For some time various corporations have been asking their intermediaries exactly how they make their money and what positive impact their company’s business has on their income. This interest has expanded further and bodies like the Institute of Travel and Meetings (ITM) have been calling for Travel Management Companies (TMC) to provide a ‘register of interests’. The request is made within its report on ‘Remuneration and Transparency’, the second part of which has recently been published.
The chairman of the ITM said “Our goal at ITM is to create better relationships to further professionalise this industry for the benefit of all” Baloney! How would disclosure of confidential business agreements do that? I would suggest perhaps it is more about checking that their intermediaries are not making extra money out of their client’s business and not trying to influence client behaviour in the process for their own gain. Let’s not be coy about this.
Some of you may have read my blogs on how TMCs still make money from the suppliers. This can be viewed in two main ways. Either ‘Why not, they do a lot of work for the supplier and should be rewarded for it’ or ‘If my expenditure is earning extra money from the supplier then that belongs to me’. There are strong arguments for both points of view but first lets look closer at the mechanics and principle involved.
Let’s say Platt Inc has a considerable air spend and much of it is with Air Limey. He suspects that his TMC not only has a commercial agreement of some sort with Air Limey but also a better one with Yank Air who is Limey’s biggest competitor. Platt Inc has a fee relationship with his TMC where any direct income should be credited to him and it is also in his interest to ensure that Yank Air is not going to be offered to his travellers even though it might earn extra money for the TMC. Shame about the mistrust but ‘I demand Disclosure’ he screams.
First there is a principle to be addressed. Any such agreements are usually made under strict letters of confidentiality. They are often agreed only on the basis that any benefits remain with the recipient as suppliers clearly wish to delineate who is being rewarded and for what. Their view is that they already incentivise the end corporation so why do so again. Also there is one big question which is, apart from the confidentiality issue, what right does any commercial company have to demand their suppliers and intermediaries provide company sensitive and strategic contracts that encompass their whole business and not just that one organisation.
From a more practical perspective what would such disclosures reveal? There are as many different deals out there as grains of sand but here are a few of the more prevalent features.. Most are built around a Service Level Agreement (SLA). These were introduced at the time of commission removal as a more targeted way of ensuring suppliers still got what they needed now that particular payment had gone. The core of such agreements are about paying for all the things they used to get like access to staff, account managers, basic client information etc. A payment is fixed for this section and followed by others that can sometimes be linked to performance in overall volume and share. Within this the supplier may include benefits such as special competitive fares, sponsorship and partnership opportunities.
So, in many cases volume and share do come into it so some corporations still might say they deserve a slice of that even though the contracts clearly do not allow it. But, for the sake of argument let us look closer at this because it might not all be one way traffic. For example Platt Inc discovers that its TMC has a deal with both Air Limey (AL) and Yank Air (YA) and both of them involve incentives around growth (AL) and share (YA). They sit around the table to discuss it.
From Platt Inc’s point of view it is simple. According to the data they flew 500 sectors on AL last year and they want the incentive. The same applies for YA where they know they must have sent at least 80 travellers but only have booked revenue (not actual flown) to measure the exact details.
Ah says TMC. Firstly Mr Platt Inc you may not know it but you have been ‘red ringed’ by AL. this means our contract says your volume can be used for measuring performance but not for payment. Not only did we not earn money on you but your year on year performance was down so in fact you cost us on what rewards we did get for other customers. By the way similar will apply to YA. We cannot track your true flown revenue but even if we did it will do no good as we signed another corporation who pulled our share higher than your likely achievement.
I hope you are still all bearing with me but I wanted to demonstrate exactly how big a can of worms such disclosures can be and what lack of earning potential there is. For every ‘winner’ there will be ‘losers’ and if I was a TMC I would simply devise a system to negate such nonsense that would ultimately offset any losses by gains.
So the questions are do you really want to dig and delve into other people’s business. Do you trust your business partners so little? Is it really worth the pain? Does anyone honestly think such activity ‘will create better business relationships’? Well certainly the chairman of ITM purports to think so. I can but disagree. What about you?
Showing posts with label incentives. Show all posts
Showing posts with label incentives. Show all posts
Can TMCs Really Influence Business?-Switch selling
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In my last two pieces on this subject I explained that airline suppliers still incentivise TMCs in the belief that this will bring them greater volume and share despite the inroads they themselves have made direct with the corporate sector. Also because some fear what they may lose if they don’t as they get denied access to TMC bookers and account managers if they are not ‘in the programme’. I also explained how the shape of these deals has changed in order to react to the removal of commissions and subsequent new style management fee and transaction fee contracts.
