Heralded as one answer to TMCs’ plummeting revenue during times of disruption, the subscription fee model has to date had a lukewarm reception among buyers

By Andy Hoskins, published 27 February 2023

SHUTTING the stable door after the horse has bolted – that was one industry executive’s succinct assessment of TMCs’ call for a move to subscription models during the height of the pandemic.

With revenue from transaction fees plummeting almost overnight while TMCs continued to field non-revenue-generating enquiries and services, the rationale was perfectly logical. A subscription fee set-up – which come in many guises – would better protect TMCs and ‘share the risk’ with customers.

But would anyone beyond the most benevolent of corporates see value in the set-up? For all the hype surrounding the model, corporates appear unconvinced. In a survey of more than 150 buyers conducted by BTN Europe last year, only six per cent said they had a subscription arrangement with their TMC. And in the early findings of a similar survey due for publication later this spring, the figure was just two per cent. In both surveys, however, around two-thirds of buyers said they operate on a transaction model.

Europe's Leading TMCs 2022 – Buyers Tell All

Europe's Leading TMCs 2022 – Buyers Tell All

“There's been very little movement [away from the transaction model]. If there's anything that I regret, it's that we haven't gotten more aggressive with changing the pricing model through the pandemic,” said BCD Travel chief executive John Snyder at The Beat Live in December last year.

“It was very clear for the first couple of years of the pandemic that the transaction pricing model was broken; it doesn't work. TMCs were not getting fairly compensated for the work that they were doing.

“[A pricing model change] benefits the TMC for sure, but it also benefits the customer and our suppliers as well. If we're not able to be healthy and service the customer at the end of the day, if we don't have any revenue to do that, if we don't have any revenue to develop tools and products for the future, it's going to be bad for everyone in the long run,” said Snyder.

"The commercial model conversation came up during Covid purely because of the massive revenue drop that TMCs faced. I think it’s almost a non-issue as we exit the pandemic"
Caroline Strachan, Festive Road

Snyder said his preference was a cost-plus model “where you have your basic cost covered and then you have a markup on top of that”, while “subscription pricing would also have a good place”.

American Express Global Business Travel CEO Paul Abbott offered a similar assessment in the midst of the pandemic: "High demand and low revenue is not a great balance. I do think the transaction fee model needs to be looked at.”

Amex GBT has not formally launched a subscription offering but says it offers “nearly every pricing solution imaginable” with “almost every customer ending up with a hybrid of transactional and non-transactional pricing elements for the various aspects of our services”.

A spokesperson for the TMC said that subscription fees can work well for established programmes, with relatively predictable demand, or for delivering a defined set of products and services, paired with a central budget.

It is the last point, a central budget, that is a sticking point for many corporates, says Ben Park, senior director procurement & travel, Parexel: “Some companies have a central budget so they can choose [their model] more freely, but in most companies, the costs need to be distributed to the travellers or cost centres and that prevents the shift. So it’s financial accounting that prevents change.”

A second barrier to adoption, Park believes, is the possibility of further events that could disrupt travel in the future. “If you have a high subscription fee and then there’s a month or months of no travel… that’s expensive for the buyer who is paying just to keep the lights on.”

Park does however like the idea that a subscription fee could be reduced if a corporate’s online adoption increases or its average call times fall. “They might say ‘ok, we can reduce your fee because you’re not causing too much noise in the machine’,” he says.

Caroline Strachan, managing partner at business travel consultancy Festive Road, offered a simple analogy during a breakout session at GBTA Europe last November. “If you’ve ever paid for a gym subscription, been there lots in month one and month two and then not so much in month three for whatever reason, it’s an expensive subscription. That’s the issue I think buyers have with the model.”

She added: “The commercial model conversation came up during Covid purely because of the massive revenue drop that TMCs faced. I think it’s almost a non-issue as we exit the pandemic.”

Nevertheless, she suggested that alternatives to transactions fees or management fees need “comfort factors” built into the contract such as a get out clause after a year if the arrangement is not working for either party.

CWT was perhaps the highest profile TMC to formally introduce a subscription offering, doing so last summer. Customers receive a single, recurring monthly invoice for all products and services they procure from the firm, with the fee based on criteria including forecasted transaction volumes. A group of customers that took part in a pilot of the model over the preceding 12 months said the monthly fee reduced the time their finance teams spent reconciling TMC invoices and helped eliminate hidden fees.

