it’s typically less of an issue as they’ll already have their own negotiated deals. But SMEs with less leverage may be swayed by marketing agreements. Buyers know that TMCs are struggling with
revenue streams. Traditionally they were volume transactors and they have now moved to a more consultative role. Buyers don’t want to pay for these new services, but TMCs haven’t been good at communicating the added value that their other services can deliver for the client. Other industries do not work in this way. In the non-travel world third party suppliers such as a stationer or caterer for example, act as a wholesaler. There is an open-book arrangement and we know the mark-up, but in travel the model is different. We’re constantly on the case but it’s like flogging
a dead horse. Whenever we challenge it TMCs say they can’t unbundle it or identify individual corporates, so we challenge them in other areas. Our frustration turns into discomfort and you start
to think, ‘How big are these marketing agreements?’ I find it frustrating that we’re still in this place. TMCs provide valuable services and we want
them to continue to do so. We’re happy to pay for valued service at the right level! They need to develop their income and they’ll be adding new services to be charged for. If you understand the full cost model and you know what you’re buying then you can decide whether to pay extra for the technology improvement, or whatever. There are ill-informed buyers out there who want
everything for nothing. They beat up suppliers at the detriment of the service, but we need the TMC to make a sensible amount of money.
THE TMC ANONYMOUS CONTRIBUTION
The debate seems to hinge around the issues surrounding open book accounting and whether TMCs are honest in their calculations and submissions. The first point to mention is that not all TMCs offer
open book accounting in the form of a management fee/cost plus or transaction fee arrangement. In fact, more recently there has been a greater
focus on a pure transaction fee arrangement in an attempt by buyers to commoditise the service element of a TMC. Pure transaction fee arrangements tend to be offered on a closed book arrangement, so the buyer never gets to see the income the TMC receives but in return receives a competitive transaction fee for services rendered. However, in cases where commissions/income
derived from suppliers has agreed to be returned to the buyer/corporate, most TMCs will declare the income earned provided the income returned is genuinely and irrefutably attributable to the specific customer in question and can be proven so. The right of audit is normally a given. The issue of transparency becomes more clouded because of the common marketing agreements that now exist between suppliers and TMCs. These contractual agreements are TMC specific, confidential, and the TMC will have signed and
agreed with the supplier not to redirect any such income to their clients. Any fund will have been jointly agreed on the basis it is used to support the supplier's profile within the TMC, help train the TMC staff on its products and used for bespoke marketing events between the TMC and supplier. It is not that TMCs are concerned about divulging
these agreements to buyers in case more revenue is negotiated away, but because they are contractually enforced not to do so, as breach of such contract could put the TMC in a difficult position with suppliers. Furthermore, these agreements apply to all the
TMC revenue and are not client specific. To expect a TMC to calculate any proportion a client may effect on such revenues becomes a financial impossibility as a single client could affect one agreement positively while by doing so creates a negative reaction with another supplier. A breach of such a contract would be the same as a client disclosing its own specific supplier agreements to the public which, if they did so, would immediately place their own agreements in serious jeopardy and would damage their own financial agreements. It is common knowledge that margins in the TMC
world are thin. One only has to make some simple calculations from those companies that publicly publish their financials to see that income is small and reducing every year. I recall one buyer who crossed over into the TMC world and commented after a few weeks in the job, "I never realised your margins were that thin; I always believed there to be a golden pot, and it doesn't exist." TMCs offer a service not a commodity and while
buyers continue to insist on commoditising the service there will continue to be a mis-connect and an air of distrust between both entities. While the focus has been squeezing the TMC pricing, some buyers have taken their attention away from the actual ticket prices. As Andy Menkes (founder, CEO and Chairman of PTC) said recently at a major travel conference, "If you're spending time beating up your TMC on their fees, you're chasing nickels. The real money is in the spend, not the fees. Focus on the 95 cents, not the nickel."
“TMCs offer a service not a commodity. While buyers continue to insist on commoditising the service there will continue to be a mis-connect and an air of distrust”
THE BUSINESS TRAVEL MAGAZINE 23
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