But the real cruncher is can TMCs really move their business around between airlines and if so what impact could this have on their clients. Over the next few paragraphs I will give my honest opinion on this vexing subject and hopefully come up with a few things for you to consider along the way. Like all responses to difficult questions the answer can be ambiguous as there are so many different TMCs with varying degrees of ability and strategy so I will focus on what I see as the more professional of the grouping.
Obviously the choice of supplier is by no means only dependant on the whims of the TMC. The corporations have deals themselves that they expect their TMC to support and then we have the traveller who sometimes ignore both. In fact the travellers also have their own ‘deals’ with airlines known as frequent flyer points, upgrades, and lounge access to name a few. However the power to influence travel choices by the TMCs is growing as the market changes and they become more of an outsourced arm of their customers. Ironically many of the actions taken by airlines to remove some of the ‘rewards’ they paid to TMCs (commissions etc) is creating an increase in their ability to influence airline choice.
Getting down to basics here are just some of the ways TMCs can and are moving business.
a) The SME market mainly buys on price and has few direct deals of their own therefore the TMC can choose which suppliers and fares to put towards them.
b) The arrival of online booking tools is giving TMCs a greater ability to select what to promote and exclude those they do not.
c) There are still surprisingly many people out there that seek advice and recommendation about airlines and their services and the TMCs can control what their people say far better than they used to. If a supplier is denied access to bookers then what chance do they have?
d) TMC account managers play a far bigger (sometimes unique) part in what supplier goes into their client’s programme. By working closely with a partner airline they can ensure that they offer the best package of benefits. This should end up in a win/win situation except the supplier ends up having to dig deeper in their pockets to reward all parties.
e) Corporations tend to pick two suppliers on their main routes. For example on the UK/USA sector it is most unusual not to have a two carrier policy to keep both sides of the Atlantic happy. This gives the TMC a superb opportunity to switch sell playing one airline off against the other if they choose to do so. And all this within policy.
f) Another growing area for flexing and switching is unbundling of fares. This creates an opportunity for a savvy TMC to translate true costs of journey in a proactive and rewarding way. The more airlines complicate things the more opportunities arise for the middle man.
g) As mentioned in my previous piece the top TMCs are developing their own platforms so they can choose what fares and services find their way to staff, booking screens and self booking tools. This kind of dynamic pricing will create such a sea change in TMC control and selling ability that airlines may have to think again about their distribution strategies.
h) The decision by many corporations to allow their travellers to ignore set policy and choose best fare on the day provides a further opportunity.
In conclusion I am certain that TMCs can influence business and more than ever before. I would however add that I do not think this should be too worrying for corporations. Yes, TMCs do get incentivised by airlines but hey, if they weren’t you would be paying more so I suggest that ‘sleeping dog’ should be left to lie. After all you still hold the ace card in that the principal way to move business is to offer the best price and product and no TMC would be daft enough to forget that. In the past one could move like for like business but now it has to be cost justified and done with the knowledge of the corporation who still calls the shots.
I hope you found this interesting or at least thought provoking. I plan to write a further summary on where I think all this is going. I think you will be surprised by some of it!
In my last two pieces on this subject I explained that airline suppliers still incentivise TMCs in the belief that this will bring them greater volume and share despite the inroads they themselves have made direct with the corporate sector. Also because some fear what they may lose if they don’t as they get denied access to TMC bookers and account managers if they are not ‘in the programme’. I also explained how the shape of these deals has changed in order to react to the removal of commissions and subsequent new style management fee and transaction fee contracts.
But the real cruncher is can TMCs really move their business around between airlines and if so what impact could this have on their clients. Over the next few paragraphs I will give my honest opinion on this vexing subject and hopefully come up with a few things for you to consider along the way. Like all responses to difficult questions the answer can be ambiguous as there are so many different TMCs with varying degrees of ability and strategy so I will focus on what I see as the more professional of the grouping.
