OK, OK, I know. I said I was going to quit corporate travel and disappear into the mists of travel legend…or something like that. But it is so very hard! I am rather like Frank Sinatra was, or Michel Jordan is, where something happens which triggers off a new reason why the lure of starting again becomes too much.
The trigger for me was American Airlines president Tom Horton and a guest article he wrote for ‘The Beat’ on ‘Customizing the Travel Experience’. Right, it was the expected sanitized statement that had no doubt done the rounds of the AA public relations department before release but it made one thing screamingly clear to me. That is, who American Airlines think their customers are.
They are clearly playing their ‘customer’ card. In fact in a smallish statement of circa 800 words they had used the term (and derivatives) at least 15 times before I gave up counting. Reading the words of the article it is also clear that by customer they refer to travellers and the choices AA are offering these individuals. In contrast he used the word ‘corporate’ once (that I saw) and that was referring to ‘travel agents’ customers.
Does this matter? Is it a simple slip? Or does it show a complete lack of recognition, empathy, and understanding with the corporate travel world? After all, do corporations really want their travellers to have all these extra choices at an extra price? Do they want the lack of control that this brings to their travel policy? Do they want the extra expense taken out of their control for potentially both bookings and ancillaries?
Does it matter that the president of AA still thinks of such a key intermediary as a ‘travel agent’ when the corporate service provided is now Travel Management hence the correct and more accurate term TMCs. This may sound like splitting hairs but is it. Or is it more that? Is it AA demonstrating a worldwide apathy amongst airlines to accept that the corporate world is changing around them?
So what is this ‘customizing’ all about? To me it is about the airlines tweaking the evolving business market to their own advantage whilst ignoring the needs/demands of a major sector of their market. Is that such a surprising thing? Probably not but I cannot bear all this sugar coating around what is actually some very unpleasant tablets. Here are some examples:
We don’t want to pay the GDS any more even though it is the medium of choice for those ‘travel agents’ corporate customers. We do not seem to be able to renegotiate a deal with these GDS so let’s provide a direct product. OK it is not what corporates want but hey, think of the savings, the control, the MI and the ancillary selling opportunity.
We have been badly stung by the inroads ‘no frills’ airlines have made in our markets. Fares have gone down and their shares have increased, but hang on, there is an opportunity here. These airlines have reached critical mass to the point where they have to add more charges to maintain growth and survive. They are not the threat they were and we can now use their weapons against them. We too can offer basic core prices and then bolt on all those other ancillaries to mask the true cost.
It seems to me that corporations themselves are helping (or at least not hindering) such strategies. Corporations seem to like unbundling as it works in other spheres of procurement. But does it work in travel? Ah, that is far more complex and has greater ramifications in the supply chain. Cost has a habit of moving, not disappearing.
I suggest corporates need to have a much greater influence in the travel industry. Their associations need visibly shift away from their suppliers who they use to subsidise their costs through sponsorship and advertising. These bodies need to push their way to the table which is totally dominated by the major suppliers. They need to be heard and recognised.
Suppliers need to understand that the world has moved on and that the ‘customer’ in the corporate world is the company itself and not its employees. Those intermediaries such as TMCs are not simply booking travel agents but an outsourced arm of their corporate customer. Only then will we have a successful transition to a new model.
Showing posts with label tmc. Show all posts
Showing posts with label tmc. Show all posts
Monday, July 18, 2011
Friday, April 1, 2011
Can TMC Brain Power Still Save Money?
When I was at the TMC sharp end of the business I was a huge fan of employing clever people and, when possible, rewarding them for success in saving money for both my clients and my company I undertook quite a bit of research which confirmed to me that a good agent could bring an annual savings ROI of between 300% and 500%. Only trouble was that people were so focussed on taking any manpower cost out that they did not delve into the deeper implications of doing so.
Probably nothing much has changed in the last couple of years except that most of these clever folk have moved on to another industry. Headcount has given way to self book and people being employed are more likely to be for the lower skilled fulfilment side of these computer transactions. All cost is rightly under the microscope but is any allowance given to the need for savvy people who can look both inside and outside the box for service and savings opportunities?
As we all know, a booking computer is only as good as what is put inside it. It is also reasonably single focussed and can also be hoodwinked quite successfully when it comes to travel. Who is policing the content it stores? Who is fine tuning it? How often is it audited? Who is recognising the broader trends? This will become even more important soon as TMCs develop and refine their own yield and price capabilities.
I fear for a TMC industry that seems to be losing its own front line brains for the sake of saving a quick buck or two. Maybe someone will look at the same ROI figures that I did in the past and realise that employing smart people with the right incentives is an investment in saving money not just an unwelcome cost.
In some parts of the world there are big shortages of experienced staff as the market recovers. The UK is a good example where TMC stripped their staffing levels to the bone during the recession and now cannot get them back as demand rises. It is essential a way is found to maintain a core of bright ambitious people without having to chop them whenever the market varies. Corporates also need to think about this the next time they scream at their TMC to lower head count. They do not simply pop back when wanted any more.
Probably nothing much has changed in the last couple of years except that most of these clever folk have moved on to another industry. Headcount has given way to self book and people being employed are more likely to be for the lower skilled fulfilment side of these computer transactions. All cost is rightly under the microscope but is any allowance given to the need for savvy people who can look both inside and outside the box for service and savings opportunities?
As we all know, a booking computer is only as good as what is put inside it. It is also reasonably single focussed and can also be hoodwinked quite successfully when it comes to travel. Who is policing the content it stores? Who is fine tuning it? How often is it audited? Who is recognising the broader trends? This will become even more important soon as TMCs develop and refine their own yield and price capabilities.
I fear for a TMC industry that seems to be losing its own front line brains for the sake of saving a quick buck or two. Maybe someone will look at the same ROI figures that I did in the past and realise that employing smart people with the right incentives is an investment in saving money not just an unwelcome cost.
In some parts of the world there are big shortages of experienced staff as the market recovers. The UK is a good example where TMC stripped their staffing levels to the bone during the recession and now cannot get them back as demand rises. It is essential a way is found to maintain a core of bright ambitious people without having to chop them whenever the market varies. Corporates also need to think about this the next time they scream at their TMC to lower head count. They do not simply pop back when wanted any more.
Friday, February 18, 2011
Anybody Understand the Corporate Hotel Market?
I spoke to somebody last week about the problems they were having whilst trying to organise a managed hotel programme for their company. He is new to this side of the business and could not comprehend the basic issues he was facing. All he was certain of was that nobody really knew what the company spent and whether they were getting good value. Ok they had a corporate card that most travellers used but nobody seemed to be able to tell him any useful spend detail.
He was also concerned that there seemed no simple, coordinated and efficient way of making, changing or cancelling bookings. There were so many different ways and each with varying processes. Some you could book online and some you couldn’t. Some on the GDS but most not. The majority necessitated a call to an agency which cost too much for such a transaction. He correctly identified that these variations contributed greatly to the lack of proper MI. What he wanted to know from me was what the problem is? Why is it so hard to book hotels in a way that gives him as a buyer what he absolutely needs to do his job? I gave him the basics as I saw them and thought you might like to read them too.
The hotel market is hugely fragmented. There are thousands upon thousands of hotel and most of them act individually. Yes there are major hotel chains and yes there are consortiums but even here a large amount are privately owned. Consolidating a programme becomes very difficult when there are so many different players with different systems and different communications methods and language. This differs hugely from airlines which are not only far smaller in numbers but use the same GDS booking platforms and share similar systems and codes however I did warn him that this may be changing soon!
So how should one make a reservation? It would be good to combine it with the air or rail booking but unfortunately the range of hotels in the airline booking systems (GDS) is tiny compared with the market. Add to that the difficulty of being able to use your own negotiated fares or room allocations and it becomes not a very feasible option.
You could connect to the numerous hotel booking web sites but again can you be sure you will be booking your deal and capturing sufficient detail. You might get one-off savings using their buying power but creating a nightmare in payment, reporting and control terms.
Out of frustration and a desire to save fees charged by agencies many travellers book direct with the hotel but is that what you really want them to spend time doing? And then again you could miss out on consolidated MI for policy measurement, security and negotiating purposes. I can understand why travellers or their administrators want to make hotel bookings personally but in my view you can forget about control if you let them do it. It is also very vexing when they find out the hotel GM is spot selling rates cheaper than your centrally negotiated deal. This is another thing that regularly happens in this industry.
I advised him that I can only see one logical way of consolidating all ones spend items together and that is through a Travel Management Company (TMC). There are not that many yet who can provide a true solution and it does not come for nothing so buyers need to be absolutely committed in order to reap full benefit
You basically need to find a TMC that can deliver a system that seamlessly links the GDS booking system to their own separate hotel booking and management platform. This platform needs to directly connect with the main hotel chains and have the ability to store and manage your negotiated rates and room allocations with them and the others. All this, and other services need to be on one customer friendly booking screen. It would also be valuable to have this screen branded to your company not the TMC.
Taking pre booked room allocations at key locations is essential in order to allow the system to confirm rooms to travellers straight away and avoid unnecessary costly and time consuming middle-man phone calls. These allocations when combined with those negotiated by the TMC themselves often mean that hotels that seem full can still be bookable to you. It also results in your travellers have their own company one stop shop that pulls together their whole journey along with bolt on services such as policy compliance authorisation system and communication opportunities.
To me his choice is relatively straightforward. He either does what 90% plus of corporations do which is keep their hotel programme separate from air or go the whole hog and combine the two in an online total travel solution which is only now beginning to become a viable solution. I wished him luck and went back to my hotel room…which I booked myself!
