Op Ed: Tom Kallas On TMC Pricing Transparency

During his 41-year career in travel, Partnership Travel Consulting’s Tom Kallas held senior roles at corporate travel agencies including BCD Travel, IVI, Travelocity Business and World Travel Inc. Here he argues that TMC pricing is “not simply repeal and replace.”

The recent article regarding the American Express Global Business Travel strategy to charge a fee for phone calls and emails that do not result in a transaction brings up age-old TMC questions that are long overdue for answers and new approaches.

I agree with Mr. Ferguson of GBT when he states that, “Now more than ever, it’s important that a true partnership approach is adopted by TMCs and customers. Objectives must align, risk must be shared and both parties must be adaptable to change.” The missing link in what we’ve publicly heard so far is that supplier revenue has historically represented up to 60 percent or more of a TMC’s EBITDA, yet it is a topic that is generally avoided. In circumstances where revenues are “shared,” auditing by the client is usually not allowed.

With a minimum of 10 categories of revenue streams from suppliers, the only “true partnership approach” will be when these revenue streams are fully disclosed and accounted for by the TMC to the client. I can understand (but not agree with) a TMC that may not want to share the details of the revenue. But at a minimum, the client has a right to know the categories and amounts.

Partnership Travel Consulting SVP Tom Kallas

Using global distribution system income as one example, The Company Dime in 2016 reported that the big four TMCs generated $1.214 billion in revenue from 2006 through 2012 from Sabre alone! Added to these GDS payments are the revenues generated from the other categories (and other GDSs), and you can see where the window of transparency clouds the view of the economic model for the client, who is now asked to accept a change in the fee structure.

There is nothing wrong with suppliers paying their agents a variety of incentives for work performed. TMC incentives work, and they help drive incremental revenue and market share for the supplier. I argue that in a true partnership relationship with a corporate customer, revenues and incentives generated by the spend of the corporate customer must be transparent and auditable. They must also be a significant consideration in any pricing models in the future. It is not uncommon for a client with a $35 agent fee to generate well over $100 in additional revenue for the TMC. If you are a corporate client, and you knew this, would this drive different behavior by your sourcing team or your travelers?

TMCs are professional services firms and deserve to charge for the valuable work they perform. In the current market, TMCs are doing a lot of work where they are not receiving income. It’s not an enviable place to be.

However, adding new fees without addressing the fundamental issue of transparency of revenue and expense is not an answer that works long term. It may prop up short-term, top-line revenue, but it falls short of creating a long term solution to the issue. The client who flies predominantly international routes in F and J class is worth much more to a TMC than the client who flies domestic only on cheap fares, yet the GBT model they’re the same in terms of fees.

The industry needs thought leadership and willingness to embrace change. As long as the majority of TMC profit comes from the suppliers, will it? I say, caveat emptor — let the buyer beware.

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Tom Kallas

Author: Tom Kallas

Tom Kallas in 2020 joined Partnership Travel Consulting as a senior vice president about five years after his last stint with the consulting firm. In between, he served World Travel Inc. as GM for client programs, leveraging prior executive-level travel management company experience with companies including BCD Travel, IVI and Travelocity Business. Connect with Tom on LinkedIn.
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