Obviously the choice of supplier is by no means only dependant on the whims of the TMC. The corporations have deals themselves that they expect their TMC to support and then we have the traveller who sometimes ignore both. In fact the travellers also have their own ‘deals’ with airlines known as frequent flyer points, upgrades, and lounge access to name a few. However the power to influence travel choices by the TMCs is growing as the market changes and they become more of an outsourced arm of their customers. Ironically many of the actions taken by airlines to remove some of the ‘rewards’ they paid to TMCs (commissions etc) is creating an increase in their ability to influence airline choice.
Getting down to basics here are just some of the ways TMCs can and are moving business.
a) The SME market mainly buys on price and has few direct deals of their own therefore the TMC can choose which suppliers and fares to put towards them.
b) The arrival of online booking tools is giving TMCs a greater ability to select what to promote and exclude those they do not.
c) There are still surprisingly many people out there that seek advice and recommendation about airlines and their services and the TMCs can control what their people say far better than they used to. If a supplier is denied access to bookers then what chance do they have?
d) TMC account managers play a far bigger (sometimes unique) part in what supplier goes into their client’s programme. By working closely with a partner airline they can ensure that they offer the best package of benefits. This should end up in a win/win situation except the supplier ends up having to dig deeper in their pockets to reward all parties.
e) Corporations tend to pick two suppliers on their main routes. For example on the UK/USA sector it is most unusual not to have a two carrier policy to keep both sides of the Atlantic happy. This gives the TMC a superb opportunity to switch sell playing one airline off against the other if they choose to do so. And all this within policy.
f) Another growing area for flexing and switching is unbundling of fares. This creates an opportunity for a savvy TMC to translate true costs of journey in a proactive and rewarding way. The more airlines complicate things the more opportunities arise for the middle man.
g) As mentioned in my previous piece the top TMCs are developing their own platforms so they can choose what fares and services find their way to staff, booking screens and self booking tools. This kind of dynamic pricing will create such a sea change in TMC control and selling ability that airlines may have to think again about their distribution strategies.
h) The decision by many corporations to allow their travellers to ignore set policy and choose best fare on the day provides a further opportunity.
In conclusion I am certain that TMCs can influence business and more than ever before. I would however add that I do not think this should be too worrying for corporations. Yes, TMCs do get incentivised by airlines but hey, if they weren’t you would be paying more so I suggest that ‘sleeping dog’ should be left to lie. After all you still hold the ace card in that the principal way to move business is to offer the best price and product and no TMC would be daft enough to forget that. In the past one could move like for like business but now it has to be cost justified and done with the knowledge of the corporation who still calls the shots.
I hope you found this interesting or at least thought provoking. I plan to write a further summary on where I think all this is going. I think you will be surprised by some of it!
Can TMCs Really Influence Business? - Deals
OK, so we got to the point where we ascertained that TMC/agents still get incentives from suppliers, albeit presented in a different shape. I also mentioned that, in my opinion, this need not necessarily be a bad thing for corporate customers if managed right. What I did not go into in any detail was a) what these deals are b) how TMCs do (or do not) shift business and c) how such deals could benefit all. So let me address at least one of these points now and deal with the others another time.
What kind of deals?
There are three main types which are growth percentage rewards, net fares that can be marked up and increase share payments.
Payments for growth are usually a percentage of net ticket value sometimes paid back to zero and sometimes just for the growth element compared with previous year. Percentages paid vary enormously depending on supplier size, their importance/share of the local market and their strategic need to buy a way into the region. I have heard of deals ranging around 2% from a big volume airline to 50% from someone trying to make inroads into a market. Such deals are pretty unfashionable now in most primary markets but do still happen in numerous places around the globe especially from suppliers who have no effective systems to measure performance.
As time passed some of the more major airlines started to get concerned that TMCs might simply start doing growth deals with all their competitors as, in a growing market, the prospects of growing volume with everyone was high. Also volume could vary greatly simply by the losing or winning of a major volume corporate account. This ultimately got addressed by airlines ‘red ringing’ the biggest clients which meant their volumes were taken out for volume and payment purposes.
There have always been a few net fare deals about. This is where an airline offers a fixed net price to specific agents who can mark it up by as much as they think they can get away with. These net fares were targeted towards specialist agencies who were involved in markets such as ethnic or tourist travel. In the main the plan was to gain this business but not dilute their yields by exposing such discounts to the corporate market. Nevertheless there has been growing overlap which usually manifests itself by corporate travellers that gets hold of the fare and demands to know why his TMC cannot match it. This has been going on for many years but in recent times some USA airlines have dallied in this area too by offering net business prices to TMCs instead of overrides.