He was also concerned that there seemed no simple, coordinated and efficient way of making, changing or cancelling bookings. There were so many different ways and each with varying processes. Some you could book online and some you couldn’t. Some on the GDS but most not. The majority necessitated a call to an agency which cost too much for such a transaction. He correctly identified that these variations contributed greatly to the lack of proper MI. What he wanted to know from me was what the problem is? Why is it so hard to book hotels in a way that gives him as a buyer what he absolutely needs to do his job? I gave him the basics as I saw them and thought you might like to read them too.
The hotel market is hugely fragmented. There are thousands upon thousands of hotel and most of them act individually. Yes there are major hotel chains and yes there are consortiums but even here a large amount are privately owned. Consolidating a programme becomes very difficult when there are so many different players with different systems and different communications methods and language. This differs hugely from airlines which are not only far smaller in numbers but use the same GDS booking platforms and share similar systems and codes however I did warn him that this may be changing soon!
So how should one make a reservation? It would be good to combine it with the air or rail booking but unfortunately the range of hotels in the airline booking systems (GDS) is tiny compared with the market. Add to that the difficulty of being able to use your own negotiated fares or room allocations and it becomes not a very feasible option.
You could connect to the numerous hotel booking web sites but again can you be sure you will be booking your deal and capturing sufficient detail. You might get one-off savings using their buying power but creating a nightmare in payment, reporting and control terms.
Out of frustration and a desire to save fees charged by agencies many travellers book direct with the hotel but is that what you really want them to spend time doing? And then again you could miss out on consolidated MI for policy measurement, security and negotiating purposes. I can understand why travellers or their administrators want to make hotel bookings personally but in my view you can forget about control if you let them do it. It is also very vexing when they find out the hotel GM is spot selling rates cheaper than your centrally negotiated deal. This is another thing that regularly happens in this industry.
I advised him that I can only see one logical way of consolidating all ones spend items together and that is through a Travel Management Company (TMC). There are not that many yet who can provide a true solution and it does not come for nothing so buyers need to be absolutely committed in order to reap full benefit
You basically need to find a TMC that can deliver a system that seamlessly links the GDS booking system to their own separate hotel booking and management platform. This platform needs to directly connect with the main hotel chains and have the ability to store and manage your negotiated rates and room allocations with them and the others. All this, and other services need to be on one customer friendly booking screen. It would also be valuable to have this screen branded to your company not the TMC.
Taking pre booked room allocations at key locations is essential in order to allow the system to confirm rooms to travellers straight away and avoid unnecessary costly and time consuming middle-man phone calls. These allocations when combined with those negotiated by the TMC themselves often mean that hotels that seem full can still be bookable to you. It also results in your travellers have their own company one stop shop that pulls together their whole journey along with bolt on services such as policy compliance authorisation system and communication opportunities.
To me his choice is relatively straightforward. He either does what 90% plus of corporations do which is keep their hotel programme separate from air or go the whole hog and combine the two in an online total travel solution which is only now beginning to become a viable solution. I wished him luck and went back to my hotel room…which I booked myself!
Saturday, January 29, 2011
What happens when TMCs become GDS
It must happen to a greater or lesser extent if American Airlines create a model that succeeds and then gets rolled out across the industry. The only way that TMCs will be able to give their customers what they want will be to direct connect with every key supplier and, as such, become mini specialist GDS in their own right. It will cost them a lot in time, resource and money despite what some AA loyalists say and you can bet your bottom dollar they will want it back with interest.
So how will such an event impact the balance of power in the travel supply chain? I think it will affect it significantly. Obviously the GDS will not simply sit back and let it happen and I am sure there is intense discussion and negotiation going on as I write.
However let us just pause for a minute and reflect on the following statements:
1) Despite airlines best efforts the TMC world still has considerable value to their corporate clients and will be hard to dislodge unless they do all the things TMCs do.
2) TMCs have been preparing their own strategies by building their own booking platforms that can be directed to be very specific on what choices they offer.
3) If airlines direct connect to these platforms they may be stepping out of the frying pan and into the fire as far as power balance is concerned.
The GDS are too darn expensive and working with a defunct, unjustifiable pricing model. I think many of us believe that and I can see why airlines are getting sick of paying sector fees even for cancellations and suchlike. The only thing is that GDS have a value to them and this value may be provided by TMCs in future. If you receive a value you can expect it to cost you as the TMCs will not give such distribution capability away for nothing. On top of that they will have their own platforms overlaying it which will allow dynamic pricing and availability control.
My message to airlines is to look at the broader implications of their actions. Remember how some thought GDS were great to own once. And how ownership, encouragement and support of OTAs were expected to reduce not increase cost. Not a great track record so far so look at your next step very carefully!
So how will such an event impact the balance of power in the travel supply chain? I think it will affect it significantly. Obviously the GDS will not simply sit back and let it happen and I am sure there is intense discussion and negotiation going on as I write.
However let us just pause for a minute and reflect on the following statements:
1) Despite airlines best efforts the TMC world still has considerable value to their corporate clients and will be hard to dislodge unless they do all the things TMCs do.
2) TMCs have been preparing their own strategies by building their own booking platforms that can be directed to be very specific on what choices they offer.
3) If airlines direct connect to these platforms they may be stepping out of the frying pan and into the fire as far as power balance is concerned.
The GDS are too darn expensive and working with a defunct, unjustifiable pricing model. I think many of us believe that and I can see why airlines are getting sick of paying sector fees even for cancellations and suchlike. The only thing is that GDS have a value to them and this value may be provided by TMCs in future. If you receive a value you can expect it to cost you as the TMCs will not give such distribution capability away for nothing. On top of that they will have their own platforms overlaying it which will allow dynamic pricing and availability control.
My message to airlines is to look at the broader implications of their actions. Remember how some thought GDS were great to own once. And how ownership, encouragement and support of OTAs were expected to reduce not increase cost. Not a great track record so far so look at your next step very carefully!
Monday, January 3, 2011
Direct Connect – The first significant skirmish in a long campaign.
Christmas is supposed to be a time of peace and goodwill to all men but it also heralds the onset of a new year and, in turn, leads to encouragement of change. This can be illustrated by American Airlines who gave TMCs and their clients an early Christmas present of new cost and selected online agencies (OTAs) in particular to feel their power. The OTAs have started to respond with Expedia pulling American from their inventory. Obviously a lot more complex than that but you got the drift?
Immediately both sides are claiming victory. AA say their volume is growing and Expedia say they are not losing business. Meanwhile the travel world looks on at this test case. People really want to see if an OTA (or any TMC for that matter) can successfully move business or if airlines really can call all the shots. Whoever is perceived as the winner may set a radical trend in the industry and possibly change it considerably. Certainly if AA succeeds then many will follow after them
The trouble is that in reality this test of strength will prove very little in the business travel arena. Reason being that companies like Expedia hold only a pin prick of the worlds corporate travel market and the little they have is mainly towards the lower end in company size terms. In my personal opinion what American has done is picked a soft target to start with. The giant TMCs with their giant corporate accounts would be a different matter altogether. A smaller entity with a different client-base and business model is much easier quarry but one which they can get much tactical mileage from.
For instance how can anyone state at this very early stage that they are wining this argument? American says they grew in December. Big deal. This cannot be zeroed down to success in this dispute. Growth compared to what? Has not economic recovery got more to do with it? How much of American’s corporate market share is Expedia anyway? Yet they sagely point to some meaningless figures.
I do not think there will be any winner in this but I can say with a fair degree of certainty that the argument is a precursor to major industry change. Is that so bad? Probably not but with all change there is pain attached. Pain moves around the supply chain as quickly as cost and usually goes full circle. The airline will add cost and work to the TMC, The TMC will go to their clients, increase their charges and tell them why. The big corporate will go to the airlines and mitigate their increased cost by demanding compensation through their deal. The model has changed. But has it really and to whose benefit?
Like everyone else I will watch with interest and try to read between the lines to see where this will take us. As for the forthcoming figures and rhetoric? I will take them all with a pinch of salt and suggest you do the same.
Immediately both sides are claiming victory. AA say their volume is growing and Expedia say they are not losing business. Meanwhile the travel world looks on at this test case. People really want to see if an OTA (or any TMC for that matter) can successfully move business or if airlines really can call all the shots. Whoever is perceived as the winner may set a radical trend in the industry and possibly change it considerably. Certainly if AA succeeds then many will follow after them
The trouble is that in reality this test of strength will prove very little in the business travel arena. Reason being that companies like Expedia hold only a pin prick of the worlds corporate travel market and the little they have is mainly towards the lower end in company size terms. In my personal opinion what American has done is picked a soft target to start with. The giant TMCs with their giant corporate accounts would be a different matter altogether. A smaller entity with a different client-base and business model is much easier quarry but one which they can get much tactical mileage from.
For instance how can anyone state at this very early stage that they are wining this argument? American says they grew in December. Big deal. This cannot be zeroed down to success in this dispute. Growth compared to what? Has not economic recovery got more to do with it? How much of American’s corporate market share is Expedia anyway? Yet they sagely point to some meaningless figures.
I do not think there will be any winner in this but I can say with a fair degree of certainty that the argument is a precursor to major industry change. Is that so bad? Probably not but with all change there is pain attached. Pain moves around the supply chain as quickly as cost and usually goes full circle. The airline will add cost and work to the TMC, The TMC will go to their clients, increase their charges and tell them why. The big corporate will go to the airlines and mitigate their increased cost by demanding compensation through their deal. The model has changed. But has it really and to whose benefit?
Like everyone else I will watch with interest and try to read between the lines to see where this will take us. As for the forthcoming figures and rhetoric? I will take them all with a pinch of salt and suggest you do the same.
