Craig Fichtelberg is president and co-founder of AmTrav, a travel management company that has not participated in the latest cycle of acquisitions. He knows you’ll take his comments with a grain of salt.
Consolidation among travel management companies has accelerated. Employees and customers are the most critical components in every acquisition. They’re also vulnerable and susceptible to change once the deal takes form. The PR and messaging focus on the positive, and they generally take a “tell them what they want to hear” approach. But what occurs behind the curtain is much more complicated and impactful — and ultimately will weigh heavily on the customers. Clients will witness firsthand the strain on their travel programs as they are forced down a new pathway with a new culture and company they did not choose.
Companies pick their travel partners for many reasons, but when an acquisition happens, they may have to inherit the culture, technology and infrastructure of the acquiring company. The advisors and account managers they loved working with may not be the same ones they get to work with going forward. They may have been a big fish in a small pond, and now the pond is much larger. There are just no guarantees, regardless of what the travel companies are saying publicly.
Switching costs are high. Generally speaking, it takes a lot for a company to leave one TMC for another. That is one of the big challenges in this space. The behemoth TMCs have made the process of switching difficult. There is the long discovery process, then months for implementation, set up fees and binding contracts. Many companies would rather settle with the acquiring company than have to go through all of that again. The acquiring company takes advantage of this, and generally the structure of any sale agreement also depends on the revenue driven from those customers. So the acquired company will do whatever they can to keep that business as it will be part of the payout. The client goes from an originally long RFP process in deciding their TMC to pretty much being assigned to a new one.
Customers of the seller may be transitioned to a very different TMC model. There are the megas, the regionals and the tech platforms like us, TravelPerk and TripActions. Each breed operates very differently. So if an acquisition happens within a breed (TravelPerk-Click Travel) then there probably is less disruption to the customer. Suppose a capitalized tech platform company acquires a regional (TripActions-Reed & MacKay) or a mega acquires a tech platform (Amex GBT-Egencia). In such cases, the changes could be more dramatic. There may be pressure on clients to change fee structures, booking tools or support processes.
Right off the bat, employees from both travel companies have reason for concern. Will their roles change? Will their value to the company be watered down and diminished? How will the employee benefits change? Will their job become redundant with overlap from the other company? The leadership teams will reassure their employees that there will be minimal impact, but as they merge benefits and schedules, things inevitably will change. In addition, there will be new bosses to report to, new owners and a new culture they will be required to adapt to.
Since the employees are tied so closely to the customer accounts, the employee changes will inevitably impact the customer’s day-to-day experience. Integrations can be messy as technology partners change and companies adapt to new operating norms.
We’re familiar with these challenges. When we acquired Young’s Travel in 2014, they were all on Concur and our customers were on our booking tool. Our booking tool is in sync with our own mid- and back-office. We had to come up with a way to support all of these customers on Concur. Initially, we kept everything separate and had their agents support their customers and had their people do the ARC reports, hotel commission chasing, reporting management, etc.
But we had already automated all of those pieces in our system. We also had 24/7 coverage with our own people, and we struggled to offer that to the Young’s customers because the AmTrav agents were on a proprietary tool and could not support the callers with Concur bookings. So early on, it was business as usual. But that was definitely not the long-term plan because we kept seeing that we were sacrificing our economic advantage.
Eventually, we automated a process where we had the Concur bookings fall to a GDS queue with designated fields that were mapped to our in-house tool. Once the Concur bookings hit the queue, they would be automatically cloned into our system. Then the ARC reporting, hotel commission chasing, 24/7 support, client reporting, etc., all leveraged our tools and became automated instead of paying third parties. We reduced redundant costs and were able to see the true economic value of the acquisition. Previously Young’s was paying for all of that additional baggage; now it cost us $0. So we were able to take the same business, move it to our system and raise the margins.
In a perfect world, and for the highest margins, we would have moved all the customers to AmTrav out of the gate.
In every acquisition, before the ink is dry on the contract, the two travel companies are strategizing on a cohesive communication plan both internally and externally. While the “business-as-usual” messages are broadcast publicly, internally, it’s all about maximizing economic value through tech integration and staff reductions. These changes have to be made sooner or later because maximizing the economics is paramount if the acquiring company wants to come out ahead. TMC margins are so slim that even the smallest percentage change will have an enormous impact on the bottom line.
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