Op-Ed: End TMC Conflicts Of Airline Interest

Tough economic times for the airlines may turn out to improve the industry in ways not anticipated by either them or their "agents."

United's announcement that it had suspended its "preferred contract" with one mega travel management company and planned to reduce incentives paid by $80 million or more is ironic. When net fares arrived, the corporate client's understanding was that the airlines would net out both commission and overrides. No client could ever audit or verify that the new discount deal was net of overrides, and the fact is the megas have continued to accept airline incentives that may conflict with their individual clients' preferred air programs. Presto, continuing conflicts of interest that cannot be audited.

However overrides have been configured, seemingly divorced from managed travel air spend, they remain a major factor in TMC airline relationships.

What drives all this is the schizophrenia still rampant among suppliers. Who really drives the business: the TMC, travel manager, procurement, or traveler (or admin)? The answer should be the company that pays, not intermediaries that are paid to abide strictly by the interest of the company.

For companies, it is in part the principle as much as if not more than the financial impact of these conflicts. A true partnership should have open books on all material items, especially where the contract calls for return or credit of all incentives. A true net deal should be more than symbolic and pass all benefits to the corporate client.

When will travel management companies declare themselves free of all supplier incentives? Now might be a good time for a bold move on that issue. Incentives are diminishing anyway, but they leave a heavy dose of distrust among all the parties: the airline, the TMC and the corporate client.

TMCs may suggest the effect of eliminating supplier incentives would be to raise costs and fees otherwise offset, so their pricing increases. Again, full disclosure and transparency is best, not undisclosed revenues that cannot be traced. The incentives could find their way into TMC profit streams, like GDS revenues and some surcharges. It is better for a corporation to know what use is made of benefits due to its travel purchases than to have an intermediary make those decisions and expect blind faith that it is in the corporate's interest.

Do fully loaded fees remove this issue of conflict? Not in my view, even though RFPs can seek and obtain first year revenues and expenses to set and later recalibrate fully loaded pricing.

Pre-nuptial agreements can work. It seems to me full disclosure and realistic, verifiable audit processes can help corporates and their TMC partners rid the industry of historic distrust and suspicion. This new cleansing of the override and super incentive elements and/or meaningful disclosure can be real change we can all support.

One reasonable alternative would be for full disclosure quarterly or annually by suppliers or agencies, providing overdue transparency. Buyers would know and could choose between TMCs based on their incentive/discount alignment. Or, they could take their chances on trusting TMCs to use incentives for the buyer's overall benefit, and not for padding profits.