In an attempt to make future deals work airlines started introducing rewards based on share increase. This is infinitely more difficult to measure and depended on the airline itself to produce the results with no way for the TMCs to verify them. Some of these deals became so very complex that it was almost impossible for anyone to predict what would be paid. .Another issue was that, for some dominant airlines such deals were considered by the authorities as anti-competitive and thereby illegal. However these deals are still widespread today.
Most modern deals are far more sophisticated and linked to ‘service level agreements’ (SLAs) although this term is a misnomer in my view. What they effectively do is reward TMCs for performing (or allowing) certain activities. These activities vary from allowing access to their staff, account managers and senior management to shifting share, providing key MI on their clients, promoting the airline’s campaigns and supporting a particular strategy. All such activities are measured and rewarded accordingly. These ‘incentives’ seem to work reasonably well for both parties as the airline usually sees more volume and the TMC gets it’s money in a way that negates them having to pay it straight on to the corporation as extra client income/overrides.
Originally TMCs used to negotiate SMAs with individual airlines but even that has moved on. Now the suppliers are trying to do deals by Alliances rather than individual members. These usually manifest themselves as umbrella incentives paid only if the TMC performs with a certain minimum number of their partners. This way the dominant airline in any alliance group can demand TMC preferred status for their smaller partners that would not otherwise register on their radar screen. Such deals are highly unpopular with most eligible TMCs for obvious reasons and particularly because many airline partners are either unable to provide accurate data or simply not a product they want in their portfolio especially if they clash with another preferred supplier.
Consolidation by alliances is one thing but the ability/desire to agree a global incentive agreement is even harder and suppliers have, in the main, been reticent to do this either with TMCs or corporations. Don’t get me wrong, there are some prototype deals out there but I am highly sceptical of their current value to anyone. After all the airlines still work on a system where they cannot tell their overseas offices what to do as they are cost centres in their own right and have the authority to say no.
Finally I expect to see a new type of deal arriving and it is not a million miles away from the net concept. Well actually it is here now but only in it’s formative state. The arrival of TMC specific fares is here and expanding. In the past, probably as a result of past legacies, airlines have stuck to treating all TMCs the same as each other as far as fares are concerned. This is changing with the arrival of new generation TMC technology platforms that can be very specific about who sees what fare where and when.. This will enable them to drive business to (and from) airlines at the press off a button. Airlines will be able to flex the fares they offer depending on need and thereby have a tighter grip on their yields in a similar way to what they do on their own dot com sites…if the TMC is incentivised enough to support them. As I say, it is early days but worth watching.
This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such deals are supported and how I think all could benefit next time.
What kind of deals?
There are three main types which are growth percentage rewards, net fares that can be marked up and increase share payments.
Payments for growth are usually a percentage of net ticket value sometimes paid back to zero and sometimes just for the growth element compared with previous year. Percentages paid vary enormously depending on supplier size, their importance/share of the local market and their strategic need to buy a way into the region. I have heard of deals ranging around 2% from a big volume airline to 50% from someone trying to make inroads into a market. Such deals are pretty unfashionable now in most primary markets but do still happen in numerous places around the globe especially from suppliers who have no effective systems to measure performance.
As time passed some of the more major airlines started to get concerned that TMCs might simply start doing growth deals with all their competitors as, in a growing market, the prospects of growing volume with everyone was high. Also volume could vary greatly simply by the losing or winning of a major volume corporate account. This ultimately got addressed by airlines ‘red ringing’ the biggest clients which meant their volumes were taken out for volume and payment purposes.
There have always been a few net fare deals about. This is where an airline offers a fixed net price to specific agents who can mark it up by as much as they think they can get away with. These net fares were targeted towards specialist agencies who were involved in markets such as ethnic or tourist travel. In the main the plan was to gain this business but not dilute their yields by exposing such discounts to the corporate market. Nevertheless there has been growing overlap which usually manifests itself by corporate travellers that gets hold of the fare and demands to know why his TMC cannot match it. This has been going on for many years but in recent times some USA airlines have dallied in this area too by offering net business prices to TMCs instead of overrides.
