TMCs’ often convoluted roster of fees is partly symptomatic of the multiple pressures they are facing, but should buyers be more sympathetic of their plight and even abandon the pursuit of transparency?
By Andy Hoskins, published 27 February 2023
TRAVEL management companies are feeling the pressure. A Covid-induced slump in customer revenue was followed by an ongoing battle for talent, while content fragmentation and shrinking supplier revenues are taking their toll.
The challenging circumstances have reignited conversations around TMCs’ remuneration models – subscription fees are not necessarily the answer – and the proliferation of fees and charges. Meanwhile, some buyers continue to call for total transparency in a world in which TMCs earn their living from conflicting revenue streams.
“TMCs are in a difficult position right now and that is leading to a lot of new ideas and fees,” says Martin Warner, principal at MW Travel Consultancy and former executive vice president, market strategy and segmentation at CWT.
Proving problematic for many TMCs, he says, are declining GDS incentives and an “acceleration in supplier revenue decline”, together with a talent shortage and, as a consequence of that, higher labour costs.
Lastly, he says, online booking adoption rates have not typically returned to pre-Covid levels – meaning more human intervention is required – and that bookings are still taking longer and require more assistance. Indeed, last summer the Business Travel Association said the ratio of bookings that required assistance or changes had gone from around one in ten to one in four.
“Some TMCs are trying to increase their fees or introduce new fees and some are talking with their customers and working out how they might consume their services differently now,” says Warner.
"I think the customer revenue piece is going to grow... We've got to get more revenue from the customer at the end of the day"
And with content becoming increasingly fragmented, there are costs associated with bringing it all back together. “TMCs are embracing more and more non-GDS technology… and I think there’s an argument that supports the TMC's justification of more cost with new or increased fees,” he says. “But then how long as a customer would I be prepared to tolerate a TMC’s inefficiency to get hold of that content for me?”
Meanwhile, as supplier revenues fall, the balance of TMCs’ revenue is moving towards the customer side. Speaking in December, BCD Travel’s chief executive John Snyder estimated that the TMC’s revenue was “hovering around that 50/50 mix of supplier versus customer revenue”. He went on to spell out the shift: “If I had to predict, and given where some of the changes are evolving in the industry, I think the customer revenue piece is going to grow, and the supplier is going to stabilise or neutralise where it's at. So I think the percentages are going to move over time. We've got to get more revenue from the customer at the end of the day. So I think we will see that start to tip a little bit over time.”
FEELING THE HEAT
Those TMCs that increased fees or introduced entirely new ones during the pandemic felt the heat from customers – even if they could see the rationale as TMCs carried out extensive work for no reward.
Some argue that corporates are themselves partly to blame, having driven down costs long before the pandemic took TMCs’ revenue away. “I think there's an unwillingness on the part of some companies to accept that there is a price to pay for having the services that they want,” says Margaret Birse, travel practice lead at Wolfe Procurement, and former global travel director at Serco.
“Some [corporates] try to push fees down to the point where it creates the wrong behaviour on the part of the TMC. We completely understand the desire to get the best possible fees, however, the fee cost is small compared to the overall travel cost and we remain focused on ensuring the cost and service are balanced for programme optimisation.”
Guy Snelgar, business travel director at the Advantage Travel Partnership, agrees. “In a model where corporate buyers are looking to achieve the absolute minimum cost for each different transaction type, that is inevitably going to lead to a complex fee structure to match.”
He continues: “For example, if a booking fee has been sliced so thinly on a product that might not deliver any commission back to the TMC, then the removal of a GDS incentive, or additional costs incurred from having to manually process changes to the booking, can make that fee unsustainable without a surcharge or increase.”
Regardless of the pandemic, TMC fees have become increasingly convoluted. “I’ve been through so many TMC RFPs and I’ve seen all the bells and whistles – all the fees and charges,” an independent consultant told BTN Europe. There can be up to 50 line items for transaction fees per country, they said, and then “probably another 20 or more fees for implementation, data hand-offs, single sign-on, re-shopping services, unused ticket tracking… fee, fee, fee! It’s really challenging for buyers to manage and audit all that and I think it’s challenging for TMCs too.”
