Op-Ed: Travel Management Companies Remain Agents Of The Suppliers

Travel management companies recognize that they must artfully balance directing business to suppliers while satisfying customers. However, the issue is more complex. Legally and in practicality, travel management companies are agents for suppliers. They are bound as fiduciaries to follow directions of suppliers and be loyal in all respects. Beyond accounting for sales, they have a duty to drive share and optimize pricing and yields. This is reinforced by continuation of overrides, marketing support and other incentive payments. Commissions may have been eliminated, but not secretive and conflicting payments and other benefits for promoting a supplier, which can be out of alignment with the needs and satisfaction of the corporate customer.

The end result is a curious, contradictory situation. TMCs represent and sell for their principals, the suppliers who need more business and higher yield and prices as high as a route or market will bear.

The company needs an "infomediary" loyal to it and that it can trust in finding and offering consistently without exception the lowest pricing available, whether by global distribution system or non-GDS channels. Companies want their pricing triple net: no commission, no override and full discount at point of sale.

Customers must have full content regardless of booking channel. GDS content now comes with surcharges. These pass through from the suppliers' agents, and are not customer- friendly. Surcharging is not subject to prior notice or customer input. It is unsupported except by unauditable claims and is unannounced until it happens. GDS rebates suffer the same infirmities as overrides, conflicts of interest and non-transparency.

If the TMC were the legal agent of the customer, then the conflict would require the consent of each principal to allow the agent to work for and be conflicted by working for another party with different goals and needs. However, for good reason, companies need the suppliers' agent to be an independent contractor to avoid risk of liability, especially a problem in today's highly volatile, unsafe travel world.

Where does all this leave the customer? Company options are limited. The buyer has little choice but to accept on faith credits for overrides, market support incentives and GDS incentives as a cost offset minimizing fees otherwise charged by the TMC. That is a hard sell to the auditor. One man's offset can be another's profit and/or overhead contribution.

Can an ARC Corporate Travel Department accreditation solve the problems? It lessens conflicts. The company CTD takes out the middleman. The task of auditing or trying to audit a third party's conflicts is largely removed, especially for air and hotels. However, the prospect of significant liability limits sourcing of non-core services for many large companies. If services are outsourced to TMCs for fees and markups, the conflict still exists in lack of disclosure of overrides and incentives received centrally. The company should have the right to elect the option of insourcing, and not be forced to do so to minimize conflicts.

Paying TMCs directly or indirectly is simply unfair for the customer. At a minimum, there should be full transparency and true open books. When will one TMC declare no more incentives from suppliers or that all books are open for unconditional transparency for all incentives for all suppliers, including GDSs? Can we count on suppliers to rescind incentive programs? Not likely yet. A few years ago, Congress considered legislation to require disclosures on hidden supplier payments. It died.

We need a change in the structure. Suppliers can pick dealers and transfer inventory and let the dealer mark up and take risks for price and sales. If they control product and price, they are in a position to drive share by creating conflicts of interest. Their agents become complicit by relying on these revenue streams, even if reduced in magnitude. There is no "little bit of pregnancy" on conflicting incentives. If in fact incentives are relatively inconsequential, then opening the books should really pose not much of a problem, along with full audit.

Maybe if Eliot Spitzer were still lawyering reforms in New York, these problems might get his attention. He pursued insurance companies for giving agents "an incentive to place business at a company that may not offer the best deal for the customer." He noted brokers (substitute travel industry agents) can benefit from "undisclosed or poorly disclosed income."

Travel management companies do tread on thin ice if they do not know client needs and culture. Those requirements include lowest pricing and full content accompanied by full disclosure and alignment of goals. The role of TMCs as infomediaries is threatened more by skepticism from buyers affecting financial issues and relationships than by emerging technology replacing labor intensive counseling and booking.

Financial distrust continues to haunt the industry.