In an attempt to make future deals work airlines started introducing rewards based on share increase. This is infinitely more difficult to measure and depended on the airline itself to produce the results with no way for the TMCs to verify them. Some of these deals became so very complex that it was almost impossible for anyone to predict what would be paid. .Another issue was that, for some dominant airlines such deals were considered by the authorities as anti-competitive and thereby illegal. However these deals are still widespread today.
Most modern deals are far more sophisticated and linked to ‘service level agreements’ (SLAs) although this term is a misnomer in my view. What they effectively do is reward TMCs for performing (or allowing) certain activities. These activities vary from allowing access to their staff, account managers and senior management to shifting share, providing key MI on their clients, promoting the airline’s campaigns and supporting a particular strategy. All such activities are measured and rewarded accordingly. These ‘incentives’ seem to work reasonably well for both parties as the airline usually sees more volume and the TMC gets it’s money in a way that negates them having to pay it straight on to the corporation as extra client income/overrides.
Originally TMCs used to negotiate SMAs with individual airlines but even that has moved on. Now the suppliers are trying to do deals by Alliances rather than individual members. These usually manifest themselves as umbrella incentives paid only if the TMC performs with a certain minimum number of their partners. This way the dominant airline in any alliance group can demand TMC preferred status for their smaller partners that would not otherwise register on their radar screen. Such deals are highly unpopular with most eligible TMCs for obvious reasons and particularly because many airline partners are either unable to provide accurate data or simply not a product they want in their portfolio especially if they clash with another preferred supplier.
Consolidation by alliances is one thing but the ability/desire to agree a global incentive agreement is even harder and suppliers have, in the main, been reticent to do this either with TMCs or corporations. Don’t get me wrong, there are some prototype deals out there but I am highly sceptical of their current value to anyone. After all the airlines still work on a system where they cannot tell their overseas offices what to do as they are cost centres in their own right and have the authority to say no.
Finally I expect to see a new type of deal arriving and it is not a million miles away from the net concept. Well actually it is here now but only in it’s formative state. The arrival of TMC specific fares is here and expanding. In the past, probably as a result of past legacies, airlines have stuck to treating all TMCs the same as each other as far as fares are concerned. This is changing with the arrival of new generation TMC technology platforms that can be very specific about who sees what fare where and when.. This will enable them to drive business to (and from) airlines at the press off a button. Airlines will be able to flex the fares they offer depending on need and thereby have a tighter grip on their yields in a similar way to what they do on their own dot com sites…if the TMC is incentivised enough to support them. As I say, it is early days but worth watching.
This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such deals are supported and how I think all could benefit next time.
Can TMCs really influence business?
Ever since travel agencies were created by airlines as the most efficient way of consolidating and distributing their product they have had to incentivize them. Somewhat ironic really that in many ways they created their own Frankenstein’s monster which, despite their best efforts, they cannot kill.
They desperately needed to find a way to deal with the then need to seamlessly interline their services with other airlines using one fare on one ticket and the travel agent, ultimately to become travel management company (TMC), fitted the bill perfectly. They could do all the messy bits for the customer at a fraction of the cost that an airline would have to incur in order to do it themselves. In those days there was minimal technology and very little direct competition unlike modern times.
As time passed the airlines expanded and serious competition arrived on all the main air routes. Instead of being able to assume they would get all, or at least a fair share, of passengers on their services they now had to fight it out with a whole bunch of others. The big snag however was that they had created this TMC middle man who had all the access, relationship and knowledge with the end customer. They were also very firmly entrenched as they offered a ‘free’ service to the traveller and, in many cases, actually paid their company to use them.
So it was that ‘incentive overrides’ were born. This is where airlines not only paid TMCs a standard commission but also gave extra percentages on top in payment for extra passengers and/or higher share. The TMCs used this money to increase their profits, win business and subsidise other services they had to offer their clients that were not otherwise cost effective. They also used these deals co create new ones by playing one supplier off against another. Airlines hated it but always had a nagging doubt about how much business they might lose if the climbed off the incentive roundabout.
Finally things started to change as suppliers decided they could not afford these distribution costs, especially in this new technological world. They really did not like the lack of contact with their end customers and their doubts got greater about whether these incentives delivered a return on investment. After all the TMCs ended up doing deals with practically all the suppliers so who were they going to move business from? And, with the arrival of corporate procurement managers, could they influence business anyway? The main national airlines decided enough was enough, pulled the plug on commissions and, searched for other ways to incentivise that would yield better returns. Airlines can be a little like sheep in that whatever the national carrier does in their own market the others follow.