Tuesday, December 28, 2010
A Christmas Tale of Travel Distribution – 2
Cast of Characters:
Air Schizophrenia Services (ASS Air) – A major airline from Never Never Land.
Pass it on Travel (Past Travel) - A neurotic TMC who misses the old days
Scrooge Global Inc (Scroogey Inc) - A global corporation that hates travel budgets
Vera Merchant Fee ( VeraCard) - A credit/charge card that does not add up
Online Travel Agency (Ollie OTA) – Illegitimate love child of Air Schizophrenia.
IATAmania (Colin Cartel) - An airline association that interprets
the rules as they go along.
Globally Dysfunctional (Gordon GDS) – A misunderstood much maligned cog in
the Distribution wheel who nobody wants to pay
(Again, a work of absolute fiction and all the characters are simply a result of my overactive imagination)
It was a quiet peaceful Christmas Eve. It was mainly quiet because half a teaspoonful of snow had landed on the tarmac at London Heathrow causing the entire airport and access road infrastructure to go into meltdown and stop completely.
ASS Air barricaded himself in his office, switched off the passenger information announcements and tried to turn his mind away from the groaning, lamentation and anger coming from those selfish passengers in the departure hall. After all he had given them foil blankets so what were they moaning about?
Finally he decided to think back over the last year and consider what he might do in 2011. He tried to focus on all the fun things and the new friends he had made which lasted about 20 seconds so he then moved onto the progress he was beginning to make on distribution matters. He had quite a busy year in this area but he considered it mere positioning for what was planned for the coming year. He would show those vultures (I mean ‘partners’) a thing or two.
He started ticking off the successes and failures of the past. He congratulated himself for his success in transferring a major chunk of his own selling costs down the line. Who would have thought it could be so easy! Just put the squeeze and expense onto Past Travel and watch them ricochet onwards to Scrooge Inc. Job done! Except Scrooge being a savvy customer had let it happen in order to commoditise and claw back.
He was however beginning to understand Scrooge a lot better. It was difficult to start with but when he realised that old Scroogy played by different rules and was not impressed by his arrogance he found more subtle ways to play him at his own game. He discovered that as long as the up front price made Scrooge look good he could tinker away with the ancillaries rather like those ‘ghastly and common’ No Frills guys do.
It had been a shame about the black sheep of his family. After the wild euphoria of creating his very own online travel agency Ollie OTA had ultimately disappointed him. Now he had to try and undo the damage by putting him down in as humane way as possible. So off he had gone with his ‘content club’ and bludgeoned poor old Ollie as if he was a seal pup. Trouble was Ollie had a tougher infrastructure than he realised. ‘Memo to me’, he thought. Get in touch with Colin Cartel in IATA land and get him to come up with some kind of ‘creative’ rule interpretation to help me. After all good old Colin will do exactly what I say if he knows what is good for him. I am after all his boss.
That left just VeraCard and Gordon GDS to sort out. Both were thorns in his distribution sides but he was beginning to make serious progress. All he had to do was close his eyes to what travellers want and appeal to Scrooges desire for cheap nets and he would be nearly there. Vera would be much easier than Gordon. All he had to do was introduce a premium for using Vera (preferably higher than she cost) and watch old Past Travel do the rest. Scrooge would have to accept, especially if his competitor chums followed suit and they sure would like they always do.
Gordon GDS is another prospect entirely. Yes, Gordon is as anti change as he is and yes, he wants it all his way and yes, Gordon wants to increase his wealth not to diminish it. But like AssAir, Gordon does not appear to be able to come up with any more positive solution than more deep-seated intransigence. “Everything must change”, they cry, but not me! So Gordon hides behind the walls of Fortress Full Content while poor old AssAir tries to bash it down access brick by access brick. Meanwhile Scrooge and Pass It On shout for him to stop before they get hurt by the aftermath..
What a lovely time of the year Ass Air mused as he snuggled deeper into the ego massage machine chair that had been installed behind the double-locked steel door of his airport office. Have those damn passengers stopped snivelling he thought as he eyed the lovely looking ‘humble pie’ his cabin crew had cooked for him. No, he thought, I can always eat that when I absolutely have to and it will be Spring by then.
He reclined his lounger into bed mode and drifted into a blameless sleep.’ Oh what fun I will have next year’ he thought in his last moment of consciousness. But then he had a terrible dream. It involved all his antagonists sitting with him in a room sponsored by corporate travel trade associations and he was being made to cut a deal that would be fair for all and serving to the travel community.
But that really would be a fairy story
Air Schizophrenia Services (ASS Air) – A major airline from Never Never Land.
Pass it on Travel (Past Travel) - A neurotic TMC who misses the old days
Scrooge Global Inc (Scroogey Inc) - A global corporation that hates travel budgets
Vera Merchant Fee ( VeraCard) - A credit/charge card that does not add up
Online Travel Agency (Ollie OTA) – Illegitimate love child of Air Schizophrenia.
IATAmania (Colin Cartel) - An airline association that interprets
the rules as they go along.
Globally Dysfunctional (Gordon GDS) – A misunderstood much maligned cog in
the Distribution wheel who nobody wants to pay
(Again, a work of absolute fiction and all the characters are simply a result of my overactive imagination)
It was a quiet peaceful Christmas Eve. It was mainly quiet because half a teaspoonful of snow had landed on the tarmac at London Heathrow causing the entire airport and access road infrastructure to go into meltdown and stop completely.
ASS Air barricaded himself in his office, switched off the passenger information announcements and tried to turn his mind away from the groaning, lamentation and anger coming from those selfish passengers in the departure hall. After all he had given them foil blankets so what were they moaning about?
Finally he decided to think back over the last year and consider what he might do in 2011. He tried to focus on all the fun things and the new friends he had made which lasted about 20 seconds so he then moved onto the progress he was beginning to make on distribution matters. He had quite a busy year in this area but he considered it mere positioning for what was planned for the coming year. He would show those vultures (I mean ‘partners’) a thing or two.
He started ticking off the successes and failures of the past. He congratulated himself for his success in transferring a major chunk of his own selling costs down the line. Who would have thought it could be so easy! Just put the squeeze and expense onto Past Travel and watch them ricochet onwards to Scrooge Inc. Job done! Except Scrooge being a savvy customer had let it happen in order to commoditise and claw back.
He was however beginning to understand Scrooge a lot better. It was difficult to start with but when he realised that old Scroogy played by different rules and was not impressed by his arrogance he found more subtle ways to play him at his own game. He discovered that as long as the up front price made Scrooge look good he could tinker away with the ancillaries rather like those ‘ghastly and common’ No Frills guys do.
It had been a shame about the black sheep of his family. After the wild euphoria of creating his very own online travel agency Ollie OTA had ultimately disappointed him. Now he had to try and undo the damage by putting him down in as humane way as possible. So off he had gone with his ‘content club’ and bludgeoned poor old Ollie as if he was a seal pup. Trouble was Ollie had a tougher infrastructure than he realised. ‘Memo to me’, he thought. Get in touch with Colin Cartel in IATA land and get him to come up with some kind of ‘creative’ rule interpretation to help me. After all good old Colin will do exactly what I say if he knows what is good for him. I am after all his boss.
That left just VeraCard and Gordon GDS to sort out. Both were thorns in his distribution sides but he was beginning to make serious progress. All he had to do was close his eyes to what travellers want and appeal to Scrooges desire for cheap nets and he would be nearly there. Vera would be much easier than Gordon. All he had to do was introduce a premium for using Vera (preferably higher than she cost) and watch old Past Travel do the rest. Scrooge would have to accept, especially if his competitor chums followed suit and they sure would like they always do.
Gordon GDS is another prospect entirely. Yes, Gordon is as anti change as he is and yes, he wants it all his way and yes, Gordon wants to increase his wealth not to diminish it. But like AssAir, Gordon does not appear to be able to come up with any more positive solution than more deep-seated intransigence. “Everything must change”, they cry, but not me! So Gordon hides behind the walls of Fortress Full Content while poor old AssAir tries to bash it down access brick by access brick. Meanwhile Scrooge and Pass It On shout for him to stop before they get hurt by the aftermath..
What a lovely time of the year Ass Air mused as he snuggled deeper into the ego massage machine chair that had been installed behind the double-locked steel door of his airport office. Have those damn passengers stopped snivelling he thought as he eyed the lovely looking ‘humble pie’ his cabin crew had cooked for him. No, he thought, I can always eat that when I absolutely have to and it will be Spring by then.
He reclined his lounger into bed mode and drifted into a blameless sleep.’ Oh what fun I will have next year’ he thought in his last moment of consciousness. But then he had a terrible dream. It involved all his antagonists sitting with him in a room sponsored by corporate travel trade associations and he was being made to cut a deal that would be fair for all and serving to the travel community.
But that really would be a fairy story
A Christmas Distribution Story - Timmy TMC
I wrote this sweet little story last Christmas and it is back 'by popular demmand' while I write the next one about GDSs which will be out in a few days.
Tales of Timmy TMC and his search for value– A Christmas Pantomime and work of utter fiction!
Timmy was sad. He had just returned from Agencies Anonymous and admitted to all of them that he was a TMC. He was looking for help to cure this terrible affliction but all the other sad souls took one look at him and agreed he was clearly past his sell by date and revoked his membership.
It had all started so very well for Timmy those years ago when his two benevolent uncles, Colin Commission and Oscar Override, used to send him cheques for doing very little. However recently, having used him for their horrible data mining purposes, they walked out leaving him a penniless orphan. Then even stranger things started to happen as his few pals started disappearing, changing their names and, worst of all, reverting to cannibalism and eating each other up. The stress of it all got to little Timmy and he started wondering if there would be a future role for him in this wacky and homicidal travel supply chain. He was sure he was useful but a little bit sketchy on the detail.
