Rising TMC Data, Reporting Costs Spark Buyers' Concern

New and rising travel management company data and reporting service charges are spurring concerns among business travel buyers who have seen those services traditionally included in contracts.

With travel transactions dropping, many travel management companies are relying more heavily on ancillary revenue streams to fill the gap in covering their account management costs. Travel management company executives and consultants said there is no across-the-board effort to raise prices of data and reporting services, but fewer transactions are driving some agencies to raise costs for any new services, particularly for those most in demand from buyers, such as more detailed and frequent reporting.

"Many TMCs will shoulder some portion of that cost, given a sufficient transaction level, but if those are dropping it's hard to take on a fixed cost when your variable revenue stream is dropping," said Casto Travel president and COO Marc Casto. "During periods of tough economic times, the volume of report requests increases significantly as everybody revises their budgets and looks for opportunities for cost savings in travel. As internal costs to support these requests increase, the revenue is dropping, so at some point there has to be some give."

Corporate agency contract terms vary, but the broad transaction slump is sparking discussions between many travel buyers and travel management companies to reconfigure their pricing structures.

In a fixed-fee environment, "a transaction drop somewhere between 10 percent and 20 percent drives some kind of conversation," said one travel management executive. "For the most part, it needs to be more like 30 percent to have a direct impact on us."

Carlson Wagonlit Travel North America president Jack O'Neill told BTN, "CWT hasn't specifically unbundled fees, but it's not a new idea to be looking at new products and services to increase our value to clients. At the same time, in the current economy, most clients are traveling less and actually looking to trim program costs. Reflecting that reality, we've placed even greater scrutiny on costs for all areas of our business, reducing where we can, while maintaining service to travelers and travel managers."

Tower Travel Management president John Smith said the industry is evolving to where pricing is unbundled to provide customization and flexibility. "Everything we do is tied into some sort of value-add on a basic set of services that are aligned around transactions," he said. "The days of all-in-one sorts of solutions are long gone."

While travel management companies push value-added services to generate revenue outside of transaction fees and standard management fees, some question the new pricing, as they now are charged for standard reports and data previously provided as part of the core fee structure.

"It's borrowing from Peter to pay Paul," said travel management consultant Carol Ann Salcito, president of Management Alternatives. With the transaction fee stripped down and that revenue stream shrunken, it has become a "case of spiking everything and anything out of that pricing and requiring payment for those particular elements."

Salesforce.com director of global travel Ralph Colunga noted such increases, but also said there needs to be visibility into the TMC costs associated with their higher fees.

"There needs to be more transparency to understand what are these hidden costs, what is causing them and are they fair?" Colunga said. "Suppliers have to make a profit. That is never in question. It gets back to how much profit they are making and that's always in question and therefore negotiable."

Some TMC executives denied buyer claims that they have been charging more for data and reporting costs.

American Express Business Travel vice president and general manager and head of North America and global account sales Lane Dubin said data reports have always been fee-based, with some reporting included with account management. "Within the deal structure negotiated with a given customer, those parameters and pricing schedule are always laid out," said Dubin. "This notion of double-dipping does not exist. It wouldn't because there is discussion, full disclosure and a mutual agreement around how the deal might be structured. We have not looked at it in generic fashion and with management information for example to charge more. Our philosophy remains consistent."

BCD's Miller said, "We are all looking for new revenue streams. Our primary effort to look for new revenue streams is to provide new value, not to re-price something that has been a standard. That doesn't really work so well. There becomes an established market aggregate price for things that have been happening in our service offering for years."

Other pressures pushing data costs upward are the sophistication of the software, licensing fees and the amount of data travel buyers request for compilation. In addition, the transaction drops can alter the pricing agreements with the third-party data and reporting software providers, according to Casto. International data consolidation "has a pretty steep price tag associated with it, both on the transactional and on the software application setup," he said.

"As travel management companies negotiate themselves into higher-volume commitments, then the costs do drop," Casto said.

With the more ad hoc and in-depth reports buyers are asking for today, there needs to be a certain level of price increase expectations, said BlackRock vice president and global travel manager Maria McSorley.

"I don't see how I could have had my travel management company doing that without charging you," she said. "If people are looking for deeper dives and analysis, that is something that you are going to be charged for. When companies look at the T&E category and see that it is the second- or third-largest expense, which could be millions of dollars, to pay a few thousand isn't much," McSorley said.

Much of the confusion between the new costs and the way in which they are applied can come when loose contract language leaves material change clauses open to interpretation, according to Laurence Smith, principal at law firm Wolff & Samson.

"When there is not tight enough language regarding the TMC's ability to pass costs along and the scope of the services included as part of the core offering are not delineated clearly enough," said Smith, "it is in those two instances where the TMC may have latitude to say, 'I'm charging an additional fee or these direct expenses were not exclusive and we're going to add on a fee for various services.' "

In addition, with so many more detailed and price-focused requests for proposals, the agreed-upon terms may not support the operating expenses when transactions fall off.

"The travel management companies are being squeezed as tight as ever in the RFPs and negotiations, and the numbers agreed to probably aren't satisfactory," Smith said. "TMCs then look for any license or wiggle room they may have to impose additional costs."