Tuesday, November 20, 2012
The Mechanics of Business Travel - Part 2
OK, where was I? I had just explained the first major evolutionary development in the travel cycle which was the demise of airline commissions resulting in TMCs (Travel Agents) presenting bills to clients rather than incentive cheques. This resulted in sweeping changes in the major travel markets although some of the smaller airlines still paid commissions to remain competitive. In fact in some regions of the world this change is yet to happen. Some might think that companies would be 'up in arms' over the change but most welcomed it with open arms. You see, from a buyers perspective it is better to negotiate from a net price than a commodity that has built in add-ons already especially if you might consider some of them unnecessary. The key word here is commodity as it means the stripping of something to a base product that you can buy rather like drawing pins, washers or computers. Every buying decision is based on price,at least that was what they thought. At this time technology was moving on in leaps and bounds and many airlines recognised that here was an opportunity to sell direct to the traveler at prices and payments they could control. In the same way you could argue that airlines thought they could cut out (or at least not pay) the TMC middle man they could also identify a method of getting direct to the traveler. All change was viewed as progress and in most cases, it was. Except all progress releases a new set of challenges and this is particularly the case when talking travel development. Airlines had got what they wanted and so had travel buyers so what could go wrong? What went wrong was that little cost had gone away, it had just been deflected on to someone else. Who? Well in the main, the traveler was asked to pick up the tab as TMCs were able to prove themselves indispensable. Why indispensable? Why not book direct? It would be so easy for individual travelers to pick up the phone (or PC) and make their own arrangements. Quite so but many corporations had a different need altogether. That was the need for Travel Management. It may sound crazy but a travel booking is probably less than 10% of what a TMC does in the course of their activities. The rest is everything known a travel management. On the corporate list of travel essentials were such things as authorisation, booking changes, travel administration and billing/accounting. There is also a need to support preferred airlines that have offered discount prices based on minimum volume, The growing need for 24 hour traveler monitoring and support. What happens if there is a catastrophe somewhere? How and who gets your people out of there? These and more are essential requirements and none of them are free. So who pays? Not the airlines as they have moved to a commoditised net price. Not the TMC because they are actually providing the service. Not the corporation either. They have welcomed the shift in the payment cycle but are not internally constructed in a way to take on such a cost centrally. They have mainly moved to charging cost centres which means the traveler invariably picks it up. But hold on a minute. The traveler's primary interest is just 10% of all that. Why should they pay?.
And here we have the key issue troubling the industry at this time. Travelers ar looking at their budgets and saying that all the want or can afford is to make a simple booking and travel. Companies are saying OK, but use this TMC and pay their service charge. The traveller either does it grudgingly or more likely, books through a cheaper means that does not carry these overheads. If nothing goes wrong the traveler wins, at the cost to the TMC and, more importantly their employer. Next time I will tell you about all those cheap (and not so cheap) fares out there.