TMC industry veteran John Harvey in January asked whether changing market forces and increased demand for greater value and transparency in the channel would bring about a next-generation travel management company model. Since then he’s been considering what the new model could be.
Should a TMC’s core intention be to make money from the travel it sells or from fees for the service it delivers? Some say there’s nothing wrong with them doing both. However, the purpose of asking the binary question is to get to the root of what’s powering the channel today and whether there could — or should — be a new and cleaner model.
TMCs will say clients come first. But with so much current revenue generated from selling travel — and with the general lack of transparency surrounding commissions, incentives, overrides and, increasingly, markups on airfares and hotel rates — this stance is open to challenge.
Suppliers may wish to present the best offers they can to clients but the channel is either eating up marketing funds or biasing other suppliers because of revenue-earning potential. Intermediaries also want to be retailers.
Direct bookings via supplier websites and client direct connections to supplier APIs are a possibility. The value of having a single point of booking capable of accessing the entire market, however, can never be underestimated.
What if that point of booking could prove that it is totally unbiased and has no incentive or motivation to sell any one travel component over another? What if that point of booking made no money at all from the travel it sold? Could that be the key to opening up greater trust in the channel and helping deliver increased value to all stakeholders?
This potential territory in the defined market exists but is mostly unoccupied today. I predict that a new corporate service will at some point enter this space. There is an equal opportunity for existing intermediaries to adapt their models and occupy it.
Without any movement, there will probably be disintermediation through an increase in direct offers, but delivered through a service configuration that will be less than ideal.
Now imagine a new booking interface that is positioned 100 percent on the client side. A new “Net Direct” model (“Nett Direct” in the U.K.) that has no incentive to “sell” travel, retains no commissions or supplier overrides and makes zero markups. This would enable clients to source and procure maximum benefit directly from suppliers who can present their very best offer — without any fear or risk of channel interference. In this scenario, a single point of booking for the client accesses multiple suppliers and delivers pure net content with total transparency.
Who pays for the service? The model would rely on a commitment to partnership sourcing wherein the cost of the service is totally transparent and covered by the client. This assumes all sides agree on the servicing standards and necessary resources. It also requires a healthy contribution to a TMC’s central cost and profit (performance based). These combined fee elements represent the sole source of revenue surrounding the booking interface.
Client funding would be managed by capturing all supplier benefits centrally. The critical requirement is that the partnership approach extends into the preferred supplier base, so that any benefit that previously went into the channel is redirected to the client.
This may all seem very idealistic. There is risk in that clients or suppliers may choose to bank savings rather than reallocate funds. However, with a unique new level of transparency and total clarity on the commercials, this model could deliver a much needed and totally fresh approach to travel procurement.
Through this approach, clients could separately contract for any additional travel management services related to data, analysis, advisory and consulting, program management, travel risk management, specialist support, etc. These would be based on a fee/pay-for-performance arrangement.
Are there other alternatives? Aside from continuing with the current hybrid model, there is one other alternative. A model completely opposite of the Net Direct model would allow the intermediary to become the Primary Retailer.
In this situation, the intermediary would control the offer and provide deals and volume rebates to clients. Service fees paid by clients would probably disappear with all costs contained within the cost of travel purchased. As long as prices match or beat the lowest prices offered by the supplier in the market, this could be an equally radical way of working. It essentially would be an SME closed-book approach applied to major clients.
Companies would reduce costs related to internal management and administration as the travel function slims down amid overall program outsourcing.
This alternative would be in sharp contrast to the current direction in the market. Any supplier excluded from the intermediaries’ preferred base would be even more motivated to sell direct. Confidence in the channel could quickly break down as suppliers attempt to regain control of their offers.
The one thing we know is that all clients are different. Each has a different view of value; what may be important to one isn’t to another. For some, Net Direct purchasing could be a welcome new approach. For travel suppliers, the idea of being able to present a best net offer could be a frictionless way of ensuring that 100 percent of the intended benefit is delivered to the client.
What we don’t know is whether existing intermediaries can stop being sellers of travel and transform into providers of value-based corporate services.
Disclaimer: The ideas contained in this guidepost are geared toward larger national, international and global travel programs. This target audience includes companies whose travel volumes may attract savings and benefits beyond what is available to the public (individual, retail consumers) and SME clients. The larger clients’ travel suppliers (airlines, hotels, car rental firms, etc.) may wish to focus tactical marketing funds to create enhanced “offers” that help to win and retain business.
I should also declare that I am a supporter of IATA’s New Distribution Capability. I have been following the idea of “retailing” by airlines, where tailored and targeted offers may be presented directly to specific clients. I also look favorably upon similar hotel and car rental schemes in which guaranteed best offers are promoted directly to clients.
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