Perspective: Buyers Must Mind TMC Costs, Not Just Fees - Business Travel News

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Perspective: Buyers Must Mind TMC Costs, Not Just Fees

December 19, 2012 - 11:05 AM ET

By Andrew Menkes, founder, CEO and chairman of Partnership Travel Consulting

Thirty-year travel industry veteran Andrew Menkes, a former corporate travel manager and airline and travel agency executive, on Nov. 7 addressed attendees of The BTN Group's conference in Denver. An edited excerpt of his remarks follows.

Andy MenkesAs an industry, we tend to focus on air, hotel and car expenses. They are important, but there is another piece that you really should focus on: travel management company costs. But as they relate to TMC costs, fees are worth about a nickel out of every dollar. So if you're spending time beating up your TMC on their fees, you're chasing nickels. The real money is in the spend, not the fees.

Over the years, procurement has become much more involved in travel, and that's due to the industry turning upside down. In the golden days, when I was on the TMC side, the TMC did all the work for clients for free, and then gave them back a rebate. Once airline commissions disappeared, travel agencies changed their names to travel management companies and had to charge fees. The problem is that the metrics used in this newly created industry don't match any other vendor management program at any major company. To wit, can you define "no-touch?" Probably, but it's tough to measure, because you're taking someone else's word for it. By definition, "light touch" is subjective. A new phrase, which I just made up, is "excessive touches."

One of the first things you want to look at in your agreement with the TMC is whether they put a cap on touching. I recommend that the total amount you pay for a touch cannot exceed what the cost would have been had it been wholly offline. Because with offline, you don't pay by the call, you pay by the ticket.

Here's some other points to keep in mind when negotiating TMC contracts:

• When it comes to low-fare guarantees, my mom used to say that if you want a guarantee, you should buy a dishwasher. If you look at your service-level agreement with your TMC, what's the guarantee? If you find a better fare, we'll give you back the difference? That's not sufficient. They should waive the transaction fee. You shouldn't pay a transaction fee on the wrong fare. If they reissue the ticket and charge you a second time, then you've got a really bad SLA.

• You have a TMC agreement, and in your agreement you pay for a number of metrics. Here's the problem: in ticket number one, first a passenger name record is booked, whether online or offline, and it's ticketed and the traveler travels and changes and gets updates, etc., and then the agency reports on it. In ticket number two, they issue it and 10 minutes or an hour later they void it. Why should you pay the same fee for a trip that never takes place as one that consumes TMC resources?

• Another metric we see is that the TMC will have a slightly lower fee for hotel-only bookings. Great concept. But how do you audit hotel-only PNRs if there is no invoice? And if the TMC is keeping the commissions on hotel-only bookings, they're getting paid twice. With an average of 10 percent of the room rate, for a two-and-a-half-night stay—considering 50 percent of hotels are commissionable—do the math: They make $45 just on hotel. If there's no invoice, you shouldn't pay for it.

• When a traveler calls up as a result of making a booking online, but for whatever reason can't make a change to that PNR because of agency system limitations, the agency is going to charge you what they call an agent-assist fee. What you need to work out with your agency is whether you are paying per phone call. Are you paying only if they press the "end transaction" button? Or are you paying per ticket? I recommend that you only pay if a new ticket is issued. Because—true story—one traveler made an online booking, and in the comment section on the site wrote "thank you." The agency replied back, "you're welcome," and charged $7 because it was touched. So you want to make sure that if you're paying agent-assist fees, one, there's a cap to them and, two, you can audit them.

• Another one of my favorites is when TMC pricing is based on three or five calls per transaction. I've seen quite a few of those setups. The problem is that some TMCs consider outbound calls as part of the transaction. You can't monitor their outbound calls. The most you can monitor is inbound.

• "Direct operating expenses" is the most beautiful model a TMC could get. You pay them 100 percent of what it costs them to service the account, plus a profit. The problem with DOE is that the agency has no incentive to reduce headcount or make the staff more productive.

So, focus on the 95 cents, not the nickel. Be more focused on working with the TMC to help travelers comply with using them and your preferred vendors.

This op-ed originally appeared in the Dec. 17, 2012, issue of Business Travel News. 

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