< PrevNext > TMC Consolidation Accelerates, Leaving Messy Aftermath By Butler Caroye Managing Director Tony O’Connor / January 24, 2020 Share Mature industry sectors often consolidate in ebbs and flows with periods of high activity followed by periods of digestion. The larger aggressor companies need a couple of years to assimilate the new businesses and stabilize balance sheets. The TMC sector looks as if it might need a breather at the moment. But I think the opposite is happening: Activity is accelerating. It’s fueled by a renewed need for scale, necessitated by three main factors.First, the technology gap is doing a U-turn. When online booking tools and other systems became expected deliverables from TMCs, large outfits had an initial advantage. But as IT became cheaper and ubiquitous, every TMC could afford systems good enough to compete, at least at the local level. Stage 2 has begun and it is all about OBT globalization—universal crossborder booking systems. The fastest developing mega-OBTs are either in-house or preferentially tied to global TMCs. Amex GBT now runs KDS. CTM owns Lightning. Egencia and Tripactions are TMCs themselves. Cytric largely lives off Amex GBT, BCD and CWT. Also, it may be that the well-funded OBTs attached to large TMCs will win in the area of seamless online T&E management, offering integrated AI-enhanced approval, risk and expense management functions. As the percentage of bookings able to be made via OBTs heads towards 100 percent, the terms that a TMC has for its OBT supply become a bigger determinant of its profitability. Smaller TMCs are at an early disadvantage again, but this time they might not have access to competitive OBTs soon enough or cheaply enough because of the greater control large TMCs have over the next generation of OBTs. And this time the financial impact will be greater because more bookings are being made online.The second and third factors are NDC-related. Surprise surprise.TMCs will have to spend serious money to connect with NDC-based booking channels. Reintegration will be a cost, and it looks like TMCs will have to foot the bill. If GDSs do the job (which seems to defeat the airline industry’s purpose a bit), that cost will be passed onto TMCs anyway. The cost of integration was historically subsidized by the airlines. And the airlines are in the process of removing the subsidy. One way or another, this will hit TMCs in the form of higher IT costs, again favoring large TMCs.The third factor is a simple financial impact. In many cases, NDC means that TMCs no longer receive substantial commissions from GDSs in the form of segment fees, which have accounted for a third to a half of their profitability. Large TMCs have been making background compensatory deals with airlines to soften the impact. These are confidential, but given the lack of complaint from major TMCs about the impact of NDC on GDS segment fee revenue, the compensation must be reasonably generous. Small agents and TMCs are not receiving the same level of transitional assistance, putting their balance sheets under further strain, making them less competitive, and making them more eager to sell up.I thought at one stage that my three-factor consolidation model might be a bit theoretical. It sounds good, but is it really happening? I stopped worrying when I heard that a midsize U.S.-based TMC had been knocking on doors trying to buy small mixed retail TMCs in Australia. The fish are hungry and roaming far and wide.My concern for travel buyers is this: The next season of TMC consolidation could happen too quickly for the industry to maintain good service levels. Takeovers can cause serious service disruption for the acquired and the acquirers if not done well. This is true for any industry. It takes resources, care and time. TMC services are quite fragile by nature, and would be susceptible to internal distraction, indifference or interference.