Corporate travel buyers and their TMCs are rethinking how the contracts between them reflect a changed travel reality
The pandemic has rewritten the rulebook between corporations and travel management companies, and the agreements that bind them together are reflecting that new reality.
“One thing the pandemic has emphasized is that disruption is no longer an outlier. It has to be something at the very core of travel program strategy, policy and TMC/supplier relationships,” says Paul Tilstone, managing partner of Festive Road. “From content and business model disruption to travel service disruption, from the disruption caused by accelerated sustainability needs, climate change and a return to global conflicts, the program of today needs to be agile and cater for the unexpected.”
John Keichline, CEO of Reed & Mackay North America, notes sustainability, geo-political risk, natural disasters, an evolving content landscape and a focus on traveler well-being are just some of the factors that makes a travel manager’s job more demanding than ever before, and that means a travel management company needs to be able to provide strategic guidance across an increasingly broad range of specialties.
“Post pandemic, clients are looking for a trusted partner in their TMC and as an industry we must rise to that opportunity,” he says. “We have made a huge effort to double down on building deep client relationships. The key performance metrics for the travel manager are changing and they have a wider range of internal stakeholders to answer to. It’s critical that we go on the journey with our clients to ensure our services remain relevant.”
The “new normal” for corporations and TMCs in 2023 is likely to be characterized by a greater focus on cost control, risk management and data-driven decision-making, according to Gabe Rizzi, president of Internova Travel Group. “While business travel is returning to close to 2019 levels, it is unlikely to return to pre-pandemic levels for some time, as companies have discovered the benefits of remote work and virtual collaboration for intra-company travel,” Rizzi says. “However, the need to be face-to-face will remain an invaluable tool to build strong relationships, which ultimately result in new business growth.”
In the post-pandemic era, economic and geopolitical uncertainty and volatility will continue to impact business travel, says Teri Miller, executive vice president of the global client team at BCD Travel. “The pandemic jolted our industry, but ongoing strikes in Europe, the war in Ukraine and travel restrictions around the world continue to create challenges for travelers and travel managers,” she says. “Traveler safety and wellbeing are more important than ever for organizations, and travel programs reflect that.”Learning from Disruption
One of the lessons from the last few years of travel disruption is learning how customers and their travelers continue to evolve, adapt, and embrace new opportunities for engagement, collaboration and growth. “There is no ‘one size fits all’ set of expectations,” says Maureen Brady, chief operating officer of Corporate Travel Management. “A lot depends on the size of the company, their vertical, and how they as a corporation are responding to their own business demands in the post-pandemic world. We’ve seen an increase of requirements for outside normal business hours support, more meetings, personalized technology and advisory services.”
Greeley Koch, managing director of 490 Consulting, admits that the expectations between a corporation and their TMC are much different now. He says he’s seeing higher expectations being placed on the TMC to deliver on service response levels which have taken a hit lately due to TMC staffing issues.
“Also, TMCs are being asked to find lower fares and rates due to inflationary factors,” Koch explains. “Corporations are now finally asking stronger questions of their TMC about content availability, especially after the recent American Airlines move to reduce content in the GDS. Most large global TMCs seem to be struggling with answering the content availability question, while the mid-sized TMCs seem to be more responsive with supporting diversity in acquiring content.”Clauses & Clawbacks
The key to driving any customer agreement is transparency and collaboration. “CTM sees a focus on service delivery, but also a greater understanding of labor value as an investment in traveler care,” Brady says. “SLAs are traditionally based on standard assumptions and those assumptions need to reflect the traveler experience in 2023.”
Because of the reductions in staff and complexities in travel protocols the pandemic created, Rizzi says average handle time more than doubled for Internova Travel Group’s clients. During that time, the company worked with its clients on a case-by-case basis to ease the pressure a bit on SLAs and all mutually agreed. The company is now restoring the SLAs back to pre-pandemic levels as the world heals.
“Overall, a key element to renegotiating contracts in the new reality of corporate travel for TMCs is to be knowledgeable, flexible and strategic,” Rizzi says. “Our industry is changing rapidly, and you will need to adjust your contracts to reflect these changes, case by case.”
The top takeaway from the pandemic experience was that contracts need to be flexible and adapt to unplanned situations to protect clients and the company, according to Amy M. Au, senior corporate counsel at BCD Travel.
