Travel management companies are being forced to change, so what will the value proposition look like in the future?
By Keith Loria
The pandemic has thrown a huge curveball at the business models of travel management companies over the past year, as many have been forced to cut service levels, lay off staff, or renegotiate their compensation. TMCs had been relying on transaction fees for their revenue stream, but now those are out the window and TMC relationships will need agility and innovation to recover.
The impact on TMCs has been severe and sustained, forcing them to lower cost across all areas of expense, notes Andrew W. Menkes, founder and CEO of Partnership Travel Consulting. He cites reports that show TMC business overall is down 80 to 90 percent from 2019 levels, a situation that he notes is simply not sustainable.
“We have previously provided strategic advice to clients on supplier risk mitigation, but no one could have predicted the dramatic impact on travel programs and travelers,” Menkes says. “We’ve been supporting client travel program assessments and have worked with a number of them on optimizing the supplier base, and in some cases taking the TMC model out for RFP.”
On a global level, net air transactions are currently down 87 percent against budget, after dropping to 99 percent below budget at the peak of the pandemic. Travel managers are using this “downtime” to evaluate their programs and consider new TMC partners. “Consolidation and new service configurations are pushing buyers to reassess, so TMCs are busy selling,” says Will Tate, a partner with GoldSpring Consulting. “Additionally, TMCs are looking to automate all low-value transactions to reduce their costs and improve the communication to the travelers, working to innovate on service models to find a balance between customer needs and TMC costs.”
TMCs, still eager to win new customers, are creating new contract terms, pricing practices and service strategies as they hang on until volume returns. “Companies will likely pay more for the same TMC services post-pandemic,” Tate says. “Companies will likely adjust by increasing automated transactions – more online and more touchless fulfillment – greater mobile adoption and perhaps different service models.”
All travel management companies are faced with a tough decision going forward, says Jeff Berk, CEO of Tripkicks. Do they invest, sell, or try to wait it out? “Those with the ability to invest will be better equipped for the return of travel – with new partnerships, technology, and potentially a new book of business or two,” he says. “For others, the best decision may be to sell, which is driving consolidation unlike anything we have seen in recent years.”
Those who chose to wait, Berk notes, are unfortunately waiting for the return of an industry that will look vastly different than it did in February 2020. “Companies and travelers have shifting priorities and increased expectations, and those TMCs with the ability to invest will be able to deliver new customer value in more efficient ways,” he says. “Many are looking to travel startups to help them address these emerging areas.”
The TMCs Speak Craig Bailey, president Americas for BCD Travel, notes his company has a history of financial stability and has the liquidity needed to survive the COVID-19 downturn, thanks to the company’s reinvestment of 35 percent to 40 percent of its annual earnings back into support of people, technology and infrastructure over the last five years. “We’ve adopted short-term cost-reduction measures to weather the pandemic and will emerge in an even stronger,” Bailey says. “Despite this particularly competitive environment, we are looking at an all-time high client retention rate of almost 99 percent.”
BCD took early measures to bring down its costs and increase its liquidity position. And it morphed overnight into an almost entirely virtual organization. “Our recovery plan is based on the same factors that have consistently driven our success: Our fundamental financial stability, our strong partnership with clients, our success in winning new business and the advantages of a broad portfolio that includes virtual meetings,” Bailey says.
BCD Travel’s focus ahead will be on the importance of duty of care, with increased value placed on knowledge and accessible data. For example the company is deploying multiple pre-trip authorization solutions, including a rapid-rollout option, and is leveraging its mobile app, TripSource, to push communications and crisis protocols to travelers at relevant times in the trip.
“We can’t predict how long the recovery will take,” Bailey concludes. “But business travel is essential to a thriving economy and will return.”
James Stevenson, who was recently named CEO of GlobalStar Travel Management, notes that when the world starts to travel again, corporate customers will face a new set of challenges for their traveling employees, and companies like his will be just as important as they were pre-pandemic – even more so.
While TMCs have scrambled to reduce expenses, in the end, it’s a game of managing cash burn, notes Maureen Brady, COO of Corporate Travel Management (CTM) North America. “No TMC, and no corporation for that matter, expected the impact of the pandemic to last as long as it has,” she says. “As a result, we have seen, and will continue to see, consolidation in the industry among TMCs and other providers.”
