Why The Midmarket Is Gold For Travel Management Companies

By | January 21, 2016

Considering trends like open booking and self-service, it may be surprising that nearly half of U.S. midmarket firms expect their reliance on travel management companies to grow during the next five years.

That was another finding of the Global Business Travel Association’s September survey of more than 200 U.S. travel managers, also covered here and here. Seventy-three of the respondents hailed from the midmarket category of companies spending no more than $10 million annually on travel. Among 67 respondents in the $10 million to $50 million range, one-third expected reliance on TMCs to grow; among the 62 above $50 million, it was one in five.

goldContinued validation from the middle market is huge, especially for non-global TMCs. Despite significant M&A activity, there are still plenty of those out there. But don’t think the larger competitors are not eyeing this market as well.

Unsurprisingly, the GBTA poll result has TMC execs high-fiving each other. Should they be? Is it a mirage? “People have been sticking forks in our industry for a long time,” said Tower Travel Management president and CEO John Smith. So why would midmarket companies expect to need TMCs more? We checked in with 11 TMCs to find out.

1. Complexity

The travel industry is always changing. Companies with hundreds or a few thousand employees don’t have the resources to stay on top of things. Travel management becomes infinitely more complex when crossing borders.

Egencia senior director for sales and account management Michael Robertson pointed out that as companies grow, open offices abroad, source internationally or simply start having meetings in multiple countries, their business takes on a more “in-person” aspect.

Gant Travel president Patrick Linnihan said small accounts opening offices in other English-speaking countries just didn’t happen so much ten years ago.

About a quarter of companies looking for their first TMC do so because of globalization, estimated Travel Incorporated senior vice president for business development Tony Peter. Midmarket companies sometimes spend as much as 20 percent of their travel budget globally, said Executive Travel president and founder Steve Glenn. “It’s about a lot more nowadays than simply aggregating data,” he said. “It’s much more complex than that, and expensive.”

Local market expertise can be invaluable to middle-market companies. In a digitally connected world, “almost every business is a global business,” according to Colin Temple, vice president and general manager for the North America middle market at American Express Global Business Travel. “Companies today are becoming more aware of the regulatory risks and global changes in compliance standards that can affect their business operations.”

Growth in multinational management is not for everybody, though. Christopherson Business Travel partners with BCD Travel to service its clients’ global needs. But that wasn’t a big component of the company’s 116 new SME implementations last year, according to president Mike Cameron.

Multinational expansion isn’t the only driver of complexity. Plenty of change, and noise, must be deciphered.

“There’s always been a ‘next big thing,’ regardless of whether it has relevance,” said Smith. “The marketplace has gotten increasingly complex. Now we’re looking through the prism of the oligopolistic airlines, and their right to pursue revenue opportunities that work for their model — ancillary fees and things. Corporations eventually are going to have to start to tackle the full cost of purchasing airfare. Same on hotel.”

Egencia’s Robertson cited the “proliferation of solutions, devices and platforms” for greater acceptance of a travel solution among SMEs.

“Every employee is being asked to do more with less,” said Ovation Corporate Travel executive vice president Michael Steiner. “So they’re looking for strong partners to accomplish their goals.”

2. Cost Control

SMEs want to save money on travel as much as large firms, but they tend to have fewer options. Among those, business loyalty programs can be challenging to maximize, so TMCs often help. They also provide discounts and rates negotiated on behalf of their wider account bases. For individual accounts, data analysis and consulting can uncover process savings.

Carlson Wagonlit Travel senior vice president of global marketing Nick Vournakis pointed out that savings are not just about rates. A recent internal study determined that SMEs are as interested as larger companies in services like price assurance and low-fare checks, the on-demand economy and unused ticket management.

3. Duty Of Care

GBTA’s researchers suspected this was an area of opportunity for TMCs. “Compared with low-spend companies, medium and high-spend companies are more likely to rely on TMCs for safety and security services at least a ‘moderate’ amount,” they wrote. “They are also more likely to rely on in-house resources and other third-party providers at the same level. This could mean larger organizations have more extensive duty of care efforts, compared to smaller ones. TMCs may be in a good position to close this gap when they have existing relationships with small and midsize firms that do not have large travel or security departments.”

You won’t find a TMC exec who disagrees. Several said SMEs tend to turn to the travel providers to leverage their risk management partnerships.

4. Services

Amex’s Temple referenced a counter-trend in which so-called consumerization of travel actually drives business travelers into rather than away from the arms of TMCs. New traveler expectations have “driven TMCs to invest in technologies, including mobile, as they look for ways to improve the overall traveler experience,” according to his written comments. “Specifically, today’s travelers expect 24/7 accessibility to the travel products, solutions and services they interact with most. These travelers also rely on their TMCs to have a greater familiarity and deep understanding of their specific traveler preferences and trip details in advance, before they embark on their journey.”

Temple added that many SMEs view a travel program “as a contributor to overall employee satisfaction and talent retention,” creating more desire to hire a TMC that provides extra attention to travelers.

The GBTA research also found that medium enterprises rely on their TMCs for self-booking technology much more than larger firms, which generally source their own tools.

Worth Its Weight

According to Casto Travel president and COO Marc Casto, the importance of the SME segment gets lost amid compelling headlines about larger companies and their nine-digit travel budgets. But the legions of SMEs are “the lifeblood of the vast majority of TMCs in the marketplace,” he said.

A base of small and medium enterprises can offer TMCs a measure of predictability and insulation from industry-specific shocks. They also minimize the risk of blanket cost-cutting decisions TMCs sometimes endure with larger clients. SMEs help TMCs aggregate volume that generates supplier incentives and discounts.

It can be a challenge to find these clients. Entrepreneurs may have never heard of the concept of a business-specific travel agency. The positive perception among midsize clients that manage travel helps with marketing to those just beginning to consider it — those who, by default, were not part the GBTA survey. This helps the owners of TMCs that specialize in SMEs to resist selling their businesses. Instead, they may invest in their products and services and attract more clients. Win. Win.

But it’s not just about new wins.

The SME sector can be a gold mine of organic growth, as well. There are about 200,000 U.S. companies in it, according to The Ohio State University’s National Center for the Middle Market. Based on data from more than 1,000, about two-thirds last year reported higher year-over-year revenues. The organization’s executive director, Tom Stewart, noted that despite a general slowdown from a year earlier, fourth-quarter data to be released next week shows continued “good growth.”

According to the center, midmarket firms weathered the 2007-2010 global financial crisis best, adding more than 2 million jobs in that period. Some see them as an economy in their own right.

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