But Timmy was made of stronger stuff and knew, with a little sage advice from his supply chain colleagues, he would discover his value. “I know” he thought. “I will go and see my dear old benefactor Client Hardup”. “Sorry Timmy” said Hardup whilst absently massaging his EBIT, “but I have lost all my profits. I gave them to a nice man from the Fat Cat Investment Bank and he said they had been magiced away by millions of little elves wanting to feed their sub prime mortgages. However he also said that he was prepared to travel the length and breadth of Las Vegas to get it back if Timmy could donate a ticket”. “Sorry” said Timmy “I don’t get free tickets and upgrades any more. In fact the last ones were those First class round the world tickets which went to Mrs Hardup when she coincidently won your office grand draw”.
Hardup was sorry for Timmy. He remembered the days when Timmy used to give him good service, rebate cheques and upgrades. “Go and see my two sisters Pammy Procurement and Charmaine Cheaper-Thanyu” he said. “They may think of something valuable for you to do, although don’t hold your breath as I have just cut their travel allowance again.
Now these two girls hated each other something ugly. Charmaine thought she could do and get things better than Pammy. Pammy thought Charmaine was an undisciplined tart hawking herself around the web without any thought of the infections she could catch like cancellation flu and card chargeitus. The only thing they had in common was they both thought they could do anything better than Timmy who, to them, was an unnecessary downward pull on their sagging assets. They had enough budget stretch marks between the already.
Poor old Timmy. Little sustainable income and not the sharpest pencil in the commercial box. He trudged back to his lonely BTC and implanted himself in front of his PC. He aimlessly rubbed his mouse even though his fairy god mother had warned him his eyesight would be impaired when POOF! Out from the PC sprang the GDS Genie. “I will grant you one wish” she cried. “oh Genie” he wailed “You have told everyone that you know everything so please tell me what I need to do to find my value and make Pammie and Charmaine respect me like they used to when I bribed them.
“Blooming Heck” said Genie, “that’s a tricky question. How should I know? I have enough problems of my own dealing with that terrible ogre Amerimonster from IATAland. He wants me to get my sectors off for next to nothing. And then there is that green monster Olearymouth. He has been clambering down his beanstalk lately threatening you, me, in fact everyone he claps eyes on. So don’t bother me with your pathetic questions! And leave that mouse alone.”
Timmy was shocked and saddened. He had tried his colleagues, his clients, suppliers and even a fellow intermediary without a sniff of finding his value. Off he wandered into the pre Christmas recessionary gloom. Even his Blackberry had stopped talking to him and his Mobile phone, instead of saying “how are you” when switched on now said “Book Direct” instead. It was almost enough to make Timmy give up and become a consultant like everyone else.
Just as all seemed lost a jolly faced lumbering giant in a Santa outfit scooped Timmy up, clutched him warmly to his chest and squeezed him tenderly by the throat. “Giant Major Airline Timmy wheezed”. “Never fear Timmy” boomed Major. “You can trust me and I will look after you just sign this binding agreement and all your troubles will be over - well at least for a month or two”. “But that is what you said last time” said Timmy, “before you started smacking me about”. “Now, now” said Major “let’s forget about the past”. “That is also what you said last time” replied Timmy.
“NOW SEE HERE” boomed the Major with an inscrutable look on his face, Have you got any other options?
“Oh Major” said Timmy, “it is so good to be home. I’m hungry. Got any commission?!”
And they all lived happily every after – Or did they?
Tales of Timmy TMC and his search for value– A Christmas Pantomime and work of utter fiction!
Timmy was sad. He had just returned from Agencies Anonymous and admitted to all of them that he was a TMC. He was looking for help to cure this terrible affliction but all the other sad souls took one look at him and agreed he was clearly past his sell by date and revoked his membership.
It had all started so very well for Timmy those years ago when his two benevolent uncles, Colin Commission and Oscar Override, used to send him cheques for doing very little. However recently, having used him for their horrible data mining purposes, they walked out leaving him a penniless orphan. Then even stranger things started to happen as his few pals started disappearing, changing their names and, worst of all, reverting to cannibalism and eating each other up. The stress of it all got to little Timmy and he started wondering if there would be a future role for him in this wacky and homicidal travel supply chain. He was sure he was useful but a little bit sketchy on the detail.
But Timmy was made of stronger stuff and knew, with a little sage advice from his supply chain colleagues, he would discover his value. “I know” he thought. “I will go and see my dear old benefactor Client Hardup”. “Sorry Timmy” said Hardup whilst absently massaging his EBIT, “but I have lost all my profits. I gave them to a nice man from the Fat Cat Investment Bank and he said they had been magiced away by millions of little elves wanting to feed their sub prime mortgages. However he also said that he was prepared to travel the length and breadth of Las Vegas to get it back if Timmy could donate a ticket”. “Sorry” said Timmy “I don’t get free tickets and upgrades any more. In fact the last ones were those First class round the world tickets which went to Mrs Hardup when she coincidently won your office grand draw”.
Hardup was sorry for Timmy. He remembered the days when Timmy used to give him good service, rebate cheques and upgrades. “Go and see my two sisters Pammy Procurement and Charmaine Cheaper-Thanyu” he said. “They may think of something valuable for you to do, although don’t hold your breath as I have just cut their travel allowance again.
Now these two girls hated each other something ugly. Charmaine thought she could do and get things better than Pammy. Pammy thought Charmaine was an undisciplined tart hawking herself around the web without any thought of the infections she could catch like cancellation flu and card chargeitus. The only thing they had in common was they both thought they could do anything better than Timmy who, to them, was an unnecessary downward pull on their sagging assets. They had enough budget stretch marks between the already.
Poor old Timmy. Little sustainable income and not the sharpest pencil in the commercial box. He trudged back to his lonely BTC and implanted himself in front of his PC. He aimlessly rubbed his mouse even though his fairy god mother had warned him his eyesight would be impaired when POOF! Out from the PC sprang the GDS Genie. “I will grant you one wish” she cried. “oh Genie” he wailed “You have told everyone that you know everything so please tell me what I need to do to find my value and make Pammie and Charmaine respect me like they used to when I bribed them.
“Blooming Heck” said Genie, “that’s a tricky question. How should I know? I have enough problems of my own dealing with that terrible ogre Amerimonster from IATAland. He wants me to get my sectors off for next to nothing. And then there is that green monster Olearymouth. He has been clambering down his beanstalk lately threatening you, me, in fact everyone he claps eyes on. So don’t bother me with your pathetic questions! And leave that mouse alone.”
Timmy was shocked and saddened. He had tried his colleagues, his clients, suppliers and even a fellow intermediary without a sniff of finding his value. Off he wandered into the pre Christmas recessionary gloom. Even his Blackberry had stopped talking to him and his Mobile phone, instead of saying “how are you” when switched on now said “Book Direct” instead. It was almost enough to make Timmy give up and become a consultant like everyone else.
Just as all seemed lost a jolly faced lumbering giant in a Santa outfit scooped Timmy up, clutched him warmly to his chest and squeezed him tenderly by the throat. “Giant Major Airline Timmy wheezed”. “Never fear Timmy” boomed Major. “You can trust me and I will look after you just sign this binding agreement and all your troubles will be over - well at least for a month or two”. “But that is what you said last time” said Timmy, “before you started smacking me about”. “Now, now” said Major “let’s forget about the past”. “That is also what you said last time” replied Timmy.
“NOW SEE HERE” boomed the Major with an inscrutable look on his face, Have you got any other options?
“Oh Major” said Timmy, “it is so good to be home. I’m hungry. Got any commission?!”
And they all lived happily every after – Or did they?
You don’t get ‘owt for nowt’ in travel distribution.
For those that do not speak Yorkshire English that means anything for nothing and never has that been truer than in corporate travel. The only trouble is that this is exactly what many stakeholders are trying to achieve with alarming and inharmonious results.
Now people sometimes call this the pain of change or evolution but I think it is much more basic than that. I believe very little is changing other than people trying to offload cost to others as they rightly (or wrongly) believe that it no longer belongs with them. This has only recently started because now they cannot increase their charges to absorb this expense as the end customer wont stand for it. Lead price now seems to be everything so everything has to be stripped to the bone. This type of commoditisation is fine if you are prepared to do without something but not if you still demand your content, your credit, your data and all.
So everybody tries to find cheaper and more self serving alternatives. Some even see it as an opportunity to make more money by separating out a product and charging more for it than it costs. For example those suppliers who are now charging extra for GDS booking options and credit card usage. Is the price they are currently paying more or less than what they are going to charge the rest of the supply chain who want these services? Just look at TMCs and you will see how many turned a potentially disastrous commission cut into a more profitable business model.
I think we all have to go back to basics again and ask ourselves what we want and essentially, what we really do not need. Having done this we should look at all these component parts and ascertain who is currently paying for them and whether we could do it cheaper and more efficiently if we took control and accountability ourselves. I definitely think TMCs could play a broader role in managing these costs for corporations than they do at present. They are after all supposed to be an outsourced consultancy arm of their clients.
The travel distribution model is in a mess and stuck in a previous era. Low cost airlines and commoditisation completely shook up the market but the original infrastructure still remains despite attempts to shift it. Cartels like IATA still hold sway and bodies such as ACTE/NBTA/ITM have not really yet driven constructive dialogue to broker a badly needed repositioning. To my mind these groups need to get together and call a proper summit on these issues which would surely be more constructive than the same old glad handing bi annual conferences.
Everyone is in defence mode. Some people’s idea of defence is by attacking first. Others try the old head in the sand technique favoured by Ostriches. Most have tunnel vision. We need some clear thinking before we all end up as aggressive poor sighted flightless birds!
