Andy Menkes has spent a career working with travel management companies — as a buyer, a TMC exec and an industry consultant. As companies assess their travel management service needs, he describes what he sees as a problem with fairness in TMC bids and offers a solution to resolve it.
We are starting to see increased activity in terms of organizations bidding out programs for travel management company services. The reasons behind this may include price increases or client concerns about incumbent stability. It may simply be time for a competitive bid after a long period with the same provider.
A high percentage of bigger companies remain with their incumbents after an RFP. There are lots of reasons why that’s been the case, and I’d like to focus on one of them: the imbalance of knowledge.
Those undertaking a commodity-based approach to the RFP might feel that they’ve provided sufficient information to the bidders if they share high-level data, i.e., total spent on airfares (domestic and international), the number of transactions (online and offline), total hotel spend and total car rental spend.
Except for the incumbent that has a lot more data, this is not nearly enough.
The challenge is that TMCs derive upwards of half their revenue from suppliers, and limited data clouds the picture. This forces TMCs to blind-bid, or take a wild guess at the financial offer. They will put in a small pricing note like, “Subject to further review of spend data.”
They might as well say, “Some assembly required.”
The incumbent, on the other hand, also knows:
- Airline spend broken down by carrier, cabin class, average ticket price and percentage of tickets booked on net fares
- Which airlines pay overrides and how much
- Hotel spend by chain, further broken down by net versus commissionable rates (including percentage of nonpreferred reservations and the percentage of reservations not attached to an air reservation)
- Ratio of calls per transaction
- Percentage of PNRs touched multiple times
- Call patterns by day of the week and time of day (including after-hours call patterns)
- Customer contacts broken down by emails, phone calls and chats
- Other revenue streams (from air and hotel sourcing support, soft-dollar funds and marketing funds from suppliers, incentives from global distribution system operators, etc.)
- Costs of labor to serve the client
What’s the recommendation for resolving the imbalance?
Simply create a database of all relevant spend activity and make it available via a secure server to each bidder in the same format. The more data the bidders have that maps what the incumbent already knows, the more competitive their bids will be.
In the absence of meaningful data that all bidders can interpret and calculate, at best you are left with a competitive free-for-all based on abstract pricing quotes and more caveats than a car warranty.
It’s time to make the RFP process more transparent and balanced. There’s a lot to it to address on a different day, but it starts with equal access to data.
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