This brings us to today. A today that is supposed to mean that TMCs work for, and get paid by, their clients and the suppliers give all their incentives to the end user through lower pricing. Oh, if only life and business could be that easy. In actuality various types of incentives are alive and well albeit a little more covert and targeted than they used to be. In fact I believe most TMCs would have to shut down overnight if they ceased earning income from suppliers. Many of the incentives are relatively customer friendly and shaped in the guise of service level agreements (SLAs) but, be under no illusion, their purpose is to build an individual airline’s share whichever way you look at it. I leave it to you to decide if this is a good or bad thing.
So, back to the main question. Can TMCs direct business? My view is a qualified yes if they go about it the right way. By right way I mean with their customer’s knowledge and agreement and using the right methodology. There is a win/win possibility here with improved services, value adds and efficiencies being the end goal. Does it happen now? I have been out of ‘hands on’ touch for a while but I think the answer is probably not. I believe the relationship (financial and otherwise) between supplier, TMC and customer still has a way to evolve and will become one of the next big issues. I predict tomorrow’s ‘incentive’ battleground will revolve around dynamic pricing where TMCs will control what fares and preferences will be in their databases and distribute them in a way that brings them greater return. A key factor of which TMC a corporation uses will be the ability of these databases to deliver best value.Let’s see if I am right!
They desperately needed to find a way to deal with the then need to seamlessly interline their services with other airlines using one fare on one ticket and the travel agent, ultimately to become travel management company (TMC), fitted the bill perfectly. They could do all the messy bits for the customer at a fraction of the cost that an airline would have to incur in order to do it themselves. In those days there was minimal technology and very little direct competition unlike modern times.
As time passed the airlines expanded and serious competition arrived on all the main air routes. Instead of being able to assume they would get all, or at least a fair share, of passengers on their services they now had to fight it out with a whole bunch of others. The big snag however was that they had created this TMC middle man who had all the access, relationship and knowledge with the end customer. They were also very firmly entrenched as they offered a ‘free’ service to the traveller and, in many cases, actually paid their company to use them.
So it was that ‘incentive overrides’ were born. This is where airlines not only paid TMCs a standard commission but also gave extra percentages on top in payment for extra passengers and/or higher share. The TMCs used this money to increase their profits, win business and subsidise other services they had to offer their clients that were not otherwise cost effective. They also used these deals co create new ones by playing one supplier off against another. Airlines hated it but always had a nagging doubt about how much business they might lose if the climbed off the incentive roundabout.
Finally things started to change as suppliers decided they could not afford these distribution costs, especially in this new technological world. They really did not like the lack of contact with their end customers and their doubts got greater about whether these incentives delivered a return on investment. After all the TMCs ended up doing deals with practically all the suppliers so who were they going to move business from? And, with the arrival of corporate procurement managers, could they influence business anyway? The main national airlines decided enough was enough, pulled the plug on commissions and, searched for other ways to incentivise that would yield better returns. Airlines can be a little like sheep in that whatever the national carrier does in their own market the others follow.
This brings us to today. A today that is supposed to mean that TMCs work for, and get paid by, their clients and the suppliers give all their incentives to the end user through lower pricing. Oh, if only life and business could be that easy. In actuality various types of incentives are alive and well albeit a little more covert and targeted than they used to be. In fact I believe most TMCs would have to shut down overnight if they ceased earning income from suppliers. Many of the incentives are relatively customer friendly and shaped in the guise of service level agreements (SLAs) but, be under no illusion, their purpose is to build an individual airline’s share whichever way you look at it. I leave it to you to decide if this is a good or bad thing.
So, back to the main question. Can TMCs direct business? My view is a qualified yes if they go about it the right way. By right way I mean with their customer’s knowledge and agreement and using the right methodology. There is a win/win possibility here with improved services, value adds and efficiencies being the end goal. Does it happen now? I have been out of ‘hands on’ touch for a while but I think the answer is probably not. I believe the relationship (financial and otherwise) between supplier, TMC and customer still has a way to evolve and will become one of the next big issues. I predict tomorrow’s ‘incentive’ battleground will revolve around dynamic pricing where TMCs will control what fares and preferences will be in their databases and distribute them in a way that brings them greater return. A key factor of which TMC a corporation uses will be the ability of these databases to deliver best value.Let’s see if I am right!