Now people sometimes call this the pain of change or evolution but I think it is much more basic than that. I believe very little is changing other than people trying to offload cost to others as they rightly (or wrongly) believe that it no longer belongs with them. This has only recently started because now they cannot increase their charges to absorb this expense as the end customer wont stand for it. Lead price now seems to be everything so everything has to be stripped to the bone. This type of commoditisation is fine if you are prepared to do without something but not if you still demand your content, your credit, your data and all.
So everybody tries to find cheaper and more self serving alternatives. Some even see it as an opportunity to make more money by separating out a product and charging more for it than it costs. For example those suppliers who are now charging extra for GDS booking options and credit card usage. Is the price they are currently paying more or less than what they are going to charge the rest of the supply chain who want these services? Just look at TMCs and you will see how many turned a potentially disastrous commission cut into a more profitable business model.
I think we all have to go back to basics again and ask ourselves what we want and essentially, what we really do not need. Having done this we should look at all these component parts and ascertain who is currently paying for them and whether we could do it cheaper and more efficiently if we took control and accountability ourselves. I definitely think TMCs could play a broader role in managing these costs for corporations than they do at present. They are after all supposed to be an outsourced consultancy arm of their clients.
The travel distribution model is in a mess and stuck in a previous era. Low cost airlines and commoditisation completely shook up the market but the original infrastructure still remains despite attempts to shift it. Cartels like IATA still hold sway and bodies such as ACTE/NBTA/ITM have not really yet driven constructive dialogue to broker a badly needed repositioning. To my mind these groups need to get together and call a proper summit on these issues which would surely be more constructive than the same old glad handing bi annual conferences.
Everyone is in defence mode. Some people’s idea of defence is by attacking first. Others try the old head in the sand technique favoured by Ostriches. Most have tunnel vision. We need some clear thinking before we all end up as aggressive poor sighted flightless birds!
GDS/Airline issue. Coming to a head?
This whole issue is not only becoming a little tedious but also beginning to build like a volcano about to erupt. We have had quite a few years of the dormant stage but now the tremors are getting longer, bigger and more frequent.
The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.
Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.
These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.
The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.
There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!
As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.
From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.
So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.
To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.
The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.
Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.
These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.
The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.
There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!
As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.
From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.
So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.
To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.
Can TMCs Really Influence Business? - Deals
OK, so we got to the point where we ascertained that TMC/agents still get incentives from suppliers, albeit presented in a different shape. I also mentioned that, in my opinion, this need not necessarily be a bad thing for corporate customers if managed right. What I did not go into in any detail was a) what these deals are b) how TMCs do (or do not) shift business and c) how such deals could benefit all. So let me address at least one of these points now and deal with the others another time.
What kind of deals?
There are three main types which are growth percentage rewards, net fares that can be marked up and increase share payments.
Payments for growth are usually a percentage of net ticket value sometimes paid back to zero and sometimes just for the growth element compared with previous year. Percentages paid vary enormously depending on supplier size, their importance/share of the local market and their strategic need to buy a way into the region. I have heard of deals ranging around 2% from a big volume airline to 50% from someone trying to make inroads into a market. Such deals are pretty unfashionable now in most primary markets but do still happen in numerous places around the globe especially from suppliers who have no effective systems to measure performance.
As time passed some of the more major airlines started to get concerned that TMCs might simply start doing growth deals with all their competitors as, in a growing market, the prospects of growing volume with everyone was high. Also volume could vary greatly simply by the losing or winning of a major volume corporate account. This ultimately got addressed by airlines ‘red ringing’ the biggest clients which meant their volumes were taken out for volume and payment purposes.
There have always been a few net fare deals about. This is where an airline offers a fixed net price to specific agents who can mark it up by as much as they think they can get away with. These net fares were targeted towards specialist agencies who were involved in markets such as ethnic or tourist travel. In the main the plan was to gain this business but not dilute their yields by exposing such discounts to the corporate market. Nevertheless there has been growing overlap which usually manifests itself by corporate travellers that gets hold of the fare and demands to know why his TMC cannot match it. This has been going on for many years but in recent times some USA airlines have dallied in this area too by offering net business prices to TMCs instead of overrides.
In an attempt to make future deals work airlines started introducing rewards based on share increase. This is infinitely more difficult to measure and depended on the airline itself to produce the results with no way for the TMCs to verify them. Some of these deals became so very complex that it was almost impossible for anyone to predict what would be paid. .Another issue was that, for some dominant airlines such deals were considered by the authorities as anti-competitive and thereby illegal. However these deals are still widespread today.
Most modern deals are far more sophisticated and linked to ‘service level agreements’ (SLAs) although this term is a misnomer in my view. What they effectively do is reward TMCs for performing (or allowing) certain activities. These activities vary from allowing access to their staff, account managers and senior management to shifting share, providing key MI on their clients, promoting the airline’s campaigns and supporting a particular strategy. All such activities are measured and rewarded accordingly. These ‘incentives’ seem to work reasonably well for both parties as the airline usually sees more volume and the TMC gets it’s money in a way that negates them having to pay it straight on to the corporation as extra client income/overrides.
Originally TMCs used to negotiate SMAs with individual airlines but even that has moved on. Now the suppliers are trying to do deals by Alliances rather than individual members. These usually manifest themselves as umbrella incentives paid only if the TMC performs with a certain minimum number of their partners. This way the dominant airline in any alliance group can demand TMC preferred status for their smaller partners that would not otherwise register on their radar screen. Such deals are highly unpopular with most eligible TMCs for obvious reasons and particularly because many airline partners are either unable to provide accurate data or simply not a product they want in their portfolio especially if they clash with another preferred supplier.
Consolidation by alliances is one thing but the ability/desire to agree a global incentive agreement is even harder and suppliers have, in the main, been reticent to do this either with TMCs or corporations. Don’t get me wrong, there are some prototype deals out there but I am highly sceptical of their current value to anyone. After all the airlines still work on a system where they cannot tell their overseas offices what to do as they are cost centres in their own right and have the authority to say no.
Finally I expect to see a new type of deal arriving and it is not a million miles away from the net concept. Well actually it is here now but only in it’s formative state. The arrival of TMC specific fares is here and expanding. In the past, probably as a result of past legacies, airlines have stuck to treating all TMCs the same as each other as far as fares are concerned. This is changing with the arrival of new generation TMC technology platforms that can be very specific about who sees what fare where and when.. This will enable them to drive business to (and from) airlines at the press off a button. Airlines will be able to flex the fares they offer depending on need and thereby have a tighter grip on their yields in a similar way to what they do on their own dot com sites…if the TMC is incentivised enough to support them. As I say, it is early days but worth watching.
This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such
What kind of deals?
There are three main types which are growth percentage rewards, net fares that can be marked up and increase share payments.
Payments for growth are usually a percentage of net ticket value sometimes paid back to zero and sometimes just for the growth element compared with previous year. Percentages paid vary enormously depending on supplier size, their importance/share of the local market and their strategic need to buy a way into the region. I have heard of deals ranging around 2% from a big volume airline to 50% from someone trying to make inroads into a market. Such deals are pretty unfashionable now in most primary markets but do still happen in numerous places around the globe especially from suppliers who have no effective systems to measure performance.
As time passed some of the more major airlines started to get concerned that TMCs might simply start doing growth deals with all their competitors as, in a growing market, the prospects of growing volume with everyone was high. Also volume could vary greatly simply by the losing or winning of a major volume corporate account. This ultimately got addressed by airlines ‘red ringing’ the biggest clients which meant their volumes were taken out for volume and payment purposes.
There have always been a few net fare deals about. This is where an airline offers a fixed net price to specific agents who can mark it up by as much as they think they can get away with. These net fares were targeted towards specialist agencies who were involved in markets such as ethnic or tourist travel. In the main the plan was to gain this business but not dilute their yields by exposing such discounts to the corporate market. Nevertheless there has been growing overlap which usually manifests itself by corporate travellers that gets hold of the fare and demands to know why his TMC cannot match it. This has been going on for many years but in recent times some USA airlines have dallied in this area too by offering net business prices to TMCs instead of overrides.
In an attempt to make future deals work airlines started introducing rewards based on share increase. This is infinitely more difficult to measure and depended on the airline itself to produce the results with no way for the TMCs to verify them. Some of these deals became so very complex that it was almost impossible for anyone to predict what would be paid. .Another issue was that, for some dominant airlines such deals were considered by the authorities as anti-competitive and thereby illegal. However these deals are still widespread today.
Most modern deals are far more sophisticated and linked to ‘service level agreements’ (SLAs) although this term is a misnomer in my view. What they effectively do is reward TMCs for performing (or allowing) certain activities. These activities vary from allowing access to their staff, account managers and senior management to shifting share, providing key MI on their clients, promoting the airline’s campaigns and supporting a particular strategy. All such activities are measured and rewarded accordingly. These ‘incentives’ seem to work reasonably well for both parties as the airline usually sees more volume and the TMC gets it’s money in a way that negates them having to pay it straight on to the corporation as extra client income/overrides.
Originally TMCs used to negotiate SMAs with individual airlines but even that has moved on. Now the suppliers are trying to do deals by Alliances rather than individual members. These usually manifest themselves as umbrella incentives paid only if the TMC performs with a certain minimum number of their partners. This way the dominant airline in any alliance group can demand TMC preferred status for their smaller partners that would not otherwise register on their radar screen. Such deals are highly unpopular with most eligible TMCs for obvious reasons and particularly because many airline partners are either unable to provide accurate data or simply not a product they want in their portfolio especially if they clash with another preferred supplier.
