration will be at the top of corporates’ minds. The report reveals that on average the association’s TMC members receive a third of their income from corporates and two-thirds from the supply chain.

Wratten said: “Travel is not the only industry to get paid by the supply chain but because it has become so complicated there is a lack of transparency.”

He is pragmatic about the need for change. “It is not an easy change from one model to another,” he says. “On the face of it, it could look like you are paying more. When talking to corporate buyers, there is an appetite for the ability to choose what services they have and feel they might get better value for it."

Wratten says there will be winners and losers in the supply chain as there is with any step-change.

“At times of disruption, there will be players that win and those that won’t - that is inevitable in any industry.”

He believes, however, that the pandemic has led to many corporates recognising the value of having a strategic partner.

Wratten says: “For our industry to evolve, especially in these challenging times, there needs to be an open, honest and constructive dialogue between all of the key stakeholders, and that is what the BTA will be seeking to achieve in the weeks ahead.”

The consultation will remain open for the next eight weeks.

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