"Business travel has traditionally been completely transaction fee-based but as a TMC the booking is only a part of what we do and it’s not the part where we attach the most value"
Geert de Boo, JTB Business Travel

Asked for an update on the offering in February this year, CWT says it sees a “continuous uptake” and has onboarded its first client outside the US on the subscription model. It noted the arrangement resonates well with tech clients as it resembles software or cloud-based pricing models.

Travel Planet also offers the pricing model but says the traditional transaction model remains its most popular offering. “We have less than five per cent of clients on it and I don’t see it growing by much,” says the TMC’s UK chief executive James Diaz. It offers monthly, quarterly or annual billing and expects those on the subscription model to have upwards of 70 per cent online adoption.

“We price it based on the expected number of trips per month – not how many travellers they have or their total spend. That is then their bucket. If a customer’s number of trips varies widely from that bucket we’ll take a look at recalculating it. If it’s within, say, ten to 15 per cent we probably wouldn’t do anything about it but anything more and we’d probably sit down with them and look at which way the fee needs to move.”

Some travel management companies have found success with different versions of subscription pricing. “Business travel has traditionally been completely transaction fee-based but as a TMC the booking is only a part of what we do and it’s not the part where we attach the most value,” says Geert de Boo, vp global business travel, JTB Business Travel. “With Experience Zero, we have a flat annual rate that reflects the value we provide for managing the entire programme which is much more than just allowing travellers to book.”

De Boo says the offering, which is utilised by around 60 per cent of its customers, provides simplicity in terms of budgeting and understanding the cost of the travel programme. “Travellers also know they get the support they need and won’t land a $25 fee or whatever if they want to make a change,” he says.

Ostensibly, it is not too far removed from a management fee, but is not based on a percentage of overall spend. Rather, the annual fee, which can be adjusted up or down, is based on a combination of the number of travellers, overall spend, online adoption and a customer's particular service needs. “All of that determines the sweetspot,” explains de Boo. “There are subscription models based on license fees or user numbers but if you have some people who book only four times a year and others booking 100 times a year that’s not going to work so well, so we like to offer an overall annual fee.”

The likes of reporting, analytics, reshopping, duty of care procedures and unused ticket management are all wrapped up in the fee.

“No shoe fits everyone but I think it works really well for the market we’re in – the mid-market and smaller customers,” says de Boo, who adds the TMC includes it in RFP responses where it deems it appropriate, “but often we’ve already engaged with the client well before the RFP and the model might be the reason we were invited to participate.”

The TMC has been offering the set-up for more than four years and says it better protected it during the pandemic. While the company reduced fees for some customers, it was able to keep many larger clients’ teams “more or less intact”.

"Subscription fees work best when a buyer can give assurance as to what their volumes are going to be. Then they can agree the appropriate set up"
Chris Pouney, independent consultant

De Boo explains: “We kept providing all our services. Just because there wasn’t any travel didn’t mean they [customers] didn’t want to talk [about] travel – how to navigate it all, providing information to travellers, looking after those still travelling. And as the pandemic progressed some thought about [re-writing] their travel policy or bringing in sustainability initiatives, for example. There’s no transactions there but you’re still working with them and providing value.”

The company often adjusts the fee as appropriate each year. “We’ve had it both ways, with some companies coming in with lower spend and some with higher spend than they expected. Many companies at the moment struggle to have insight on the size of their programme. The number who can’t put a number on their spend is surprising,” says de Boo.

And that is the crux of the matter. A subscription fee has to work for both parties and setting it at the right level is fundamental to that. Moving to the model when there remains uncertainty about future travel volumes is difficult.

“Subscription fees work best when a buyer can give assurance as to what their volumes are going to be. Then they can agree the appropriate set up,” says consultant Chris Pouney, who provided this article’s opening line. “Good travel managers know with reasonable assurance where their volumes are going to be because they’re connected to their sales team, their finance team… they know what’s coming up and that is when the model works well.”

Travel management companies – and some buyers too – almost unanimously believe the transaction fee model needs shaking up. While they work for some, subscription fees do not appear to be the solution around which the industry will coalesce – at least not until travel volumes stabilise and become more predictable – but then again, perhaps there is no such panacea.