A Brief History of Trust in Managed Travel
When I first started in the travel industry, I worked for an airline (TWA) and by the time I was 28 I started a corporate travel agency. Back in the late 1990’s, the way that you won a corporate account was a combination of the service offering from your travel agency (we weren’t called TMCs then) and the amount of your rebate expressed as a percentage of the corporate client’s airfare.
How Commissions Influenced Rebates
One of our agency’s first clients was a global investment firm who flew 200 Concorde trips a month from their US office and 150 a month from their UK office back and forth between New York and London. A round-trip ticket was about $12,000 and the commission on the ticket was 8 percent. But if you added a “Tour Code” (meant for leisure travel), you could earn 11 percent on a Concorde ticket. We were transparent with our client as to the 11 percent that we shared. (Many a travel agency were not and based their rebate on the lower 8 percent.)
What I found interesting was that, given the nature of the business they were in, the client never asked for backup details or an audit of our calculation. To them it was “found money” and across the corporate travel industry, clients gladly cashed the check on good faith that the amount was correct. To many a travel manager, they were running a “profit center” and focused on the amount of the money, not the source.
From Agencies to TMCs
Starting in the late ’90s and peaking in the early 2000s, the reduction of travel agency commissions eventually led to the elimination of commissions altogether (for most travel agencies). Also impacted were overrides paid by the airlines to the larger agencies, but those payments were not as transparent as ticketed commissions and rarely shared with the corporate clients.
In order for their model to survive, travel agencies changed their image and branding to “Travel Management Companies,” because in their own words, they “worked for the client, not the airlines.” That, of course, is technically incorrect as every agency accredited by ARC or IATA is an “agent” of the airlines.
From Rebates to TMC Fees
In the absence of commissions, the TMCs had to discontinue rebating and instead offered a “transaction fee” model, essentially a fee per ticket issued. It was a shock to the “profit center” model for travel managers, but there really was no other choice. That is, until…
The Rise of OBTs & The Fall of TMC Fees
The challenge for the TMC’s was to minimize the sticker shock for travel managers who had been used to getting a 4 percent rebate on their airfare spend, but are now paying $40 per ticket which needed to be budgeted internally. Naturally the “change management” was a challenge and we soon saw an alternative to the “offline fee” (meaning by phone or e-mail) with the introduction of an “online fee” which enabled the traveler to make their own booking via an Online Booking Tool (OBT).
This alternative was able to reduce the transaction fee by 50 to 75 percent, but it was the traveler who had to do the work. And if the booking could not be done without some sort of agent assistance (also called intervention), the TMC tacked on an additional fee. In one case we saw those additional fees for one trip end up costing four times the offline fee.
The Focus is Not the Fees – It’s the Cost of Travel
As an industry, we need to get the focus away from TMC fees as they only represent less than 10 percent of total travel costs – in most cases it’s 5 percent or less. The focus instead needs to be on the cost of air travel and hotel bookings (including unattached hotels). Any TMC RFP focused on the TMC fees is (in the words of my former boss Walter Freedman (RIP) “looking at the wrong end of the horse.”
Here are two simple questions:
- Who benefits from higher airfares?
- Who benefits from higher hotel rates?
The answer to both is everyone in the ecosystem except the corporation who pays for the trip:
• The TMC earns higher airline income based on the cost and cabin class of the ticket
• The traveler gets more miles and a higher place on the upgrade list based on the fare paid
• The TMC earns about a 10 percent commission on the hotel rates that are not corporate-net: The higher the rate, the more commission they get from the hotels.
When offered five different rates for the same hotel in the OBT, the traveler will not pick the lowest priced room on the left side of the matrix (thinking it’s a small room, near the ice machine or elevator) and will pick a higher priced room to the right side, assuming they are all in policy, when in fact, the lower cost room was the corporate rate (net). All of the others are commissionable to the TMC (unless the corporation has a chainwide discount).
Managers Focus on the 95% Cost of Travel?
The only two measurable ways to reduce the costs of business travel are:
• Reduce Demand
• Audit the business trip before it takes place for compliance with the travel policy and utilization of negotiated discounts for airfare and hotel. You, of course, should trust that corporate travelers will pick the lowest airfare and hotel rate, but it’s not always their fault if full content is not available.
You should have trust in both your travelers and travel suppliers to ensure that your company’s negotiated discounts and travel policy are guiding the selection made by your traveler. As part of a travel manager’s fiduciary responsibility to their company’s shareholders, verifying the lowest price booked prior to travel is the only way to guarantee savings on the cost of a trip. If your travelers can find a lower airfare on the airline’s website, your managed travel program is at risk.
Historic footnote: Before I wrote this issue’s article, I incorrectly assumed that President Ronald Reagan coined the phrase during the nuclear disarmament discussions with Russia. It turns out that it’s actually from a Russian proverb – “Trust, but verify” (Russian: zed doveryay, no proveryay) that was taught to President Reagan by an American scholar in the 1980s.
Andrew W. Menkes, CTC, is the Founder and CEO of Partnership Travel Consulting, a global corporate travel sourcing and strategy company. A business travel pioneer, Andrew has led technology innovation in the industry, including the first internet-based electronic ticket purchase. He was the first travel manager to be accredited by ARC to operate a Corporate Travel Department. He has been named Travel Manager of the Year, listed twice in the Top 25 Most Influential Business Travel Executives, and was the first travel buyer to be inducted into the Business Travel Hall of Fame. In January of 2025, Andrew also took over as President of Fare Audit, Inc. a corporate travel audit firm for airfares and hotel rate
