The always vocal Jeff Klee, CEO of AmTrav, revisits the thorny issue of travel management company pricing. Even travel buyers who feel it needs to change and would like to address longstanding issues of trust aren’t sold on the potential solutions.
A friend of mine had a “WTF” moment the other day and called to rant about it. He works for a global company that uses a global travel management company and when he tried to book a trip on the “website” his company made him use, he couldn’t find the flight he was looking for. Nothing unusual so far, but when he called the TMC and spoke to a travel advisor, in an oddly candid moment, the advisor told him that their booking tool withholds some flight options on purpose in order to drive more revenue from phone calls.
I never heard of a TMC holding back flight options to trigger more offline fees. But there is no question that the general crappiness of online booking tools and the high fees that TMCs charge when they force frustrated travelers to call in create a serious misalignment of incentives that is ultimately a big negative for travelers and companies.
Traditional TMC pricing – where clients are charged a lower “online” fee for touchless bookings and a higher “offline” fee for those that need agent assistance – is yet another relic in our industry that far outlived its original purpose. Initially designed to entice travelers to try nascent self-booking tools, these schemes have persisted because the market continues to tolerate (in fact, prefer) them despite their inherent pitfalls. TMC people tend to roll their eyes when you bring up Spirit Airlines, but its pricing models seem borrowed from the same playbook. Low online fees that look great in a sales pitch often become unrecognizable once a bunch of high offline fees are added in.
What exactly is an “offline” booking, anyway? I would argue that in 2024 it’s usually just a failed online one. Yes, there are still travelers who prefer to let an agent do their booking, but that’s a tiny subset of the market. The vast majority of today’s travelers prefer to book – and change – by themselves. Only when a booking tool doesn’t support what they need, doesn’t surface the option they want, or throws an error, do travelers find themselves reaching out to an agent. Socking them with a fee for doing so adds insult to injury.
Make no mistake: those $29 or $35 or $48 offline fees are highly profitable for TMCs. In fact, offline transactions are so lucrative that many TMCs offer cheap online transactions as a loss leader just to acquire more offline ones.
Therein lies the problem. That which travelers want most – easy, fast, reliable, self-service – is completely at odds with that which makes some TMCs the most money. Is it any wonder so many booking tools still don’t let you change a ticket or buy a premium seat?
There are two pricing models that are superior and more sustainable for both sides than the online/offline one. The first is a fee-per-trip model, where a company pays one flat rate for a whole trip, regardless of how it’s booked, what components it includes or how many times it is changed. The second is a fee per traveler, where a company pays a flat “all you can eat” rate for every active user on the platform, no matter how many trips, calls, chats or changes come from that user.
The nice thing about these models is that they are simple and transparent, and can’t be gamed by TMCs like the offline/online model can. Want to know how much you’re going to spend? All you need to know is your number of trips or travelers. When crazy weather strikes, companies don’t get hit with extra unforeseen expenses simply because a TMC is called upon to do what it was hired to do in the first place – help. Importantly, these models align the incentives on both sides. When we remove the reward to TMCs for forcing offline activity, they finally become highly motivated to deliver booking solutions that are faster, more reliable and more functional.
Unfortunately – and this is a head-scratcher to me – many travel buyers are as ardent as anyone in pushing for the continuation of this old offline/online structure. They think the devil that they know is better than any alternative, I guess. It is ironic that in a year at AmTrav when we aimed to seamlessly integrate NDC content, enhance our trip change product and migrate customers to a newer pricing model, the last was by far the most challenging.
Many travel buyers fear these new models are too expensive. They point, fairly, to scenarios where the new models would cost more money, like a hotel-only trip or a traveler who never makes any changes. But the reality is no model is inherently more or less expensive than any other. Any model, even the old online/offline one, can be adjusted by revising fee levels.
This will be a consequential year for the business travel industry. Intermediaries are getting pressure from all sides, with suppliers openly questioning their value and pushing direct connect strategies, while travelers rebel against booking tools with content and functionality gaps.
The higher fees for offline transactions are like a drug; TMCs are as high as kites right now, but it’s time to get sober and confront the reality of the moment. We need to ensure we can offer our customers a full menu of content from suppliers, with servicing capabilities to rival supplier apps. This will require welcoming new technology and new commercial models, and a willingness to let go of the past. But as long as TMCs receive windfalls in the form of offline fees every time OBTs fail, the urgency to improve is tempered. We need to get past this misalignment so we can fry some bigger fish.
This Op Ed was created in collaboration with The Company Dime‘s Editorial Board of travel managers.
