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A Business Travel and Meetings Show panel discussion here this month gave voice to the unsettled issue of transparency in revenue streams for travel management companies. There is a fair amount of buyer cynicism about agencies generating supplier commissions and overrides on client volume, which has been called everything from unnecessary to fiscally responsible and is a popular topic in Britainof late.
British Airways head of U.K. sales and marketing Richard Tams said typical airline-TMC contracts are "sort of generic, activity-based agreements, which basically incentivize the TMC to engage in activity that helps sell that particular product." Rather than worrying about transparency, he argued, corporates should "just make sure you get the best deal so you are not being hoodwinked." But echoing some buyers' concerns, Hotel Reservation Service vice president of global corporate sales Todd Kramer claimed TMCs allow incentives to influence purchasing decisions, "affecting corporates. If someone is going to pay me more money than somebody else, of course I will push this company to try and get more money; it’s just simply human nature."
Buyers have long been concerned that supplier-TMC arrangements result in vendor selections that are not necessarily aligned with the company's own contracts and policies. As a result, some have requested that TMCs share with them preferred supplier contract details, which TMCs are reluctant to do.
Nigel Turner, director of public sector and industry affairs for Carlson Wagonlit Travel, explained how such supplier agreements are advantageous for clients: "Most customers benefit in a number of ways directly, because our fees would be different if we didn't have those income streams, but also from the service training or events. Most customers are aware that when they go to events, they are sponsored by preferred suppliers; equally with our staff training, they are sponsored by preferred suppliers. There has to be a level of income that makes a business viable, and quite frankly just from purely financial terms ... whether that flows directly back or whether that subsidizes the cost, it's all money that has to come in to provide value at the end of the day."
Given that agencies have multiple revenue streams, like advertising, marketing, training, commissions and more, developing a comprehensive list of how much revenue the TMC receives from preferred suppliers would be arduous, according to Turner.
"Yes, these days there are a mixture of income streams ... but it's about value in that supply chain. It's also about getting value for that customer," Turner said. "It's all about offering value to the end user, and I have never gotten a complaint that said, 'You booked me on a totally wrong carrier that I didn't want' or '… sold me a totally inappropriate product.' You have to sell them [a product] that has added value, and that's why we work with the suppliers closely because we are their extended sales force."
Regarding the revenue streams, which Hotel Reservation Service's Kramer also described as complicated with "kickbacks, marketing funds, overrides and incentives," panelist and Atkins Limited category manager Monica Dingwall asked, "Does it suit the TMC and the suppliers that it's all so complex and no one is clever enough to work it out? Is that just convenient? 'It's just too complex to explain' and 'Don't worry your little heads about it as long as we are getting the best deal.' "
Since they are unable to "evidence it," some buyers have questioned how supplier-TMC deals help their programs.
"I have issues with hotels. If we have different hotels in the same city, [the TMC] should be trying to encourage people to go to the cheaper ones, but it seems as though they are being encouraged to go to a bit more expensive ones and obviously I am a bit suspicious," said one travel manager. "Is there then a back hand that might be influencing the decision making? My concern is that I can't evidence it but I can see the behavior and that is what worries me. It's not against policy because those hotels are in our policy, but the policy really is to try to fill up the cheaper ones first. But we don't know because they can always argue back that it wasn't available, and it's quite hard to prove that."
Dingwall said many travel buyers believe that in order to have trust between the TMC and the travel manager, the TMC should create an open environment.
"There is that question of, 'Does it really matter?' If your travelers are getting the best hotel rate or a good price for a fare, does it really matter?" she asked. "I think it does because if you operate in an honest relationship with your TMC and with your supplier base as well, and you don't want there to be a hidden cost or hidden money flow, the key to managing supplier relationships is having a degree of collaboration and honesty. The lack of those two things is going to make me feel like there is something going on and I'm not part of the club."
The circuitous conversation essentially revolves around who is willing to incur the costs for the TMC to function, BA's Tams argued.
"Basically, the sales and marketing agreements do sort of provide a very valuable revenue stream to travel management companies. The question is: Is this wrong?" asked Tams. "My conclusion would be that you have to ask yourself how these arrangements look, and do they contradict the travel policy that you as a travel buyer have in place? This is a valuable revenue stream for TMCs and if any of you in the audience can name me a travel management company that makes what you would acknowledge as excessive profit … if you can't do that, essentially these revenue streams are subsidizing your transaction fees or your management fees because the money has to come from somewhere. If the supplier stops providing this money, then eventually it is going to get passed on to somebody, and guess who it's going to get passed on to? Are you prepared to pay it instead?"
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