Consolidation by alliances is one thing but the ability/desire to agree a global incentive agreement is even harder and suppliers have, in the main, been reticent to do this either with TMCs or corporations. Don’t get me wrong, there are some prototype deals out there but I am highly sceptical of their current value to anyone. After all the airlines still work on a system where they cannot tell their overseas offices what to do as they are cost centres in their own right and have the authority to say no.
Finally I expect to see a new type of deal arriving and it is not a million miles away from the net concept. Well actually it is here now but only in it’s formative state. The arrival of TMC specific fares is here and expanding. In the past, probably as a result of past legacies, airlines have stuck to treating all TMCs the same as each other as far as fares are concerned. This is changing with the arrival of new generation TMC technology platforms that can be very specific about who sees what fare where and when.. This will enable them to drive business to (and from) airlines at the press off a button. Airlines will be able to flex the fares they offer depending on need and thereby have a tighter grip on their yields in a similar way to what they do on their own dot com sites…if the TMC is incentivised enough to support them. As I say, it is early days but worth watching.
This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such
Can TMCs really influence business?
Ever since travel agencies were created by airlines as the most efficient way of consolidating and distributing their product they have had to incentivize them. Somewhat ironic really that in many ways they created their own Frankenstein’s monster which, despite their best efforts, they cannot kill.
They desperately needed to find a way to deal with the then need to seamlessly interline their services with other airlines using one fare on one ticket and the travel agent, ultimately to become travel management company (TMC), fitted the bill perfectly. They could do all the messy bits for the customer at a fraction of the cost that an airline would have to incur in order to do it themselves. In those days there was minimal technology and very little direct competition unlike modern times.
As time passed the airlines expanded and serious competition arrived on all the main air routes. Instead of being able to assume they would get all, or at least a fair share, of passengers on their services they now had to fight it out with a whole bunch of others. The big snag however was that they had created this TMC middle man who had all the access, relationship and knowledge with the end customer. They were also very firmly entrenched as they offered a ‘free’ service to the traveller and, in many cases, actually paid their company to use them.
So it was that ‘incentive overrides’ were born. This is where airlines not only paid TMCs a standard commission but also gave extra percentages on top in payment for extra passengers and/or higher share. The TMCs used this money to increase their profits, win business and subsidise other services they had to offer their clients that were not otherwise cost effective. They also used these deals co create new ones by playing one supplier off against another. Airlines hated it but always had a nagging doubt about how much business they might lose if the climbed off the incentive roundabout.
Finally things started to change as suppliers decided they could not afford these distribution costs, especially in this new technological world. They really did not like the lack of contact with their end customers and their doubts got greater about whether these incentives delivered a return on investment. After all the TMCs ended up doing deals with practically all the suppliers so who were they going to move business from? And, with the arrival of corporate procurement managers, could they influence business anyway? The main national airlines decided enough was enough, pulled the plug on commissions and, searched for other ways to incentivise that would yield better returns. Airlines can be a little like sheep in that whatever the national carrier does in their own market the others follow.
This brings us to today. A today that is supposed to mean that TMCs work for, and get paid by, their clients and the suppliers give all their incentives to the end user through lower pricing. Oh, if only life and business could be that easy. In actuality various types of incentives are alive and well albeit a little more covert and targeted than they used to be. In fact I believe most TMCs would have to shut down overnight if they ceased earning income from suppliers. Many of the incentives are relatively customer friendly and shaped in the guise of service level agreements (SLAs) but, be under no illusion, their purpose is to build an individual airline’s share whichever way you look at it. I leave it to you to decide if this is a good or bad thing.
So, back to the main question. Can TMCs direct business? My view is a qualified yes if they go about it the right way. By right way I mean with their customer’s knowledge and agreement and using the right methodology. There is a win/win possibility here with improved services, value adds and efficiencies being the end goal. Does it happen now? I have been out of ‘hands on’ touch for a while but I think the answer is probably not. I believe the relationship (financial and otherwise) between supplier, TMC and customer still has a way to evolve and will become one of the next big issues. I predict tomorrow’s ‘incentive’ battleground will revolve around dynamic pricing where TMCs will control what fares and preferences will be in their databases and distribute them in a way that brings them greater return. A key factor of which TMC a corporation uses will be the ability of these databases to deliver best value.Let’s see if I am right!
They desperately needed to find a way to deal with the then need to seamlessly interline their services with other airlines using one fare on one ticket and the travel agent, ultimately to become travel management company (TMC), fitted the bill perfectly. They could do all the messy bits for the customer at a fraction of the cost that an airline would have to incur in order to do it themselves. In those days there was minimal technology and very little direct competition unlike modern times.
As time passed the airlines expanded and serious competition arrived on all the main air routes. Instead of being able to assume they would get all, or at least a fair share, of passengers on their services they now had to fight it out with a whole bunch of others. The big snag however was that they had created this TMC middle man who had all the access, relationship and knowledge with the end customer. They were also very firmly entrenched as they offered a ‘free’ service to the traveller and, in many cases, actually paid their company to use them.
So it was that ‘incentive overrides’ were born. This is where airlines not only paid TMCs a standard commission but also gave extra percentages on top in payment for extra passengers and/or higher share. The TMCs used this money to increase their profits, win business and subsidise other services they had to offer their clients that were not otherwise cost effective. They also used these deals co create new ones by playing one supplier off against another. Airlines hated it but always had a nagging doubt about how much business they might lose if the climbed off the incentive roundabout.
Finally things started to change as suppliers decided they could not afford these distribution costs, especially in this new technological world. They really did not like the lack of contact with their end customers and their doubts got greater about whether these incentives delivered a return on investment. After all the TMCs ended up doing deals with practically all the suppliers so who were they going to move business from? And, with the arrival of corporate procurement managers, could they influence business anyway? The main national airlines decided enough was enough, pulled the plug on commissions and, searched for other ways to incentivise that would yield better returns. Airlines can be a little like sheep in that whatever the national carrier does in their own market the others follow.
This brings us to today. A today that is supposed to mean that TMCs work for, and get paid by, their clients and the suppliers give all their incentives to the end user through lower pricing. Oh, if only life and business could be that easy. In actuality various types of incentives are alive and well albeit a little more covert and targeted than they used to be. In fact I believe most TMCs would have to shut down overnight if they ceased earning income from suppliers. Many of the incentives are relatively customer friendly and shaped in the guise of service level agreements (SLAs) but, be under no illusion, their purpose is to build an individual airline’s share whichever way you look at it. I leave it to you to decide if this is a good or bad thing.
So, back to the main question. Can TMCs direct business? My view is a qualified yes if they go about it the right way. By right way I mean with their customer’s knowledge and agreement and using the right methodology. There is a win/win possibility here with improved services, value adds and efficiencies being the end goal. Does it happen now? I have been out of ‘hands on’ touch for a while but I think the answer is probably not. I believe the relationship (financial and otherwise) between supplier, TMC and customer still has a way to evolve and will become one of the next big issues. I predict tomorrow’s ‘incentive’ battleground will revolve around dynamic pricing where TMCs will control what fares and preferences will be in their databases and distribute them in a way that brings them greater return. A key factor of which TMC a corporation uses will be the ability of these databases to deliver best value.Let’s see if I am right!
Why small is becoming big in Business Travel.
In many of the key driver markets like the UK the desire by TMCs to move back into the SME market has grown and grown without any sign of let-up. A strange phenomenon one might think considering they have spent the last few years actively trying to get them off their books. There must be a good reason for this re-think and of course there is. It’s because of that good old trio economy, technology and supplier strategy. As a result there is never a better time to be a small customer in business travel.
You see the big organisations have lost the allure they used to have. They now become harder to win and are on longer contracts. They demand more and pay less and the suppliers have done their deals direct with them which make the TMC more marginalised than ever. At the same time the TMCs have caught up with each other to the point that a competitive edge to swing an account gets smaller. So, in the main, TMCs get to keep what they have got (especially with the advent of globalisation) and, if they actually lose something big it hurts real badly. It is often more expensive to lose an account than the benefit you get if you keep it, if that makes sense, which is another reason why little moves!
So what is left out there that is flexible, relatively easy to handle yet very valuable cumulatively especially to suppliers. The answer of course is the SME who demand a good deal but does not carry all those bespoke costs of a large client. If you win one then great, but if you lose then it doesn’t hurt much. TMCs can use all those fancy gizmos created for (and funded by) the major clients to provide added value for peanuts to SMEs. The SME also can be a great deal easier to handle in both operational and financial terms and TMCs resources can be flexed to move this business to the optimum point in their structure. Another consideration is that, in a growing market, the big TMC is beginning to realise that today’s SME is tomorrow’s mega client. Finally, TMCs still need suppliers and suppliers want the SME market but cannot afford to go after them so a consolidation point via an agent is very attractive.
So what is a SME supposed to do? Well, if I was them I would shop around. I would be less interested in the transaction fee I was being charged and more impressed in what supplier savings and efficiencies I would get. I would go to the big TMCs and ask what extra value they can give by sharing out some of those big client products benefits. I would then ensure that I would get agreed levels of service continuity and not have my team poached every time there is a staff shortage with a bigger client.
So simplicity, flexibility and small are all beautiful……for now.
The large corporations? If I was them I would sit on my ego and work out how to make myself more attractive and important again.
You see the big organisations have lost the allure they used to have. They now become harder to win and are on longer contracts. They demand more and pay less and the suppliers have done their deals direct with them which make the TMC more marginalised than ever. At the same time the TMCs have caught up with each other to the point that a competitive edge to swing an account gets smaller. So, in the main, TMCs get to keep what they have got (especially with the advent of globalisation) and, if they actually lose something big it hurts real badly. It is often more expensive to lose an account than the benefit you get if you keep it, if that makes sense, which is another reason why little moves!
