The business travel industry has weathered mass disruption in the past ¨C 9/11, SARS, MERS, the Icelandic volcano ash cloud, the financial crisis of 2008? ¨C but nothing could have prepared companies for the prolonged impact of the Covid-19 pandemic. Travel has essentially been halted for months and even though the world is now seeing the green shoots of recovery, volumes are predicted to take years to return to pre-virus levels.

Even though businesses stopped sending employees away on business, travel management companies had to deal with a whole new set of problems, from repatriating stranded travellers to processing airline refunds on behalf of their clients. The situation exposed a problem with the current standard for TMC pricing, the transaction fee ¨C if nobody was booking new trips but customers still needed support, how were TMCs supposed to keep the lights on?

¡°Over the years, what¡¯s been forgotten or blurred is the charge for central overheads,¡± says Raj Sachdave, managing partner at Black Box Partnerships. ¡°With the Covid pandemic, transaction volumes dropped to around 5 to 8 per cent of the usual for quite a long time, and it¡¯s still nowhere near what is needed to sustain a TMC business. Even though some companies might not be using their office space right now, things like online booking tools, mid-office technology and tracking services all have stayed available, so there is a question mark now over how you pay for the cost of that with no transactions coming in. It¡¯s not sustainable,¡± he says.

Tom Rigby, global commercial director at Reed & Mackay, adds: ¡°Pretty much every TMC has had to furlough a part of their workforce. That puts a lot of pressure on them and brings a lot of uncertainty. Coronavirus has also severely impacted companies¡¯ ability to generate a recurring income in a zero-volume environment. It¡¯s been a big challenge.¡±

So how did the industry get to this point?

A HISTORY OF PRICING ISSUES
According to Travel and Transport CEO Kevin O¡¯Malley, the issue of TMC pricing models is not a new one. He says the company introduced a management fee arrangement after commission caps came into effect in 1995, then a cost-plus model whereby clients paid a fee for the headcount to serve their programme plus a transaction fee. Eventually, he says, buyers started asking for a fully loaded model.

Andrew Menkes, founder and CEO of Partnership Travel Consulting LLC, comments: ¡°Part of the challenge with the model is there¡¯s no standard definition of a transaction and no industry accepted definition of a contact.¡±

¡°On a transaction fee model, no transaction equals no fee,¡± says Focus Travel Partnership chief executive Abby Penston. ¡°In the world of the pandemic, this model didn¡¯t stack up ¨C it wasn¡¯t an accurate picture of TMCs¡¯ activity. There was a lot of work going on in terms of accessing refunds, rearranging travel and managing and implementing new travel policies. As a result, TMCs were taking on all the risk of the situation.¡±

The pandemic has caused some TMCs to reconsider their pricing models, according to Clive Wratten, CEO of the Business Travel Association (BTA). ¡°The business travel sector was already looking at its pricing models before the start of the coronavirus crisis, and that is likely to accelerate potential change,¡± comments Wratten.

NEW WAYS OF THINKING
For American Express Global Business Travel (GBT), one possible option would be to introduce a subscription model, as hinted by CEO Paul Abbott at the ITM virtual conference in May. Abbott said he believed the transaction fee model ¡°needs to be looked at¡±, adding: ¡°High demand and low revenue is not a great balance.¡± He said the cost-plus model has worked very well during the downturn in travel but said it¡¯s a difficult one to sell to small or mid-sized clients, who could potentially benefit from a subscription-based fee.

GBT¡¯s chief commercial officer Drew Crawley elaborates on some of the TMC¡¯s ideas: ¡°We know there are opportunities to enhance the way we support cost optimisation and duty of care in this new era. Access to accurate information in digital channels will be crucial, as well managing increased calls to our travel counsellors in moments of uncertainty.

¡°There will be new pricing models that support these needs, allowing us to collectively absorb the shock of sharp declines in bookings. While transaction fees will remain, there are opportunities to package and price services and solutions differently using subscription fees and Software as a Service (SaaS) models, especially where services and solutions are not transactional in nature.¡±

According to Menkes, coming out of the crisis might be the perfect time for companies to re-evaluate their way of doing business. ¡°If a TMC is going to seek to renegotiate or recalibrate or just simply redo their financial model with a client, now¡¯s the time to put all of the variables on the table, jointly define them, agree on what is the TMC¡¯s to retain, and ensure the services listed match the client¡¯s expectations and the contract ties into those expectations.¡±

Jill Palmer, chief executive of Click Travel, which offers a SaaS model in addition to management and transaction fees, agrees that there can never be a one-size-fits-all model. ¡°We have about 100 customers across our three pricing plans. They tend to be our smaller customers, and we aim it at companies that spend less than about ?500,000 on business travel. We¡¯ve put in place a kind of fair use policy, where if a customer¡¯s transactions go above a certain level we suggest moving up to a different price plan,¡± she explains.

¡°But we¡¯ve found the transaction fee is a very ¡®sticky¡¯ model. When we speak to new prospects, we very rarely get asked for anything other than our transaction fees. For smaller companies, the subscription model can work quite well because the travel budget is usually centrally managed so it¡¯s easier for them to get their head round that model.?

