As supplier incentives decline and the proportion of TMCs' customer revenue grows, what does it mean for buyer relations and the quest for transparency?
By Andy Hoskins, published 27 February 2023
WHILE some TMCs levy a surcharge for the booking of non-GDS content, Geert de Boo, vp global business travel at JTB Business Travel, says his company is in “wait and see mode” regarding the introduction of 'high-cost booking' fees. He does however acknowledge that developments in the NDC arena this year, together with shrinking supplier revenues, are shaking up TMC commercials.
“We try and avoid differentiating where content comes from because travellers have no idea if it comes from the GDS, an NDC pipe or an aggregator. It doesn’t matter to them. Content is content. But it’s an example of more friction and complexities,” says de Boo.
He continues: “Content distribution is increasingly fragmented. The cost model is really changing from being incentivised to distribute content to having to pay for it. The commercials of the distribution model are going to change and we can see it turning upside down. That has an impact on how we distribute cost to our client.”
"TMCs are getting pushed from all angles. They need to invest in consuming content but it can’t be at the expense of the buyer or the traveller paying more"
One travel manager who BTN Europe spoke with believes there is plenty of good technology available to help TMCs integrate non-GDS content. “If a TMC is charging for something where they are lacking, then maybe they haven’t been doing things right in their technology roadmap for years,” says Ben Park, senior director procurement and travel, Parexel.
An independent consultant who wishes to remain anonymous agrees: “The whole GDS, non-GDS content… buyers don’t like that. I should be able to get whatever content I need and whatever agreements TMCs have in place in the background, that’s their problem.”
Martin Warner, principal at MW Travel Consultancy and former executive vice president, market strategy and segmentation at CWT, inevitably highlights American Airlines’ plans to remove some 40 per cent of their fares from traditional EDIFACT-based distribution channels in April and push the industry down NDC paths instead.
“TMC have got these difficult-to-access bookings and they’re having to use additional technologies, but are they not going to rework their business process flow?” he asks.
One concerned travel manager told BTN Europe: “TMCs are getting pushed from all angles and they need to invest in consuming content. Suppliers are forcing this on the TMCs and they [TMCs] might not be that far down their own road map and have to think about how they pass on the charge. But it can’t be at the expense of the buyer or the traveller paying more. The bottom of the supply chain consuming the content is having to pay more and that’s on top of generally increasing rates.”
SUPPLIER REVENUE SLIDES
Warner also highlights the impact of Qantas’ decision to cut agency commissions from five per cent to one per cent last year on Australia point-of-sale bookings. BTN Europe sister publication, The Beat, reported that CTM’s response to the loss of a significant source of revenue was to introduce a two per cent surcharge on such bookings.
More recently, the Company Dime reported that American Express Global Business Travel would begin charging a three per cent surcharge on Qantas bookings made within Australia from 20 February. Amex GBT told BTN Europe its new surcharge is being introduced “because of changes to the Qantas economic partnership model, which is not related to the introduction of NDC content”.
A statement from the TMC continued: “In recent times Qantas, Australia’s largest airline, has spoken publicly about changes to its economic partnership model with travel management companies. These changes result in Qantas shifting the cost to service its bookings to TMCs like Amex GBT. As a result, TMCs must shift these costs to Qantas’ customers.”
It concluded: “Amex GBT is required by Qantas to provide, and incurs significant cost in providing, services to manage Qantas bookings. Qantas is now forcing us to shift those costs to customers by no longer reimbursing those costs.”
CWT said it currently has no plans to follow suit and FCM said it will give “consideration to all possible constructive changes”, but BCD Travel will introduce a similar three per cent surcharge from 6 March.
“During the past 18 months, some airlines in Australia have reduced remuneration to TMCs,” says Rose Stratford, the TMC’s executive vice president, global supplier relations and strategic sourcing, in a statement supplied to BTN Europe. “BCD did not immediately increase its fee structure to offset the decline; instead, we lobbied these airlines to restore their support. Regrettably, some airlines have declined to reverse their decision and we’re no longer able to absorb the financial shortfall.