Brady says partnering with a TMC is even more important today than it was pre-pandemic. “I firmly believe reasons for travel will be even more scrutinized. Corporations will want to make sure their travelers are traveling safely, complying with regulations, and considering alternatives to travel, and also that travel is purposeful and the ROI for the cost of travel is merited,” she says. “The right TMC will be able to ensure these considerations are addressed.”
CTM is working closely with its clients to help them plan accordingly and have industry benchmarks, projections, and a prescribed methodology that addresses volume, policy, technology and vendors to help crystallize plans and make all this happen. “Instead of feeling uncertain, we want our clients to capitalize on this period of travel downtime, so they can return to travel with confidence,” Brady says. “People should look to their TMC as a partner, consultant and innovator – not just a travel agency that gets your travelers from point A to point B.”
Compelling Change It’s not surprising that the business model for travel management companies has been forced to change, which in turn is also forcing a change in the way travel programs evaluate the TMC value proposition going forward.
“Travel will come under greater scrutiny and internal travel will be challenged to justify why a virtual meeting could not be accomplished via Teams/Webex/Zoom,” Menkes says. “The TMC fee model may need to be modified and more closely tied to the services provided. Supplier revenues contribute a large percentage of EBIDTA so the TMC will have to earn those incentives in new and innovative ways.”
For instance, he notes the travel management company will be expected to proactively help manage a trip to maximize the ROI for the traveler. “The booking process will need to be more like an online shopping experience, and the TMC will be accountable for full content, viable travel options and more involved in the total trip components,” Menkes explains. “The TMC’s will need to find new revenue streams as well.”
The pandemic will impact travel programs at large companies differently than at small companies as each considers the TMC relationship. Berk notes while travel managers at larger companies may emerge with expanded responsibilities, such as more involvement in areas like virtual collaboration and risk management, small and medium sized organizations may look toward travel agencies to take even more responsibilities as an outsourced travel manager.
“Changing priorities mean that new outsourced models need to address more than just travel – they will also include emerging areas like virtual collaboration (hybrid meetings), risk management and sustainability,” he says.
Good News on the Horizon Despite the downturn in transactions, many travel management companies are using this time to take more ownership and control within their technology suite. This is being done through partnering with travel tech providers, or through acquisitions.
Bailey says BCD is investing to deliver digital solutions to companies’ travel and business problems. “Our aim is to manage change with agility and anticipate what lies ahead for our clients and their travelers,” he says.
Tripkicks CEO Berk says the TMCs that emerge post-pandemic will be more flexible and tech-savvy. “When travel returns, new technology will be critical to meeting customer expectations, improving cost efficiencies, and the ability to provide robust client capabilities under one roof,” he says. “I believe that the consolidation of TMCs, combined with recent technology acquisitions will lead to more differentiated offerings among the remaining industry players.”
Brady notes most of the key points of evaluation will remain the same: Service, technology and price. However, what will change is the business model to deliver. “We see more emphasis on technology,” she says. “The ability to provide relevant and timely information regarding travel and corporate requirements is paramount. Additionally, we’re seeing the financial security of the TMC as a key point of evaluation. Corporations want to partner with a TMC that they have confidence will invest in the future and remain in business.”
A poll of Delta Air Lines’ corporate accounts released in January found half of the travel managers responding say they are expecting between 50 percent and 100 percent of their domestic travel to come back to pre-pandemic levels by the end of 2021. These results are also reflected in the Global Business Travel Association’s 12th annual BTI Outlook, which predicts a 21 percent increase in business travel spending in 2021, most of it coming at the end of the year. Altogether that means TMCs could be looking at a comeback of sorts by the start of 2022.
“Understanding traveler sentiment is vital to creating post-pandemic travel success,” Tate says. “What travelers expect from their companies, their travel suppliers and the internal travel team must be understood to correctly adjust. That’s why we’ll see more automated transactions, more push for online and mobile, new technologies to improve communication and response times, service configurations to maximize efficiencies and emerging payment models not yet conceived, as agency money flows will be under scrutiny post-pandemic and new entrants emerge.”