¡°When you get to larger organisations that spend multiple millions of pounds on travel, they often devolve the budget to individual departments, so introducing a centralised fee would mean they would have to change their way of operating. I can see why a TMC would want to introduce a subscription model, because of the pain we¡¯ve all taken over doing lots of work for little return over the last few months, but I¡¯m not sure the customer demand would be there.¡±

Rigby says there are multiple factors to consider, particularly following the coronavirus pandemic. ¡°In theory a subscription is great, but what we don¡¯t know right now is what travel volumes are going to look like coming out of Covid-19. Until we get a steer on that it¡¯s difficult to gauge. Typically, you use the previous year as a starting point to work out a cost, but next year it¡¯s going to be totally different,¡± he says.

¡°Another interesting point is that as we¡¯ve started doing transactions again, the amount of time it takes for each transaction, because of all the obstacles and challenges coronavirus has put in the way, is huge.¡±

FEES UNDER PRESSURE
Rigby continues: ¡°There are additional complexities to travel right now and if it¡¯s taking you ten times longer to book a hotel than it did pre-Covid, you obviously have to cover your costs and fees are paramount to that. Transaction fees have been under pressure for a long time and have gone down as companies vie for business.

¡°What I would hope is that TMCs can take a step back and think they don¡¯t want to continue on that path and devalue the service they offer. TMCs need to be completely transparent about what is going into today¡¯s service models.¡±

The introduction of new fees and charges during the pandemic is one of the reasons Palmer believes the company is seeing an influx of RFPs. ¡°We had a tender come in the other day and I know that their current TMC wrote to them during the pandemic to say they would now have to pay to even talk to their account manager or ask for a specific report. There¡¯s an attempt to introduce new charges to claw back some of the revenue that has been lost as a result of the pandemic, and that is going down extremely badly.¡±

Despite differences of opinion among TMCs, 60 per cent of ITM buyer members surveyed ahead of the virtual conference said they would be willing to review the pricing structure of their TMC deal as part of the Covid-19 recovery phase.

According to Menkes, buyers may not have much alternative. ¡°There¡¯s going to be very little choice in the matter. But I do believe that once we start returning to normality, employee compliance is going to have to increase. The industry is still averaging about 50 per cent of hotel bookings not going through the TMC or the OBT. If travel managers can mandate their hotel programmes, that can bring a huge amount of commission back to the TMC. I would expect to see that reflected in fees lowering again.¡±

Focus¡¯s Penston summarises the situation: ¡°Corporates appreciate the increased levels of service TMCs provided and we no longer have to justify the value of a TMC. They offer a wrap-around service that will provide a belt and braces approach to health and safety. They manage the complexities of travel, which have now increased substantially. Corporates know they need to provide a higher level of safety and assurances to their travelling teams and will be making more service demands. A subscription model can build those costs into budgets and TMCs can be assured of a more predictable revenue stream.¡±

RFPs: IS NOW THE RIGHT TIME?
There has been much industry debate about whether now is the right time for corporates to be sending out RFPs to find a new TMC, particularly considering many TMCs still have employees on furlough while travel volumes remain low.

Andrew Menkes, founder and CEO of Partnership Travel Consulting LLC, says: ¡°I¡¯ve heard two arguments. One is this is the wrong time to be going out for tender because no one¡¯s travelling and it¡¯s not fair to the incumbent TMC.

¡°And there¡¯s the other school, which says that because travel has slowed dramatically there¡¯s time for the client to focus on the programme, to engage in an RFP. I would say don¡¯t go out for bids just to see what¡¯s out there, but if it¡¯s been four or more years since you changed TMCs, it¡¯s best practice to go to RFP. If it¡¯s been less than four years, I¡¯d say now is the time to meet with your TMC and say that if they want to change their pricing you also want to look at changing your agreement.¡±

But for Jill Palmer, CEO of Click Travel, who says her company has been receiving a steady stream of tender documents throughout the pandemic, now may be the perfect opportunity for TMCs to win new business. ¡°Companies that didn¡¯t use the services of a TMC before now want to do so because they see the benefit, and businesses that have used us for parts of their programme ¨C say rail and air ¨C now want to use us for other parts, like hotels, because they now realise what we offer in terms of risk management, policy control and cancellations.¡±

However, Palmer agrees some companies might want to hold off. ¡°I can see where going out to RFP for a new TMC might not be top of the agenda for some companies, especially in some situations. For example, if you typically go out to tender every three years you might decide to skip your regular procurement cycle for now.

¡°But if you want to get more value or you don¡¯t feel like you¡¯re getting the service you want from your TMC, I can see companies still coming to the market for that.¡±

Black Box Partnerships¡¯ managing partner Raj Sachdave has some words of advice for corporates: ¡°If buyers do decide to go to RFP for a new TMC, they need to look at not just the unit cost but also the health, wellbeing and performance aspect of the service.

¡°The intent to travel is going to change forever in my opinion, so transaction volumes are going to change. But when you do travel, there will be more scrutiny around why that person is travelling and whether it can be avoided. If not, companies will be more likely to ensure it protects the health and wellbeing of that traveller to make sure they¡¯re safe and also more comfortable. It¡¯s a shame that it has taken a global pandemic and an economic shutdown to bring that right to the fore.¡±