The Business
Travel Association (BTA) has called for the business travel sector to develop a new approach to TMC
pricing to replace a system that has been in place for more than a quarter of a
century.
It said it
had recognised the need for change had been evident for some time but has been
brought into focus by “the devastating impact of Covid-19 on the business
travel sector”.
With
industry consultants Nina & Pinta, the BTA has produced a white paper that
outlines the pros and cons of three industry pricing models: transaction fees,
subscription fees and management fees. The paper has been developed with insights
and feedback from representatives from leading UK-based corporations and TMCs,
it said.
Clive
Wratten, CEO of the BTA, says: “In recent years, there have been growing calls for
evolution in the way TMCs price their services. The impact of Covid-19 on our industry has
made that need more vital than ever, and the BTA is committed to leading the
industry with this catalyst for positive change.”
The paper
calls for clarity on pricing and transparency about what each model includes.
Transaction
fees, the dominant model in the sector currently, are “little liked” by TMCs
because of the huge amount of work that goes on behind the scenes around a
booking. Corporates tend to favour them because they ensure costs are allocated
directly to budget centres and largely avoids the need for central costs.
A subscription model would ensure TMCs get
paid for the services they provide but many corporates do not have centralised
budgets. Another approach might be to charge subscription fees per traveller,
with different levels applicable to regular travellers than those who take
occasional trips. The question for many corporates is will it cost the same as
the current model or will it prove more complicated and costly.
Management
fees, where corporates are charged for the services TMCs provide at cost with a
fair profit built on top, is simple in concept but can be difficult to manage
in practice. Done correctly, it can ensure that the TMC’s goals are aligned
with their corporate client’s. Again, the lack of centralised budgets may prove
to be a stumbling block.
As the corporate
focus on technology grows, there will inevitably be questions around who pays
for the necessary investment in that.
“This is certainly
up for discussion,” says Wratten. “The supply chain - airlines, hotels, tech
companies - needs to get involved in this discussion. Where does this tech
stack get paid for? It may be that the corporate could pay for the licence fee
directly to the tech company with transaction fees for the services on top.”
Wratten is
not pre-empting the outcome of the consultation.
“The purpose
of this is completely agnostic; it could be all of them or something completely
different. It is not our role to choose, it is to have the debate,” he says.
The need to
look at TMC pricing has been on Wratten’s to-do list since joining the organisation
last year.
He says, “When
I first came into the role, l was struggling with what the value of a TMC is
and the ever-changing distribution models. It was time to revisit everything we
did. Covid has only made it more pronounced.”
Wratten says the
need for change has been driven, in part, by increasing downward pressure on
transaction fees. The increasingly procurement-led focus of companies when
buying business travel has only accelerated this.
"This race
to the bottom doesn’t serve anyone," says Wratten. “Those who have raced to the
bottom will have to race back to the top.”
Transparency
on remuneration will be at the top of corporates’ minds. The report reveals that on
average the association’s TMC members receive a third of their income from
corporates and two-thirds from the supply chain.
Wratten said:
“Travel is not the only industry to get paid by the supply chain but because it
has become so complicated there is a lack of transparency.”
He is pragmatic
about the need for change. “It is not an
easy change from one model to another,” he says. “On the face of it, it could
look like you are paying more. When talking to corporate buyers, there is an
appetite for the ability to choose what services they have and feel they might get
better value for it."
Wratten says
there will be winners and losers in the supply chain as there is with any step-change.
“At times of
disruption, there will be players that win and those that won’t - that is
inevitable in any industry.”
He believes,
however, that the pandemic has led to many corporates recognising the value of having
a strategic partner.
Wratten says:
“For our industry to evolve, especially in these challenging times, there needs
to be an open, honest and constructive dialogue between all of the key
stakeholders, and that is what the BTA will be seeking to achieve in the weeks
ahead.”
The
consultation will remain open for the next eight weeks.