Corporate Travel e-Publication

Role & ROI of TMC (Revised 03.28.19)

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INTRODUCTION

Travel Management Companies (TMCs) evolved in the late 1990’s from legacy travel agencies who specialized in corporate travel.   While many predicted the demise of all travel agencies during this time, the TMC sector has actually thrived with tens to hundreds of competing TMCs in the market today.

THREE COMMON MISCONCEPTIONS OF TMCs

  1. “We are buying travel directly from our TMC”. False: TMCs seldom buy and resell travel so you are likely never directly buying travel from your TMC. In reality, they process travel requests versus selling travel.

  1. “TMCs no longer earn commissions - so are independent and objective”.  False:  TMCs still earn revenue from a variety of third party or industry sources. Sure, the original standard base commission has been eliminated but there’s still an active-hidden revenue stream of incentives and rebates influencing what services, suppliers and rates your TMC may or may not standardly offer.  

  1. “A larger TMC has more buying power to negotiate better rates for our company”.  False: The largest TMCs love promoting this myth, but it’s largely untrue because TMCs do not buy and resell travel in bulk.  The financial benefit to a TMC, based on their size, is their ability to negotiate higher commission rebates or incentives for themselves. The “Size” benefit to the buyer or you the client is their scalability to invest more capital into new technologies and resources to support larger and complex corporate travel programs.

TOP SIX POTENTIAL ROLES OR SERVICES TO CONTRACT WITH A TMC?

  1. Content Aggregator:  Historically a TMC, through the industry’s Global Distribution Systems, was the best and sometime only source to access or book travel.  Today there are hundreds of competing websites and industry systems promoting varying rates, schedules and availability for booking travel (Travel Content). Many public-consumer sites are unsafe to be storing your employees’ personal information and other sensitive company information associated with booking and managing corporate travel.  So, a key role of a TMC is a Content Aggregator of company approved Travel Content to safely book and secure travel.

  1. Integrator of Processes & Systems: A fully optimized managed travel program requires integration of internal and external systems and processes.  So, another key role for a TMC is an integrator of these systems and processes, including third-party solutions (See examples below).

  1. Rate Monitoring:  Air and Hotel rates can fluctuate daily or even hourly by 10% - 50%, even after you think you secured the best rate.  Hidden costs and cancellation penalties from many internet rates can distort comparisons. TMCs deploy the latest automated processes, supplemented by manual agent processes, to ensure the best rates and schedules are consistently and safely secured within company guidelines at the time of original booking and then throughout the life of the trip.

  1. Ticket Credits/Cancellations:  Corporate travel involves a lot of trip changes resulting in cancellation and change fees that can increase your trip costs by 25% - 100%+.  TMCs offer a variety of solutions to mitigate these losses, including recovering refundable travel costs.  

  1. Traveler Support/Trip Disruption Services: Travel delays and safety challenges are on the rise adversely impacting your employees’ production, while creating other corporate risks or losses.  TMCs are better equipped to provide the following services.

  1. Business Intelligence (Data & Reporting):  Company T&E Expense and other enterprise systems are good for reporting total travel expenses in aggregate, but they lack the detailed metrics at the trip level and other industry specific metrics required to effectively manage and negotiate travel.  Key travel data or reporting capabilities by a TMC include;

ROLES A TMC SHOULD LIKELY NOT PERFORM

Outsourced Travel Manager:  A successful corporate travel program requires dedicated resource(s) to oversee vendors, systems, policies, operational costs, processes, and identifying new cost saving strategies.  Depending on size and scope of your program this could require 0.5 – 2.5+ internal FTEs in one or more departments.  Companies are always tempted to outsource this lead role to their TMC, and TMCs are more than happy to oblige.    While outsourcing can deliver cost savings, it should seldom be sourced to your TMC for reasons outlined below.  Instead source or contract help through other independent professional service entities or resources specializing in this service.

Trusted Advisor: This is the new TMC “Sales/Marketing Pitch”.  Your TMC should be a trusted vendor partner, but seldom your trusted advisor for complete control of your corporate travel program due to the inherent industry and market challenges below.

Sourcing or Negotiating Preferred Supplier Agreements:  A key driver to consolidating travel is to negotiate discounts and perks directly with Airlines, Hotels and Car Rental companies (Travel Suppliers).  While a one-stop vendor approach to engaging your TMC for this role may appear logical, it seldom produces the best results.  TMCs have their own preferred travel negotiation agendas to secure additional revenue for themselves (rebates and incentives).  This can bias their recommendations or even dilute your leverage. Instead of engaging your TMC for this activity, source or contract this role from one of the truly independent travel entities who specialize in this activity. Your TMC’s role should be to provide you the trip level data metrics from your travel bookings which are required to negotiate the best rates and then load and integrate your negotiated rates as additional Travel Content options for your travelers (Integrated Service and Solution).

