Fees: Examination of the shortcomings of the TMC business model

After exposing the fragility of the TMC business model, will the Covid crisis serve as a catalyst for change?

Underlying health conditions. It’s a phrase we’ve heard time and time again in the pandemic and, according to Chris Crowley, Partner at consultants Nina & Pinta, it’s one that can also be applied to the TMC business model. The trouble with underlying health conditions is that they often build up slowly over time and can be difficult to shake-off. They can lie dormant, just about manageable, but then along comes a trigger that exposes the weakness, and… bang.

To its credit, the TMC community was already aware of its vulnerabilities before Covid came along. “Whilst the pandemic has been a further catalyst to this situation, the need for a change to TMC pricing has been evident for years,” says a White Paper published by the BTA last October.

Produced in conjunction with Nina & Pinta, the paper shaped an eight-week consultation with TMCS, suppliers, tech companies and travel buyers that was initially planned for later this year but was pushed forward because of the devastating impact of the coronavirus. The result is a 14-page document, released in January, which attempts to establish clearer guidelines on the three predominant pricing models – transaction fees, subscription fees and management fees – in the hope that a new ‘2020s’ approach to pricing will be adopted and make everything better.

Medical history

To understand the root of the sector’s underlying health problems, we need to go back to the roaring nineties, a time when the acronym TMC hadn’t yet been invented and when the BTA was called the GBTA (before it became the GTMC), and a time when GBTA didn’t stand for ‘Global Business Travel Association’ but instead for ‘Guild of Business Travel Agents’. Business travel agents – remember those?

In those heady days, business travel agents relied purely on suppliers for their income, in the form of commissions, incentives, overrides, or rebates, which were sometimes shared with corporate clients and were part of highly-complex deals shrouded in secrecy.

But with the arrival of the internet, suppliers began to find cheaper ways to distribute their products and from the mid1990s commissions began to be capped and then scrapped altogether. This prompted the emergence of transaction fees and, for the first time, saw agents rely on their corporate clients for part of their income stream.

Then came the 9/11 terror attacks, which brought duty of care to the forefront and made corporates realise they needed traveller tracking, management reporting, and a whole host of other services, prompting business travel agents to invest sizeable sums in technology to meet the new requirements and, effectively, evolve from agents to TMCS.

Critical period

Fast forward to the beginning of 2020 and the TMC business model remained split, typically with around two-thirds still coming from suppliers (in various complex guises) and a third of income supplied by corporates in the form of fees.

Transaction fees, in the UK at least, accounted for around 80% of contracts: roughly 15% were management fees and the remainder a mix of the other – bundled, menu, open source, enterprise, mobile, and others, plus one in particular that was gaining traction – the subscription fee.

Then Covid-19 brought travel grinding to a halt and TMCS were left frantically dealing with repatriations, cancellations, refunds and policy overhauls, but with almost zero bookings. The flaws of the transaction fee model, already under scrutiny, were well and truly exposed.

The remedy

The sharp business travel downturn has demonstrated, beyond doubt, the unsustainability of the TMC business model and the need for TMCS to find new ways to package and price their services.

The BTA’S White Paper acknowledges that “people only place a value on what they pay for and when all corporates perceive they are paying for is the booking process that is all they really value”. Instead, says BTA CEO Clive Wratten, there should be “strategic partnerships which recognise that the value a TMC offers goes far beyond delivering everyday transactions.

"It’s one that encompasses knowledge and expertise which enables them to help corporates deliver a duty of care to their travelling employees – something that’s more important than ever in this new Covid era”.

With the crisis wounds still fresh, there’s been a more frank and open dialogue from both sides and a better understanding of what’s required going forward. "There's definitely an appetite (from both sides)," says Nina & Pinta's Jo Lloyd. "The vision of the solution might be different but both sides see transaction fees aren't helpful."

Crowley believes the shift requires "more backbone" from the TMCS. "They need to be more forthright and tell buyers – either you want me to manage costs, or if all you want is to buy a commodity this is what it costs and stop asking me what salaries I pay my staff."

In order to simplify the options, the BTA guide likens the three main fee models to mobile phone contracts. Transactions fees are, it says, like a pay as you go contract with central costs being the handset charge.

Subscription fees are like a mobile phone contract with minutes, texts and bolt-on services included in a monthly fee.

Meanwhile, management fees are like an enterprise mobile phone contract where an organisation purchases phones and plans for all of its employees.

The BTA guide also tell corporates – and this is where it gets tricky – to provide their best estimates of spend, travel patterns, preferred agreements and transactions.

"Everyone understands it's not an exact science at the moment. It's a best guest of how travel will come back, but corporates need to provide parameters," says Lloyd.

In order to find the right match, the guide says corporate customers should aim to be as transparent as possible about the services they require and what value they are looking for in their travel programme. After all, some will want a simple transactional service with no traveller tracking, reporting or account management whilst others will be looking for a full suite of services.

The answer for some could lie in the emergence of a new type of fee being thrown into the mix – a hybrid of transaction and subscription, which will see corporates paying a fee to cover the basics and then pay extra for any additional services they require, plus a smaller transaction fee on top. This new kid on the block is yet to be officially named but for now the term 'transcription fee' is being banded about. Watch this space.

With the crisis wounds still fresh, there's been a more frank and open dialogue from both sides and a better understanding of what's required going forward”