For some time various corporations have been asking their intermediaries exactly how they make their money and what positive impact their company’s business has on their income. This interest has expanded further and bodies like the Institute of Travel and Meetings (ITM) have been calling for Travel Management Companies (TMC) to provide a ‘register of interests’. The request is made within its report on ‘Remuneration and Transparency’, the second part of which has recently been published.
The chairman of the ITM said “Our goal at ITM is to create better relationships to further professionalise this industry for the benefit of all” Baloney! How would disclosure of confidential business agreements do that? I would suggest perhaps it is more about checking that their intermediaries are not making extra money out of their client’s business and not trying to influence client behaviour in the process for their own gain. Let’s not be coy about this.
Some of you may have read my blogs on how TMCs still make money from the suppliers. This can be viewed in two main ways. Either ‘Why not, they do a lot of work for the supplier and should be rewarded for it’ or ‘If my expenditure is earning extra money from the supplier then that belongs to me’. There are strong arguments for both points of view but first lets look closer at the mechanics and principle involved.
Let’s say Platt Inc has a considerable air spend and much of it is with Air Limey. He suspects that his TMC not only has a commercial agreement of some sort with Air Limey but also a better one with Yank Air who is Limey’s biggest competitor. Platt Inc has a fee relationship with his TMC where any direct income should be credited to him and it is also in his interest to ensure that Yank Air is not going to be offered to his travellers even though it might earn extra money for the TMC. Shame about the mistrust but ‘I demand Disclosure’ he screams.
First there is a principle to be addressed. Any such agreements are usually made under strict letters of confidentiality. They are often agreed only on the basis that any benefits remain with the recipient as suppliers clearly wish to delineate who is being rewarded and for what. Their view is that they already incentivise the end corporation so why do so again. Also there is one big question which is, apart from the confidentiality issue, what right does any commercial company have to demand their suppliers and intermediaries provide company sensitive and strategic contracts that encompass their whole business and not just that one organisation.
From a more practical perspective what would such disclosures reveal? There are as many different deals out there as grains of sand but here are a few of the more prevalent features.. Most are built around a Service Level Agreement (SLA). These were introduced at the time of commission removal as a more targeted way of ensuring suppliers still got what they needed now that particular payment had gone. The core of such agreements are about paying for all the things they used to get like access to staff, account managers, basic client information etc. A payment is fixed for this section and followed by others that can sometimes be linked to performance in overall volume and share. Within this the supplier may include benefits such as special competitive fares, sponsorship and partnership opportunities.
So, in many cases volume and share do come into it so some corporations still might say they deserve a slice of that even though the contracts clearly do not allow it. But, for the sake of argument let us look closer at this because it might not all be one way traffic. For example Platt Inc discovers that its TMC has a deal with both Air Limey (AL) and Yank Air (YA) and both of them involve incentives around growth (AL) and share (YA). They sit around the table to discuss it.
From Platt Inc’s point of view it is simple. According to the data they flew 500 sectors on AL last year and they want the incentive. The same applies for YA where they know they must have sent at least 80 travellers but only have booked revenue (not actual flown) to measure the exact details.
Ah says TMC. Firstly Mr Platt Inc you may not know it but you have been ‘red ringed’ by AL. this means our contract says your volume can be used for measuring performance but not for payment. Not only did we not earn money on you but your year on year performance was down so in fact you cost us on what rewards we did get for other customers. By the way similar will apply to YA. We cannot track your true flown revenue but even if we did it will do no good as we signed another corporation who pulled our share higher than your likely achievement.
I hope you are still all bearing with me but I wanted to demonstrate exactly how big a can of worms such disclosures can be and what lack of earning potential there is. For every ‘winner’ there will be ‘losers’ and if I was a TMC I would simply devise a system to negate such nonsense that would ultimately offset any losses by gains.
So the questions are do you really want to dig and delve into other people’s business. Do you trust your business partners so little? Is it really worth the pain? Does anyone honestly think such activity ‘will create better business relationships’? Well certainly the chairman of ITM purports to think so. I can but disagree. What about you?