This is still true despite how much the industry has changed in the two decades that I’ve been on the consulting side. In the early stages before transaction fees, the decision on which travel management company to choose was largely based on the size of the rebate offered (and back then they were called travel agencies).
Once commissions disappeared and were replaced by transaction or management fees, the title of Travel Management Company (TMC) replaced travel agency to acknowledge (or presume) that TMC’s worked for their clients, not the suppliers. (That would be a separate article in [ital] BTE [end ital] for another day).
In the heyday of rebating, there really was no focus on ROI, because selecting a travel agency (aka TMC) was influenced by the size of the rebate offered; therefore, there was no “investment” on the part of the client. As the industry transitioned to transaction fees, the decision on selecting a travel management company shifted to which TMC offered the lowest fees, but not holistically based on ROI as much as TCO (Total Cost of Ownership).
The problem for companies faced with making a TMC selection – assuming they already had a structured travel management program in place – is that with a focus on transaction fees, it would be difficult for a competing TMC to “out-price” the incumbent because of a vague concept of the “Cost of Change.” If a company were to use basic procurement principles, it would be hard to justify switching TMC’s to save a few dollars per transaction. That’s a contributing factor in why so few large global corporations change their TMC in a given year. The typical cycle for sourcing a TMC is every five years.
If you agree with my sourcing principle that selecting a TMC based on a procurement scorecard of savings on transaction fees, then what would be the alternative model to assess the value in changing TMC’s and disrupting the status quo?
Read on.
Where Are the Savings, Really?
We’ve seen sufficient analysis which yields general agreement that TMC fees represent barely 5 percent of the total cost of travel, which includes airfare, hotel and car rental/rail spend. We seem to have no trouble measuring the size of a company’s travel spend on airfare.
However studies show that about 50 percent of hotel bookings in a managed travel program are booked outside of the TMC/OBT channel, by going direct to the hotel website. That spend is so sizable that it should earn its own acronym: RUT (Reimbursed Unmanaged Travel) and represents a savings opportunity that is multiples larger than the total of the TMC fees.
In addition to the measurable spend categories above, there’s also the opportunity to reduce the travel spend numbers by engaging travelers to select the optimal airfare and hotel consistent with company policy but lower than the option they might normally have chosen.
As a separate cost category (vs. spend), there’s the cost of employee time in researching and booking their travel, which for large companies can add up to millions of dollars in productivity savings if the TMC can reduce transaction time for online and offline bookings. The reduction in indirect travel costs is accomplished by the TMC who can encourage the traveler to follow travel policy, even though the traveler may not have the policy memorized.
My personal experience after I transitioned over from owning my own consulting company to working for a large global TMC provides a good example of how this is achieved. On my first business trip for my current TMC employer, when I landed at my destination airport to pick up my rental car, I received a gentle notice/reminder to “Decline the car rental insurance.”
Two days later, on my way to return the rental car at the airport, I received a separate reminder “Remember to refuel your rental car prior to returning it.” I will admit that in 19 years of owning my own company, I never bothered to refuel the rental car, but these messages changed my behavior. Imagine the savings on car rentals alone this type of engaged compliance would bring to a company with a multi-million-dollar car rental spend.
On my first overseas trip, there were separate reminders on WiFi policy and when I landed at Heathrow airport a timely notice popped up that the optimal method to get into London was the Heathrow Express. Anyone who has taken both options knows that a taxi could be three times as expensive and take three times longer versus the train, not counting employee productivity.
TMCs do provide an array of value in support of a company’s procurement/travel management departments. The TMC can enhance the optimization of supplier contracts by providing real-time data and benchmarks to ensure the right mix of airlines and hotels is managed like an investment portfolio. The complexities of market share requirements and yield management on the supplier side require the support of a digital TMC with real-time data with a global scope. That has to factor into the TMC selection during an RFP.
The third lever in TMC selection should be about the TMC’s ability to improve the user experience. In this context, the definition of user should be a broad-brush to include traveler, travel arranger, budget-holder, travel manager, as well as indirect internal users like Finance, HR, IT and external travelers (recruits, consultants, board members).
The role of the TMC in improving the current program is to de-stress the traveler experience, improve the quality and timeliness of data, and make booking more like a personalized shopping experience on the web.
TMC’s need to have the capital and human resources to invest in these areas of improvement. Thus the TMC selection should be based on a combination of attributes, not just the transaction fee “savings” which may come at the expense of the cost of travel and traveler productivity. It reminds me of a great expression: “Price, Service, Quality – pick any two.”
To recap, let’s consider expanding the definition of ROI for managed travel to address the ability of a TMC to reduce, optimize and improve a travel management program in a verifiable manner based on data and traveler feedback that includes employee satisfaction and retention, factors which are almost priceless.
Andrew W. Menkes, CTC, is BCD Travel’s Senior Vice President-Global Client Solutions, working with the corporate travel company’s regional leadership, clients and prospects to strategically align BCD’s offerings with the evolving needs of corporate travel buyers. 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 and prior to his role at BCD, founded Partnership Travel Consulting, a full-service travel consultancy.