“We’re committed to running a sustainable business so that we can continue to service and support our clients and travellers long into the future,” said Stratford, adding that, as a result, for tickets with point-of-sale in Australia, it would begin adding the surcharge in March. “This airfare surcharge will not apply to all airlines. Airlines that have maintained proportionate levels of support will be exempt from the airfare surcharge.” It is BTN Europe’s understanding that at present it will only be applied to Qantas bookings.
"Why should the customer pay for changes to an industry that has happily retained them and in some cases not declared these additional benefits?"
Virginia Fitzpatrick, regional director Australia at Partnership Travel Consulting, addressed the surcharge in a recent LinkedIn post: “Unless the agency retained this right through the contract agreement to pass on these variations, then why should you the customer pay for changes to an industry that has happily retained them and in some cases not declared these additional benefits? And what about the big ‘what if’… what if other carriers start to follow?”
She continued: “Surely the time has come for TMCs to sit down… develop an industry-wide statement forewarning and predicting the changes to come for their customers, and maybe the time has come for them to start looking [at] that corporate travel charging model? Dare I say it, a truly an open book discussion?”
THE QUEST FOR TRANSPARENCY
The development has put the wind in the sails of buyers calling for complete transparency of TMCs’ money flows, particularly regarding supplier revenues.
While BCD Travel CEO John Snyder says the TMC’s revenue is around the 50/50 mark but moving towards the customer paying more, a Business Travel Association white paper published last year on the subject of remuneration models said that, on average, the association’s members receive a third of their income from corporates and two-thirds from the supply chain. Warner believes that for some TMCs it’s already more like 40 per cent supplier-derived and 60 per cent from customers.
Travel manager Ben Park is squarely behind calls for transparency. “I want to see the [TMC’s] income streams from my programme to help [me] evaluate any conflicts, but also to see if there are opportunities. What happens if I change from airline A to airline B? I might get a better deal from airline B, but does that mean the TMC is worse off on their incentives as airline B gives them less than airline A? Will my fees therefore need to go up?
“I don’t want transparency so that we as buyers can criticise them [TMCs] or find out where they’ve got additional revenue – it’s not that. Our supplier decisions as corporates directly impact TMCs’ revenues and we don’t talk about this.”
Do some less scrupulous TMCs try and influence buying behaviour? “TMCs can influence what content appears at the top of searches, that’s all I would say,” Park responds. “If an airline comes to them and says we need more business in the next quarter and we’ll give you an incentive if you can move market share, what are they going to do? Are they telling the corporate [about] their overwrite in the OBT?”
He adds: “I absolutely have sympathy for TMCs at the moment and they add huge value to our programmes, but my point is that the commercial system is broken. The system needs to change because they have conflicting revenue streams.”
"Is there a tipping point where the customer says, 'do I value the services of the TMC sufficiently to pay the extra that I'm now being asked to pay?'"
Warner believes TMCs have not done a particularly good job of articulating their value proposition nor in giving the full picture of “all the variables that are now impacting the justifiable cost of managing travel”.
He says: “The problem for TMCs is that, when they’ve been very opaque about revenue from suppliers and the GDS, when those revenues genuinely go away, it's very difficult to go back to the customer and say, ‘you know that revenue we never told you about, well we now need you to cover it because it's gone now’.”
Referring to the new surcharges on Qantas bookings in Australia, Warner ponders whether it’s a development that could see some corporates rethink how they book and manage travel. “Three per cent on a business class fare from Sydney to Santiago, for example, is a lot of money and that’s in addition to a booking fee.
“Buyers are now paying more to continue using the TMC. Is there a tipping point where the customer says, 'do I value the services of the TMC sufficiently to pay the extra that I'm now being asked to pay?'”
He concludes: “I'm surprised that we've not seen more corporates [in Australia] talk about either assessing that value or deciding that they want to construct the programme going forward in a different manner. I’d be surprised if there’s not a number of companies looking at breaking it all down and just consuming certain services or content from TMCs. Are we looking at some sort of revolution now?”
SEE ALSO, CHARGED UP - PART ONE