TMC REVENUE-BUSINESS MODEL

TMC earn revenue from two sources.

1. Direct Client Fees/Charges:  TMC direct fees or charges typically represents 60% - 90% of their gross revenue. Some will price their client fees to break even or at a marginal profit, while relying on revenue below for profit.

2. Third Party Revenue Streams: As indicated above, TMCs earn financial incentives from various travel entities. TMCs like to downplay the impact of this activity, but here is what you need to know as a buyer.

TMC PRICING MODELS & KPIs

Transaction Pricing is the most common TMC pricing model with a transaction fee assessed for specific reservation and ticketing activity.  Transaction Fees can be inclusive of all TMC charges or supplemented by a variety of additional fixed, percentage and cost plus add on fees.  There are also new “User” and “Subscription” pricing plans being developed and offered by some TMCs to replace and/or supplement Transaction Pricing.

Specific to Transaction Fees, here is what every buyer should know.

The industry relies on two common KPIs to measure total TMC charges.

  1. Blended Average Transaction Fee:  Equals “The sum of all TMC fees or direct charges divided by number of billable ticket Transactions.  This can typically range from $10 - $30+ per client, based on variables listed above.

  1. Total TMC Fees as Percentage Against Travel Costs:  Equals “The sum of total TMC fees divided by the total sum of travel booked by your TMC (Air, Rail, Hotel and Car Rental)”.  This rate is typically 1% - 4% based on same factors above.

BENCHMARKING TMC FEES

Buyers love to randomly compare their individual Transaction Fees with other buyers and somehow call this benchmarking (Random Benchmarking).  As tempting as this may be, don’t do it unless you’re able to accurately model the key factors referenced above.  If not, your comparison will likely carry a margin of error of +/- 20% - 50%+, even if the other company(s) are similar in size or within the same industry sector.

The same applies for benchmarking one of the KPIs above (“Blended Transaction Rate” or “TMC Fees as % of Total Travel”). For example, one company can boast their TMC fees are 1% against Total Travel compared to another company or benchmark rate of 3%.  However, once you start to factor all the variables you may find the reason the one company has  a “1%” rate is because they have insourced more TMC functions, so have higher internal costs that offset this gap and/or have not contracted the same SLAs for Travel Content and Air/Hotel Rate Guarantees - so may be paying higher costs in travel equal to a 5X – 10X multiple of your total TMC fees.

Note: CTBR recommends benchmarking TMC Fees and other travel KPIs but only under a professional process and with independent audited data, not the standard industry practices of Random Benchmarking or polling data as commonly reported through the industry’s leading travel publications and associations.

ROI OF YOUR TMC

The best way to approach the ROI of your TMC is from a true Sourcing Cost Analysis (Outsource vs. Insource analysis). Remember, almost every service, role or function performed by a TMC can also be performed internally by your company, or sourced through an alternative travel entity who is not a TMC.

A true Sourcing Cost Analysis for your TMC is a three-part analysis starting with “What is your comparative costs (insource) to internally support a specific or all services performed by your TMC”?  This should include all direct and indirect costs.

The second analysis is “What will be the savings impact on total travel costs”?  For example, can you consistently secure lower travel accommodations? Will you gain greater or less access to lower priced Travel Content? What will be impact on policy compliance? Finally, what will be the impact on exchanges, refunds and cancellation penalties?  

Note: It is extremely difficult to accurately measure or project comparative savings in travel costs. Any analysis by an individual or entity aggressively promoting insourcing or outsourcing should be validated by an independent, third party.

The third analysis to your Sourcing - Cost Analysis is a risk assessment.  This is generally related to controlling access to sensitive corporate information.  It should also factor the impact on employee/vendor fraud, policy and other financial controls, traveler satisfaction and then their safety, security and support while traveling.  

Note: TMC costs are small in comparison to the volume of services they provide and to the total cost of travel (1% - 4%).  A 10% shift (+/-) in TMC costs will only equal a savings of < 1% of your total cost of Travel (0.10% - 0.40%).  For most companies (>90%), it will make sense to source all or most traditional functions to a TMC.  However, for a small group it will make sense to insource some roles, and then for even a smaller number (<2%) it may make sense to eliminate the TMC layer entirely by insourcing all functions.

 Have questions related to the TMC vendor category or with your current TMC Vendor strategy?  Contact Don Swartz, CTBR – TMC Category Practice Leader at dswartz@ctbrtravel.com

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