Tuesday, 20 November 2012
OK, where was I? I had just explained the first major evolutionary development in the travel cycle which was the demise of airline commissions resulting in TMCs (Travel Agents) presenting bills to clients rather than incentive cheques. This resulted in sweeping changes in the major travel markets although some of the smaller airlines still paid commissions to remain competitive. In fact in some regions of the world this change is yet to happen. Some might think that companies would be 'up in arms' over the change but most welcomed it with open arms. You see, from a buyers perspective it is better to negotiate from a net price than a commodity that has built in add-ons already especially if you might consider some of them unnecessary. The key word here is commodity as it means the stripping of something to a base product that you can buy rather like drawing pins, washers or computers. Every buying decision is based on price,at least that was what they thought. At this time technology was moving on in leaps and bounds and many airlines recognised that here was an opportunity to sell direct to the traveler at prices and payments they could control. In the same way you could argue that airlines thought they could cut out (or at least not pay) the TMC middle man they could also identify a method of getting direct to the traveler. All change was viewed as progress and in most cases, it was. Except all progress releases a new set of challenges and this is particularly the case when talking travel development. Airlines had got what they wanted and so had travel buyers so what could go wrong? What went wrong was that little cost had gone away, it had just been deflected on to someone else. Who? Well in the main, the traveler was asked to pick up the tab as TMCs were able to prove themselves indispensable. Why indispensable? Why not book direct? It would be so easy for individual travelers to pick up the phone (or PC) and make their own arrangements. Quite so but many corporations had a different need altogether. That was the need for Travel Management. It may sound crazy but a travel booking is probably less than 10% of what a TMC does in the course of their activities. The rest is everything known a travel management. On the corporate list of travel essentials were such things as authorisation, booking changes, travel administration and billing/accounting. There is also a need to support preferred airlines that have offered discount prices based on minimum volume, The growing need for 24 hour traveler monitoring and support. What happens if there is a catastrophe somewhere? How and who gets your people out of there? These and more are essential requirements and none of them are free. So who pays? Not the airlines as they have moved to a commoditised net price. Not the TMC because they are actually providing the service. Not the corporation either. They have welcomed the shift in the payment cycle but are not internally constructed in a way to take on such a cost centrally. They have mainly moved to charging cost centres which means the traveler invariably picks it up. But hold on a minute. The traveler's primary interest is just 10% of all that. Why should they pay?.
And here we have the key issue troubling the industry at this time. Travelers ar looking at their budgets and saying that all the want or can afford is to make a simple booking and travel. Companies are saying OK, but use this TMC and pay their service charge. The traveller either does it grudgingly or more likely, books through a cheaper means that does not carry these overheads. If nothing goes wrong the traveler wins, at the cost to the TMC and, more importantly their employer.
Next time I will tell you about all those cheap (and not so cheap) fares out there.
Thursday, 15 November 2012
Traveling on business is vital to UKPLC and hopefully a pleasant, or passable experience. It takes people out of their everyday lives and awakens many emotions from pride and planning to disappointment and incredulity. Sometimes all of them. A booking and its associated journey does not just happen and there are a chain of stakeholders involved in every decision. The traveller needs to go to his company and justify the journey. The company usually goes to a TMC (travel agent) to make the booking and the TMC goes to the supplier who provides the end product. Simple? No. Far from it. Each of these players has their own brief, their own methods and, importantly, their own objectives and it is these important elements that few people truly understand. For most travellers it is straightforward. They want to travel at a sensible time, at a very competitive price and they want their tight budget to stretch across the whole year. They also hold a rational view that says why pay for something I can do quickly and cheaply myself. The company wants everything the traveller wants plus a lot more. They want a proper authorisation process and detailed total travel management control of the full booking process plus on-going support for travellers on the move. The TMC wants to do all these things as they depend on the travellers and their employers to pay for their services. They are constantly producing new products and services which they offer, at a price, to their existing and prospective clients. The suppliers? This is the area that has changed the most and the source of greatest ‘misunderstandings’. In the old days they collectively decided to build into their fares a provision for payment to TMCs to cover their expenses. As competition ramped up and new no frills airlines arrived they understandably decided this was a burden they could not carry any more. They set out to change the status quo and now most of the mainstream airlines do not subsidise TMC with commissions. As a result airline fares excluded agency payments and went down and the TMCs looked to their clients to pick up the tab for their cost. This is where the misunderstanding started. Airline costs went down so they were more competitive and they took on their new foe, the no frill carriers. TMCs went to their clients and told them that instead of sharing their commission with them they would now start submitting bills. You see in those days that is what TMCs did. They won clients based on how much commission they were prepared to ‘share’ with corporations. Now they were saying that it would not be subsidising corporate cost by providing a ‘free/profitable’ service but levying fees instead. But never mind because the airlines would be charging less to cover these ‘costs’. Companies had a problem. Travel was relatively low profile as its TMC management was often seen as a profit centre rather than the cost it had become. Many asked their procurement division to make sure they got the best deal out there and meanwhile set about trying to build in this new expense within its budgets. The traveller got a shock. Not only was he being wooed by no frills airlines with big marketing budgets but also being expected to pay a ‘handling’ charge to TMCs who were perceived as being unfriendly to these newcomers. It was not very clear that mainline airline fares had lowered and the value of TMCs were questioned in a much more searching way. Remember what the thinking traveller wanted? I do not think that paying a TMC for services that might not be directly relevant or of value to that person came in to it! What happened next? In my blog next week.