So what is left out there that is flexible, relatively easy to handle yet very valuable cumulatively especially to suppliers. The answer of course is the SME who demand a good deal but does not carry all those bespoke costs of a large client. If you win one then great, but if you lose then it doesn’t hurt much. TMCs can use all those fancy gizmos created for (and funded by) the major clients to provide added value for peanuts to SMEs. The SME also can be a great deal easier to handle in both operational and financial terms and TMCs resources can be flexed to move this business to the optimum point in their structure. Another consideration is that, in a growing market, the big TMC is beginning to realise that today’s SME is tomorrow’s mega client. Finally, TMCs still need suppliers and suppliers want the SME market but cannot afford to go after them so a consolidation point via an agent is very attractive.
So what is a SME supposed to do? Well, if I was them I would shop around. I would be less interested in the transaction fee I was being charged and more impressed in what supplier savings and efficiencies I would get. I would go to the big TMCs and ask what extra value they can give by sharing out some of those big client products benefits. I would then ensure that I would get agreed levels of service continuity and not have my team poached every time there is a staff shortage with a bigger client.
So simplicity, flexibility and small are all beautiful……for now.
The large corporations? If I was them I would sit on my ego and work out how to make myself more attractive and important again.
A different approach to TMC negotiations?
I think one of the most disappointing outcomes from contract negotiation is that between corporations and TMCs. You can practically guarantee that one side or the other, or in time both, are not enamoured with the end results. The corporation wants total priority and service delivery at the lowest unit price whilst the TMC spends its time trying to figure out how to comply whilst clawing back profitability elsewhere in the deal or through caveats.
Another disappointment is that many of these negotiations are so combative. It is almost like trying to play a game of poker where the TMC has to play with his cards face up and the corporation with theirs to their chest. How can you get a good result when the beginning is riddled with various levels of speculation and possibly deceit? There really must be a better way.
I would really like to see such methodology turned 180 degrees. The RFP should be changed to an IFB (information for bidders). This IFB would say ‘look, this is what we think we really want’ and ‘here is a list of the important things in priority. Can you think of anything you could add to improve our service and savings? Here are the problems we currently have and how can you help resolve them’. The corporation would then receive an inflow of pertinent and creative ideas rather than getting a load of bland ‘comply/not comply’ answers to a bunch of sometimes irrelevant questions.
Having narrowed the field down to those TMC that have shown the right level of flair and innovation one could then move on to what they are hoping to achieve from winning the contract in both money terms and ongoing partnership. This would be much better than dragging in a TMC that has been cut to the bone and is frankly going to favour the client that brings more revenue and longevity.
Having now discovered what both parties want it is time to sit down together and thrash out how both can be achieved with as little compromise as possible. I can think of lots of ways to doing this in a way that protects commits and rewards.
Otherwise I guess people can continue what they are doing now. Issuing an RFP the size of a small book to TMCs who will be initially judged on how they answer a bunch of questions that really do not address the real issues. After all, the large TMCs can answer the questions any way they think you want to hear them and are probably already handing numerous Fortune 500 companies who asked the same.
So there we have it. Naïve? Workable? Or both?
Your guess is as good as mine!
Another disappointment is that many of these negotiations are so combative. It is almost like trying to play a game of poker where the TMC has to play with his cards face up and the corporation with theirs to their chest. How can you get a good result when the beginning is riddled with various levels of speculation and possibly deceit? There really must be a better way.
I would really like to see such methodology turned 180 degrees. The RFP should be changed to an IFB (information for bidders). This IFB would say ‘look, this is what we think we really want’ and ‘here is a list of the important things in priority. Can you think of anything you could add to improve our service and savings? Here are the problems we currently have and how can you help resolve them’. The corporation would then receive an inflow of pertinent and creative ideas rather than getting a load of bland ‘comply/not comply’ answers to a bunch of sometimes irrelevant questions.
Having narrowed the field down to those TMC that have shown the right level of flair and innovation one could then move on to what they are hoping to achieve from winning the contract in both money terms and ongoing partnership. This would be much better than dragging in a TMC that has been cut to the bone and is frankly going to favour the client that brings more revenue and longevity.
Having now discovered what both parties want it is time to sit down together and thrash out how both can be achieved with as little compromise as possible. I can think of lots of ways to doing this in a way that protects commits and rewards.
Otherwise I guess people can continue what they are doing now. Issuing an RFP the size of a small book to TMCs who will be initially judged on how they answer a bunch of questions that really do not address the real issues. After all, the large TMCs can answer the questions any way they think you want to hear them and are probably already handing numerous Fortune 500 companies who asked the same.
So there we have it. Naïve? Workable? Or both?
Your guess is as good as mine!
Airlines and Travel Management Companies (TMC)
I genuinely find it interesting to note that very little has changed over the years despite commission cuts/removal, direct sell and net fares. Airlines still need TMCs to sell their seats and TMCs are still just as much in need of airline funding. The essential metrics remain the same and it is only the methodology that has flexed to meet market changes.
This status quo has not changed despite intense efforts from airlines as they strive to find ways of getting corporations to book direct. The only trouble is they are not TMCs and can only offer individual booking service which represents a fraction of the whole TMC integrated package. Add to this their obvious bias to their own fares and flights and it becomes clear that unless they incur the cost and role change to embrace the total TMC product not much is going to change. It would not take them long to do the math that says it is cheaper to outsource to TMCs than transform themselves. In fact, if they really were smart they would outsource more of their own services, like reservations for example, to TMCs. Some years ago an airline did just that for a short time and discovered TMC staff took more calls and got better customer reaction than their normal service.
The relationship between airline and TMC can be a rather strange alliance. The only comparison I can think of comes from the animal world where the female praying mantis makes love with its mate and then tries to eat it! It can often be very turbulent and can be tracked by just how well the market is doing. When airline sales go up they start thinking “who needs these agents” and the cooperation and incentives go down. Partially as a result their market share starts dropping until they start thinking “hey, we better start being nice to these guys again”. The result is a constant wavy line of highs, lows and then highs again. Some time someone is going to realise that some kind of continuity (say a mid point) between the highs and lows would provide better results.
Some corporations are puzzled that there is still a financial relationship at all despite market changes where they too pay the TMC. I cannot understand this as they are constantly driving down their payments to TMCs so the TMC has to make up the shortfall elsewhere within the supply chain. Also TMCs do all sorts of things for suppliers that have little direct influence on any particular corporation. These can be activities spanning, access to staff, marketing, M.I. and exposure of special airline benefits. Despite this I still think airlines mainly ‘incentivise’ TMC to increase client volume and share and they are right to do so in my personal opinion.
So, in summary, TMCs still maintain the same (or possibly more) margins from airlines despite the onset of fees. The airlines want to stop it but have failed so far. The more corporations drive for commoditisation, net pricing et al, the more these incentives will grow. My recommendation to corporations is to let it happen. As long as you are getting what you need why try and influence other relationships.
I am sure everyone will agree!
This status quo has not changed despite intense efforts from airlines as they strive to find ways of getting corporations to book direct. The only trouble is they are not TMCs and can only offer individual booking service which represents a fraction of the whole TMC integrated package. Add to this their obvious bias to their own fares and flights and it becomes clear that unless they incur the cost and role change to embrace the total TMC product not much is going to change. It would not take them long to do the math that says it is cheaper to outsource to TMCs than transform themselves. In fact, if they really were smart they would outsource more of their own services, like reservations for example, to TMCs. Some years ago an airline did just that for a short time and discovered TMC staff took more calls and got better customer reaction than their normal service.
The relationship between airline and TMC can be a rather strange alliance. The only comparison I can think of comes from the animal world where the female praying mantis makes love with its mate and then tries to eat it! It can often be very turbulent and can be tracked by just how well the market is doing. When airline sales go up they start thinking “who needs these agents” and the cooperation and incentives go down. Partially as a result their market share starts dropping until they start thinking “hey, we better start being nice to these guys again”. The result is a constant wavy line of highs, lows and then highs again. Some time someone is going to realise that some kind of continuity (say a mid point) between the highs and lows would provide better results.
Some corporations are puzzled that there is still a financial relationship at all despite market changes where they too pay the TMC. I cannot understand this as they are constantly driving down their payments to TMCs so the TMC has to make up the shortfall elsewhere within the supply chain. Also TMCs do all sorts of things for suppliers that have little direct influence on any particular corporation. These can be activities spanning, access to staff, marketing, M.I. and exposure of special airline benefits. Despite this I still think airlines mainly ‘incentivise’ TMC to increase client volume and share and they are right to do so in my personal opinion.
So, in summary, TMCs still maintain the same (or possibly more) margins from airlines despite the onset of fees. The airlines want to stop it but have failed so far. The more corporations drive for commoditisation, net pricing et al, the more these incentives will grow. My recommendation to corporations is to let it happen. As long as you are getting what you need why try and influence other relationships.
I am sure everyone will agree!
Who should buy travel? (Part two)
In part one I gave my view as to who should buy travel within a corporation. To recap, I pointed out that no one person should do it. Instead an alliance of procurement and operational management was required pulled together by the influence and gravitas of a hands-on board sponsor. In the mix of travel there is no way to success if the person buying is not linked seamlessly with those who will manage the contract and they can both give up unless there is someone on the board who fully contributes and ensures top down buy-in to the programme. Surely with the complexity, emotional factors and likelihood for misunderstanding this extra effort is worthwhile?
Here in this follow-up I will submit my view on whom in suppliers should negotiate with corporations and how, as I can say from the outset that from what I saw this process is often flawed. If you put the wrong person in front of a professional buyer you deserve everything you get. By wrong person I mean anybody that is not researched, not empowered and lacks crucial client understanding. If a buyer does not know his own volumes or traveller behaviour they too will become unstuck. Obvious really but it is a starting point as so often these ‘givens’ are not evident.
