CORPORATE travel clients can expect to see significant changes in how travel management companies charge them over the next few months as the retail travel sector re-evaluates cost structures and remuneration models following the COVID-19 pandemic.
Jo-Anne Lloyd, partner at consulting firm Nina and Pinta, says travel professionals will have to do a lot more in terms of servicing their clients than they did prior to the pandemic. Managing risk will be another key factor for TMCs, she says.
“This pandemic has exposed a lot of risk in the current TMC remuneration models and one thing is clear, we will not be post COVID-19 any time soon so we have to learn to live with it. What we saw at the start of the pandemic was that models built purely on transaction fees became an issue during a time when TMCs were, arguably, at their busiest. There were no new transactions coming in and income therefore dropped by about 95%.”
Jo-Anne was speaking during an African Business Travel Association (ABTA) webinar regarding the shifts needed in TMC fee structures and payment terms in Nigeria, but the changing models she highlighted have a global application. She also spoke with Travel News after the event.
The subscription fee model as an alternative is dominating discussions at the moment, she says, particularly since it aims to mitigate the financial risk for TMCs. This model involves charging clients a lower amount regularly (e.g. monthly) for an agreed amount of services. There are different tiers of subscription fees and as with any industry, they mean different things for different companies.
Claude Vankeirsbilck, chief operating officer of Tourvest Travel Services and American Express Global Business Travel SA and Nigeria, believes technology will play a massive role in how the subscription fee model develops.
“Technology enables the combination of a fixed fee (i.e. subscription to the online platform) and variable fees based around usage. This allows us to migrate from the pure transaction fee model that agencies are currently using to a combination fee that is more sustainable for us going forward.”
How Claude sees it working is that clients pay a monthly subscription fee to the TMC to cover certain services so even if there are no transactions – like the situation presently – there is income for the TMC for all the other services provided.
“Transactions play such a small part of the total value we offer to customers yet they are the focus of the revenue we earn. Now that there are no transactions, clients still want guidance, support and knowledge, which means we continue to offer a lot of services but we are not getting the revenue because there are no transactions. This has to change.”
Claude doesn’t predict a dramatic change to the management fee structure, but the problem is that corporates are under pressure now in terms of being able to pay them. “While the crisis has been devastating, it has created an opportunity for the industry to use the time to start engaging customers and working on new ways of operating with regard to business models or payment structures,” he says. “Everyone is feeling the same pain.”
Jo-Anne agrees that the enterprise or management fee model will still be the preference for larger clients and that some travel companies will continue with transaction fees, but another option also under review is the cost-plus model, which looks at the cost to service a client plus a profit margin. Industry professionals are assessing how to deploy this cost-plus model into a transaction environment, she elaborates.
“Each model has its benefits. The subscription fee model allows a corporation to bundle a whole host of charges and spread the costs while the cost-plus model gives committed spend and granular detail. The cost-plus model does mean, however, that even if the customer hasn’t produced the estimated number of transactions agreed on, the TMC will still be coming to the client with an invoice,” adds Jo-Anne.
Nina & Pinta is currently working on putting together a white paper looking into the different TMC models in conjunction with the Business Travel Association (BTA) in the UK.
“Many TMCs are locked in dark, smoky rooms figuring it out. It is great to see this kind of innovation in the TMC space and that lots of these conversations are taking place in collaboration with customers. The model chosen should be a balance of mitigating the risk for the TMC, but also be workable for corporates,” she says.
Jo-Anne recommends the sector stay away from overcomplicated processes. “Transaction fees, for example, give clients the ability to budget and they understand the full cost of ownership per category. They are not going to want to step into a much more complicated replacement.”
Lola Adefope, md of Business Travel Management Ltd (BTM) Nigeria, says in the Nigerian corporate travel space, TMCs still bid for clients on lower transaction fees, large credit facilities and extended credit terms – using these as a competitive advantage, which is not sustainable.
“At BTM we are clear what services will come with the contract and how credit affects the transaction fees. About 80% of our payments are now done at point of sale through debit cards or online payments and clients are comfortable with the clarity provided and can see how this then reduces transaction fees.”
Travel News asked Lola her opinion of subscription fee models. She says online technology companies in entirely different fields such as Netflix have made clients and corporates more amenable to this kind of model. “They find this more palatable and easy to understand than ‘bundled’ or ‘unbundled’ transaction fees or complicated titles such as ‘inclusive management fees’.”
She says many companies with mature processes and cultures are already allowing employees and travellers to take more responsibility and ownership of their processes. “Utilising a single platform, where menu-like options are easy to navigate and all relevant travel services are available via a per-user subscription model, is simply the next most logical step.”