Airlines and Travel Management Companies (TMC)
I genuinely find it interesting to note that very little has changed over the years despite commission cuts/removal, direct sell and net fares. Airlines still need TMCs to sell their seats and TMCs are still just as much in need of airline funding. The essential metrics remain the same and it is only the methodology that has flexed to meet market changes.
This status quo has not changed despite intense efforts from airlines as they strive to find ways of getting corporations to book direct. The only trouble is they are not TMCs and can only offer individual booking service which represents a fraction of the whole TMC integrated package. Add to this their obvious bias to their own fares and flights and it becomes clear that unless they incur the cost and role change to embrace the total TMC product not much is going to change. It would not take them long to do the math that says it is cheaper to outsource to TMCs than transform themselves. In fact, if they really were smart they would outsource more of their own services, like reservations for example, to TMCs. Some years ago an airline did just that for a short time and discovered TMC staff took more calls and got better customer reaction than their normal service.
The relationship between airline and TMC can be a rather strange alliance. The only comparison I can think of comes from the animal world where the female praying mantis makes love with its mate and then tries to eat it! It can often be very turbulent and can be tracked by just how well the market is doing. When airline sales go up they start thinking “who needs these agents” and the cooperation and incentives go down. Partially as a result their market share starts dropping until they start thinking “hey, we better start being nice to these guys again”. The result is a constant wavy line of highs, lows and then highs again. Some time someone is going to realise that some kind of continuity (say a mid point) between the highs and lows would provide better results.
Some corporations are puzzled that there is still a financial relationship at all despite market changes where they too pay the TMC. I cannot understand this as they are constantly driving down their payments to TMCs so the TMC has to make up the shortfall elsewhere within the supply chain. Also TMCs do all sorts of things for suppliers that have little direct influence on any particular corporation. These can be activities spanning, access to staff, marketing, M.I. and exposure of special airline benefits. Despite this I still think airlines mainly ‘incentivise’ TMC to increase client volume and share and they are right to do so in my personal opinion.
So, in summary, TMCs still maintain the same (or possibly more) margins from airlines despite the onset of fees. The airlines want to stop it but have failed so far. The more corporations drive for commoditisation, net pricing et al, the more these incentives will grow. My recommendation to corporations is to let it happen. As long as you are getting what you need why try and influence other relationships.
I am sure everyone will agree!
This status quo has not changed despite intense efforts from airlines as they strive to find ways of getting corporations to book direct. The only trouble is they are not TMCs and can only offer individual booking service which represents a fraction of the whole TMC integrated package. Add to this their obvious bias to their own fares and flights and it becomes clear that unless they incur the cost and role change to embrace the total TMC product not much is going to change. It would not take them long to do the math that says it is cheaper to outsource to TMCs than transform themselves. In fact, if they really were smart they would outsource more of their own services, like reservations for example, to TMCs. Some years ago an airline did just that for a short time and discovered TMC staff took more calls and got better customer reaction than their normal service.
The relationship between airline and TMC can be a rather strange alliance. The only comparison I can think of comes from the animal world where the female praying mantis makes love with its mate and then tries to eat it! It can often be very turbulent and can be tracked by just how well the market is doing. When airline sales go up they start thinking “who needs these agents” and the cooperation and incentives go down. Partially as a result their market share starts dropping until they start thinking “hey, we better start being nice to these guys again”. The result is a constant wavy line of highs, lows and then highs again. Some time someone is going to realise that some kind of continuity (say a mid point) between the highs and lows would provide better results.
Some corporations are puzzled that there is still a financial relationship at all despite market changes where they too pay the TMC. I cannot understand this as they are constantly driving down their payments to TMCs so the TMC has to make up the shortfall elsewhere within the supply chain. Also TMCs do all sorts of things for suppliers that have little direct influence on any particular corporation. These can be activities spanning, access to staff, marketing, M.I. and exposure of special airline benefits. Despite this I still think airlines mainly ‘incentivise’ TMC to increase client volume and share and they are right to do so in my personal opinion.
So, in summary, TMCs still maintain the same (or possibly more) margins from airlines despite the onset of fees. The airlines want to stop it but have failed so far. The more corporations drive for commoditisation, net pricing et al, the more these incentives will grow. My recommendation to corporations is to let it happen. As long as you are getting what you need why try and influence other relationships.
I am sure everyone will agree!
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