One of the industry's open debates centers on how to pay for travel management services. There is a set of generally accepted options, and travel buyers and travel management company executives have myriad opinions about the details. It's not a new discussion, but industry leaders in the United Kingdom this year addressed the issue head-on with both deep analysis and banter on Web forums and at conferences.
What the Brits produced--by and for both buyers and TMC execs--offers guideposts and talking points for travel procurement specialists in any market. The crux of the issue, and a source of mistrust, is that as the TMCs' traditional supplier revenues dwindle, they turn to clients to fund the services they provide. This transition is easier said than done, and many buyers worry that without a clean break, agents do not have their travelers' best interests in mind regarding which vendors to support.
What sparked the British review was a March 2007 survey by the Institute of Travel & Meetings, which found that 42 percent of buyers believed incentive commission (override) agreements "influence which airline/hotels, etc., are being offered to your travelers." Presumably, it should be only the corporation's relevant policies and preferred vendors that influence the traveler's options. Following this initial research, ITM and the U.K.'s Guild of Travel Management Companies in August 2008 formed a working group of TMC and buyer representatives to study agency remuneration, and in May they produced part one of a report on the topic. Part two is expected next year.
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In the Procurement.travelpoll, 74 percent of those buyers who said they investigate TMC revenue streams also seek to share in those revenues. The problem there is trusting TMCs to open their books.
"There are known rebates, commissions, kick-backs, but clients don't have a clear view of these and, therefore, don't have a clear view of the drivers," said WS Atkins category manager Monica Dingwall in June at the Business Travel Market conference in London. "We don't mind that there are commissions at play, but let's not deny that they do have an influence. And that's where clients get annoyed--if they think the TMCs are being unduly influenced."
"It is a money-go-round that includes hotels, hotel booking agencies, airlines, etc.," said JPMorgan Chase head of international travel Bernadette Basterfield at the same event. "We know that the sales and marketing agreements exist, and that it is a revenue stream. We know that the global distribution system revenues exist. It is about how those revenue streams are transparently given in negotiations with your corporates. There is a bit of smoke and mirrors, and from the get-go there is a lack of trust between the TMC and the corporate buyer."
According to ITM/GTMC, "overrides and sales and marketing agreement payments made to TMCs accounted for anywhere up to 2 percent of total revenues, but the actual percentage will depend on the product and many other factors. Revenues in this instance include the overall cost of the ticket." Also according to the report, "There is a need to consider the fees/costs paid to self-booking tool providers by the TMC and/or corporate and where these feature in the process. In some instances fees are paid by the corporate in a transparent fashion through direct or indirect relationships with the [booking tool] provider. In other instances, especially for small and medium enterprises, such fees are included in the transaction fee and should be considered part of the distribution costs."
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The Procurement.travelpoll found that 39 percent of 102 buyers hold their own online booking tool contracts, as opposed to 54 percent sourcing the technology directly from TMCs; for global distribution systems, those figures were 29 percent and 69 percent, respectively.
Solutions Elusive
The trust issue particularly frustrates TRW Consulting's Tom Wilkinson: "TMCs admit to very little. All the 'overrides' (defined as a secret commission that varies by supplier market and TMC) are very hush-hush to prevent corporates from negotiating effectively for them. TMCs and some other observers seem to believe that it's wrong for customers to try to manage TMC profitability. However, when suppliers will tell you over drinks about airline overrides pushing or exceeding 10 percent, and hotels paying north of 20 percent, then customers have a legitimate interest in knowing how much are they paying for air and hotel services, and how much are they paying (at least indirectly) for TMC services. Unfortunately, since both the suppliers and TMCs have a huge interest in buyers not finding any of this out, you probably won't either."
Academy of Business Travel consultant Russell Hart on LinkedIn wrote: "I cannot ever see there being a meeting of minds. Agency profit is a buyer's expense. My advice is for buyers to keep competitively tendering. TMCs hate it, but it's the only way for buyers to be assured they are not being ripped off. It is up to buyers to fully understand how the supply chain works. Only then can they reduce the risk of contributing to TMC profits at their own company's expense. That's how the free market works."
To which De Novo Ventures travel purchasing consultant Dennis Bailey responded: "Not an easy one to solve. From my own experience and perspective, the industry is paying lip service to the concept of open book pricing/costing/accounting-- whatever you want to call it. In a previous role, I offered to pay the agent a significant 'profit' on the basis of full transparency and that all commissions, overrides, GDS revenue, 'sales and marketing' revenue, etc., or a proportion thereof, were returned to me. In order to validate the numbers, I wanted our internal audit team or an independent outside auditor to visit, but this request was declined."
~ Lauren Darson contributed to this report