Until the beginning of 2006, the market for globally managed travel has been relatively concentrated with four major players—two owned and two joint ventures or partnerships
(see story). While online travel agencies are giving the legacy travel management companies a run for their money in the U.S. market, outside the United States, where transaction processing is still viewed as more of an art than a science, bricks and mortar are still perceived as critical to local delivery. It may be five years before OTAs significantly impact competition outside the United States.
Large global companies have had essentially four choices. Each of the legacy four has a solid team of executives and managers. Each has its own operating and technology strengths and weaknesses. Each has won business from blue-chip large corporate customers who tendered for a single global provider.
The landscape has been changing dramatically:
•TMCs are differentiating skilled value-added services from "transaction processing" and testing client reception to different approaches to pricing to determine acceptable profit margins.
•Content fragmentation is looming, requiring TMCs to reformulate technology strategies to ensure they can continue to offer full content.
•For some time, large global corporations have been skeptical about marketing claims or even contractual guarantees from companies with split ownership. The current realignment is geared in part to address demand for single-owner control for local delivery.
The TMCs are developing strategies to move beyond transaction processing, prepare technology platforms for full content access and improve efficiencies and strengthen control for standardization over all global operations. The result of all these forces is ownership realignment.
Except in a few unique local markets or where regulatory restraints inhibit ownership control, TMCs are seeking outright ownership more aggressively with fewer joint ventures. However, ownership in itself does not guarantee seamless worldwide integration and delivery of services that meet or exceed customer expectations. These twin objectives remain elusive.
It is far too early to predict with certainty the results of the new combinations. The same management teams remain, at least for now. Customers presumably will stay loyal until their contracts expire. All the announcements claim "business as usual." Of course, it would be unwise for players to signal volatility in an industry undergoing volcanic change otherwise.
The realigned entities face challenges with their global networks: integrating technology and streamlining management. Integration efforts inevitably create distraction and disruption. Uncertainty also can create employee-retention issues.
There are other potential issues:
•Changes to operational and service standards may no longer be uniform in all countries as local operations begin to report to different networks.
•There may be problems with reporting timeliness and accuracy where former competitors now are jointly serving global clients of a legacy network. There may be less cooperation and more finger-pointing when problems occur.
•A global account director will have less authority over operations in other countries now managed by a competing network.
•It will be harder to standardize training and front end data input in dealing with two different networks.
Corporations working with one of the realigned TMCs should review their contracts to verify that they have contractual rights vis-à-vis the new entities. Those in the middle of a selection process will need to reevaluate the relative strengths of the different TMCs in the various geographies.
At best, this realignment could reinvigorate competition for global programs, forcing all of the players to be more innovative. At worst, there could be disruptions in service and management changes that are not customer-friendly. For the short term, these risks seem fairly remote.
It would seem unlikely that shuffled ownership signals accelerated concentration or a "duopoly" in provision of commercial travel for global accounts. Most of the established global companies have been aligned. In addition, new online competitors are getting stronger in the U.S. market and will eventually capture a share of other markets.
Further consolidation at present seems unlikely:
•Major TMCs have enough critical mass to achieve most economies of scale and further volume aggregation would not produce much incremental margin.
•The TMCs realize customers may not react favorably to more major acquisitions. Distractions during mergers or acquisitions can harm customer relations and negate marketing programs.
•Few acquisition options remain.
Will customers of the affected companies extend their contracts or re-bid? "Coopetition" or collaborative working relationships between global competitors are usually short-term accommodations. However, bets are that current customers, unless they confront personnel displacement (other than ownership) or service issues, will allow contracts to expire without re-bidding solely due to the realignments. Re-bids at the end of contracts are likely if not necessary to regain full consolidation and to probe the new companies' strategies.
What would life be in the industry without change and dramatic announcements? It is never dull, to say the least.
John Caldwell, an attorney, is principal of Washington D.C.-based travel management consulting firm Caldwell & Associates.