Sales are the lifeblood of any supplier especially during times of diminished and uncertain market conditions yet you would be hard pressed to see much evidence of this. To survive and thrive you would need to be decisive, flexible and have the right attitude towards prospective customers yet I think I would find very few buyers who have observed these necessary traits in their negotiations.
Many travel suppliers (especially major airlines) still seem to think there is their way or no way. The old style still thrives where a supplier will create their strategy and programmes, drive it into their sales teams and say this is the only way people can buy from us. The sales folk then have to go out with minimal flexibility or authority and try to tell the customer why they will have to fit in with what the seller wants. Some of these sales folk are little more than front line ‘cannon fodder’.
I cannot see why a far more productive approach cannot be taken. If you are selling to a high volume senior corporation then you should send out someone of a comparable level with a full mandate to close the deal. That person should not have one type of programme but a range tailored for the differing types of customer out there. It is not rocket science but prospect customers should be researched to discover what their philosophies and missions are, what their previous issues have been and what their capability to deliver is. Elementary I know but it actually happens very rarely.
If I was a buyer the first thing I would do is examine my own company well. Granted the numbers are important but equally so are the levels of internal support, mandate and cross company delivery any negotiated programme is likely to get. If you do not do this any deal could end up compromised or possibly an unpopular, unproductive financial and political liability. As I have said before you may be thinking you are buying a commodity but it quickly becomes a service as soon as the contract ink dries.
I mentioned earlier that there should be a range of potential deals and services to choose from which should deliver increased volume to suppliers and lower prices to buyers. There are plenty of ideas out there but few seem to make it past the internal discussion phase. For example I cannot understand why there cannot be different day and time pricing on individual airline routes. If you looked at airlines flying between London and New York you would find some flights at specific times and dates are always full whilst others go half empty. Why not give your best price on the slack flights?
Airlines could also give bigger rewards to corporations who save them money. By this I mean better deals for corporations who book early and whose travellers always turn up. Why not give bonuses to corporations and travellers who do such things which enable suppliers to maximise their loads and reduce costs. It still puzzles the hell out of me that suppliers still seem to allow people to not turn up without penalty as it must cost them a fortune. What other industry would allow that?
So there you have some simplistic but hopefully logical thoughts and recommendations. Suppliers should be flexible and recognise the individuality of corporations whilst buyers should spend more time ensuring they can deliver their part of the bargain.
Here in this follow-up I will submit my view on whom in suppliers should negotiate with corporations and how, as I can say from the outset that from what I saw this process is often flawed. If you put the wrong person in front of a professional buyer you deserve everything you get. By wrong person I mean anybody that is not researched, not empowered and lacks crucial client understanding. If a buyer does not know his own volumes or traveller behaviour they too will become unstuck. Obvious really but it is a starting point as so often these ‘givens’ are not evident.
Sales are the lifeblood of any supplier especially during times of diminished and uncertain market conditions yet you would be hard pressed to see much evidence of this. To survive and thrive you would need to be decisive, flexible and have the right attitude towards prospective customers yet I think I would find very few buyers who have observed these necessary traits in their negotiations.
Many travel suppliers (especially major airlines) still seem to think there is their way or no way. The old style still thrives where a supplier will create their strategy and programmes, drive it into their sales teams and say this is the only way people can buy from us. The sales folk then have to go out with minimal flexibility or authority and try to tell the customer why they will have to fit in with what the seller wants. Some of these sales folk are little more than front line ‘cannon fodder’.
I cannot see why a far more productive approach cannot be taken. If you are selling to a high volume senior corporation then you should send out someone of a comparable level with a full mandate to close the deal. That person should not have one type of programme but a range tailored for the differing types of customer out there. It is not rocket science but prospect customers should be researched to discover what their philosophies and missions are, what their previous issues have been and what their capability to deliver is. Elementary I know but it actually happens very rarely.
If I was a buyer the first thing I would do is examine my own company well. Granted the numbers are important but equally so are the levels of internal support, mandate and cross company delivery any negotiated programme is likely to get. If you do not do this any deal could end up compromised or possibly an unpopular, unproductive financial and political liability. As I have said before you may be thinking you are buying a commodity but it quickly becomes a service as soon as the contract ink dries.
I mentioned earlier that there should be a range of potential deals and services to choose from which should deliver increased volume to suppliers and lower prices to buyers. There are plenty of ideas out there but few seem to make it past the internal discussion phase. For example I cannot understand why there cannot be different day and time pricing on individual airline routes. If you looked at airlines flying between London and New York you would find some flights at specific times and dates are always full whilst others go half empty. Why not give your best price on the slack flights?
Airlines could also give bigger rewards to corporations who save them money. By this I mean better deals for corporations who book early and whose travellers always turn up. Why not give bonuses to corporations and travellers who do such things which enable suppliers to maximise their loads and reduce costs. It still puzzles the hell out of me that suppliers still seem to allow people to not turn up without penalty as it must cost them a fortune. What other industry would allow that?
So there you have some simplistic but hopefully logical thoughts and recommendations. Suppliers should be flexible and recognise the individuality of corporations whilst buyers should spend more time ensuring they can deliver their part of the bargain.
Who should buy travel? (Part one)
This debate has rumbled on for a very long time and I expect it will continue particularly at this time of financial and strategic difficulty. Suppliers have to earn more and corporations have to pay less to achieve their recovery strategy so it has never been more important that the function in the middle of the pricing debate gets it right. If they don’t we will end up either with less products or fewer customers or perhaps both. The key reason for there being an impasse in this debate is there is no right answer for all the stakeholders. It very much depends on the flexibility, specialist knowledge and skills of individuals concerned.
It is not an easy subject to comment on without rubbing someone up the wrong way and getting called biased to one particular part of the supply chain. Although I was very much a TMC man I now feel I can look back more objectively and hopefully put forward some valid considerations to be taken into account. For example I do not believe this activity should be outsourced to a TMC in the current climate as they will be viewed sceptically by the suppliers and not have sufficient mandate within the corporation. It also has the potential of removing ongoing control of the programme, especially within large organisations and their global subsidiaries.
To understand the challenge and make an informed decision you have to know the key issues. I believe many of you know them so I hope you will bear with me while I ad my thoughts on them. Rather like buying most things the secret is to get the correct blend between quality of product and price. In the travel arena this is easier said than done especially when the product is either a commodity or a service and more likely both. In this environment the corporation needs to look closer at a) what exactly they want to buy and b) how they are going to manage the programme to maximum gain when it starts. A decision has to be made as to who in the company is suited to doing both jobs or if the project should be split into two parts. This is where it mainly goes wrong as one task naturally blends into the other.
If you put the TMC and outside consultants aside for a moment that really leaves just two functions which are procurement and the travel manager. One view is that a buyer is expert at buying a commodity and a travel manager is much better at controlling a service. Having seen both in action more times than I can remember it is very rare indeed to find one person who can lead both functions successfully as the skill –set is so different.
So there we have it. When a buyer says it should be their job they are probably as wrong as the travel manager who says it should be them. In my opinion there are only two alternatives. One is that you go out and find that rare breed of person who can both buy professionally and manage a complex service orientated project. After all travel is a commodity when you buy but turns into a service when you use it. The second option (and best in my opinion) is to form a triumvirate of a buyer, a travel manager and a leader who should be a senior board member with a strong mandate from his colleagues. All three should work together from concept to strategy to buying to delivery. This liaison should not stop at delivery but move forward to ensure disciplines and benefits are achieved.
What about the suppliers? Who should be negotiating what with whom?
I will put forward my views in part two but I can say now that I think it works pretty badly in general!
It is not an easy subject to comment on without rubbing someone up the wrong way and getting called biased to one particular part of the supply chain. Although I was very much a TMC man I now feel I can look back more objectively and hopefully put forward some valid considerations to be taken into account. For example I do not believe this activity should be outsourced to a TMC in the current climate as they will be viewed sceptically by the suppliers and not have sufficient mandate within the corporation. It also has the potential of removing ongoing control of the programme, especially within large organisations and their global subsidiaries.
To understand the challenge and make an informed decision you have to know the key issues. I believe many of you know them so I hope you will bear with me while I ad my thoughts on them. Rather like buying most things the secret is to get the correct blend between quality of product and price. In the travel arena this is easier said than done especially when the product is either a commodity or a service and more likely both. In this environment the corporation needs to look closer at a) what exactly they want to buy and b) how they are going to manage the programme to maximum gain when it starts. A decision has to be made as to who in the company is suited to doing both jobs or if the project should be split into two parts. This is where it mainly goes wrong as one task naturally blends into the other.
If you put the TMC and outside consultants aside for a moment that really leaves just two functions which are procurement and the travel manager. One view is that a buyer is expert at buying a commodity and a travel manager is much better at controlling a service. Having seen both in action more times than I can remember it is very rare indeed to find one person who can lead both functions successfully as the skill –set is so different.
So there we have it. When a buyer says it should be their job they are probably as wrong as the travel manager who says it should be them. In my opinion there are only two alternatives. One is that you go out and find that rare breed of person who can both buy professionally and manage a complex service orientated project. After all travel is a commodity when you buy but turns into a service when you use it. The second option (and best in my opinion) is to form a triumvirate of a buyer, a travel manager and a leader who should be a senior board member with a strong mandate from his colleagues. All three should work together from concept to strategy to buying to delivery. This liaison should not stop at delivery but move forward to ensure disciplines and benefits are achieved.
What about the suppliers? Who should be negotiating what with whom?
I will put forward my views in part two but I can say now that I think it works pretty badly in general!