One surcharge that frustrated many buyers during the pandemic was contact fees. When transactions dried up at the onset of the pandemic, some TMCs introduced fees for calls that did not result in a booking. The highest profile of these was probably a $25 contact fee introduced by American Express Global Business Travel. It applied to phone calls, emails and chat exchanges where there was no booking, although the fee was often negotiated down “to a couple of pounds per call” according to one source.
"TMCs don’t seem to be discouraging people from making those contacts yet some are struggling with the resources needed to maintain a high level of customer service"
One corporate who had enough clout to have it waived completely told BTN Europe: “We absolutely fought that and in the end they didn’t apply it. We felt it was completely against what a TMC should be. It shouldn’t be an expectation that every call results in a booking.”
The buyer adds: “TMCs say the fees are not about profit but about being able to provide the level of service we expect so I am sympathetic to a certain point. We value their partnership and appreciate there are reasons for costs to go up.”
A spokesperson for Amex GBT said the contact fee was introduced during the pandemic “at a time when we were handling a disproportionately high volume of calls from travellers seeking information rather than booking travel. It is one of the many approaches we have taken with customers to best align the pricing between the cost structure of our services and the activities that drive those costs.”
Margaret Birse believes most contact fees are around the $10 mark and can be applied multiple times in relation to a single booking. “If someone [calls to] check the itinerary, request the ticket etc – that could be $40 on top of the initial online booking fee,” she says. “They [TMCs] don’t seem to be discouraging people from making those contacts yet some are struggling with the resources required to maintain a high level of customer service.”
But contact fees aren’t all bad, believes another independent consultant, Chris Pouney, who says they can help root out particular behaviour among travellers. “Rather than putting my transaction fee up, the TMC can bring in that [contact] fee and get more revenue for a while, while you stop those people calling when they really shouldn't be. I'm fine with that. I doubt many buyers have said that but, in theory, it's right as long as it's done in a transparent and collaborative manner.”
Although many contact fees were introduced or increased during the pandemic, they are not an entirely new concept. During his time at CWT, Warner oversaw the launch of an “excess contact fee”. He explains: “If the average contact per transaction was higher than what we’d based the contract on then we reserved the right to charge for those excess contacts. Some customers were very understanding of that.”
CWT says it does not charge a “universal contact fee” for calls that do not result in a booking but says there are circumstances where a charge could occur, while FCM told BTN Europe it only charges a contact fee on its emergency out of hours service.
One TMC striving to simplify its model with an “all inclusive” approach is Travel Planet. Its fees include everything from account management, implementation and reporting, to approvals systems, traveller tracking and even out of hours service. “Our fees are all-in…. I’ve seen the price templates from other TMCs and you need an A3 printer for those,” says James Diaz, the TMC’s UK chief executive.
Another midmarket European TMC told BTN Europe they do not “in general” charge a fee for calls that don’t result in a booking, but the organisation is open minded on high-cost booking charges – another cost some buyers object to. “Non-GDS content currently makes up a relatively small percentage of our bookings, but we would consider introducing additional fees when the demand increases,” they said, without wishing to be named.
THE COST OF CONTENT
Charges for non-GDS content are not new, but they are a recent addition for one corporate BTN Europe spoke with who now pays a high-cost booking fee “on any booking that doesn’t exist in the GDS – so any component that requires an agent to make a reservation in a third party tool or via a non-GDS API.” They say the same flat fee is applied on both offline and online bookings on top of the company’s regular booking fee.
“We’re over a barrel,” they say. “We don’t want to promote people going out of the programme because we want to maintain visibility of the booking. At the same time, we also appreciate there are increasing costs and decreasing revenues for TMCs.”
They continue: “What really gets me is that this is being charged on online transactions for something like an easyJet flight which is entirely self-service and they’ve been providing that content without additional fees for years. It’s more understandable in the case of NDC content.”
FCM, Amex GBT and CWT all apply surcharges for the booking of non-GDS content, with the latter saying it is “constantly being reassessed given the dynamic market conditions related to NDC”.
Amex GBT says it introduced the fee several years ago in order to make the costs of inefficient distribution as transparent as possible. “To manage high-cost bookings, we incur aggregator fees that don’t exist in a more efficient channel, as well as increased servicing time for our agents,” it told BTN Europe.
ARTICLE CONTINUES IN PART TWO