“Contracts need to spell out contingencies in a clear way when the unpredictable happens,” she says. “For example, in the past, force majeure clauses were almost an afterthought and rarely negotiated. Now, both BCD and clients alike are placing more scrutiny into the force majeure clause, ensuring that the clauses provide for necessary mechanisms to continue services and the business relationship, even in turbulent times.”
Some things to look for are clauses that allow for partial performance where applicable, and providing as much reasonable notice as commercially practicable. No one wants to end a relationship just because there may be a temporary hardship, so the new force majeure clauses help provide guidance on best practices to working through trouble when it’s feasible.
The same holds true for service level agreements. SLAs need to be flexible in challenging times and, similar to force majeure clauses, SLAs now tend to address the “what ifs” and set expectations for engagement for both parties when there is a change that affects the SLA. For example, if some of the SLAs were affected adversely due to events outside of a TMC’s reasonable control, would you want to penalize them? Or would you want the TMC to work with you to solve the issues in a collaborative way?
“Contract clauses that strike a good balance here are ones that can help identify when an SLA is at risk and allow the TMC to fix the issues while providing real-time escalation procedures that work for both the TMC and the client,” Au says. “There is no secret sauce here in renegotiating contract terms. BCD generally does not renegotiate a contract unless it’s absolutely necessary because we have built our business relationships on trust and partnership. If a change to the contract becomes an absolute necessity, we approach our clients with facts and transparency as to why something needs to be changed or updated.”Data Is Still King
While Keichline says he has not seen a massive difference around SLAs, he notes the key is obtaining good data from clients and prospects. “Last year, most companies were using data from 2019 since that was the most recent data for ‘normal’ travel patterns. We now have a full year of new data, which may be quite different than pre-pandemic,” he notes. “We need full transparency to allow both sides to set realistic expectations. The accelerated pace of digitization has also meant that people want fast, personalized responses. SLAs are key at a contractual level, but just hitting the SLA won’t build the level of trust required at a traveler level. Fast response times and proactive support are critical if you want to deliver true service excellence.”
Andrew W. Menkes, founder and CEO of Partnership Travel Consulting, LLC, believes contracts have been re-written to anticipate disruptions to the industry and ways to measure, improve and, in some cases, penalize the TMC to deal with sustained sub-par performance. “We have seen the changing role of the travel manager – it has morphed from simply managing TMC service levels, to a more strategic procurement role that addresses the needs of the traveler first, the shareholders second,” he says.
Koch notes the challenge right now is determining travel volumes which always are the bedrock of any contract. “Given the fluid nature of travel volumes, it can be hard for both parties to agree on pricing and SLAs that meet both parties’ needs,” he says. “I am seeing more shorter-term contracts with TMCs and some with even 30-day out clauses given the challenges with TMC service levels and unknown travel volumes. Also, TMCs and companies are inserted ranges on volumes with pricing attached to those ranges. Almost like a smart contract but without the blockchain technology.”The Road Ahead
One of the big lessons learned during the pandemic was to communicate often and be consistent in your messages. “Inconsistencies breed mistrust and ultimately damage relationships,” Rizzi says. “Frequent reviews outside the normal QBR / ABR rhythm is key. Administering traveler surveys monthly is also a great source of data to clearly identify improvement areas that ultimately turn into opportunities to grow the relationship and deliver a differentiated service model.”
CTM’s Brady notes that with a refocus on the value business travel plays to customers, the role of a travel management company has indeed become more holistic, providing customers with a broader range of consultancy support beyond traditional travel booking, reporting, and supplier management.
“2023 is set to be no different, with many exciting new trends arising which will pave the way for more effective, more sustainable, and more personalized travel solutions in the year ahead,” Brady says. “As for contracts, I think there’s a greater awareness from buyers of the economics of travel management companies. Buyers appreciate working with a TMC that engages in a dialogue about economics and provides options. As a result, I think you’ll see more clarity of requirements of both the buyer and the TMC in their agreements, which can only be good for the industry.”
Au advises everyone involved in the process to stop looking at contracts as a “necessary evil” where two parties are nitpicking over every detail or adding unnecessary terms. “We need to start thinking about them as a tool to help parties embrace business agility and partnership,” she says. “The contracts should not only have a shared vision and purpose for both the TMC and the client, but also be there to guide both parties in a collaborative journey to address the ever-evolving travel environment.”