With the shutdown of corporate travel amid the Covid-19 pandemic exposing inherent weaknesses in prevailing transaction-based travel management pricing models, TMCs and their corporate clients alike are facing a reckoning, with both parties forced to re-evaluate not just pricing structures, but the very nature of the TMC-buyer relationship amid today’s corporate travel ecosystem.
The potential for change is particularly dynamic in the small and midsize business segment, where relatively nimble buyers and TMCs willing to explore alternative pricing structures and service models already have begun shaking things up.
The Pricing Paradox
Dominant in the market since the end of supplier commissions more than two decades ago, transaction pricing models worked great for TMCs with corporate travel going like gangbusters in recent years.
“TMCs like transaction-based pricing when travel is strong, and we would prefer to be paid at a fixed rate when travel transactions are low,” said Mike Cameron, CEO of Christopherson Business Travel. “Travel buyers have the opposite objectives.”
That dichotomy was vividly illustrated when the global Covid-19 outbreak brought travel to a screeching halt earlier this year. The sudden onset of the pandemic created two major problems for travel management companies; evaporating what had been a fast-flowing revenue stream, while opening the floodgate of demand for support to deal with cancellations, refunds and other services related to the Covid-induced chaos.
“We went through a period where we were experiencing extraordinary demand, but because of the limited number of new transactions, we were experiencing very limited revenue,” American Express Global Business Travel CEO Paul Abbott said of the period. “High demand and low revenue is not a great balance. I do think [the transaction-fee model] needs to be looked at.”
True to Abbott’s words, Amex GBT in late August said it would begin charging a “contact fee” whenever an agent provides services via phone or email to a client, but no booking transaction occurs.
But is solving a fee revenue problem by creating more fees the right solution?
Not according to AmTrav president and co-founder Craig Fichtelberg, whose TMC serves the SME segment and offers a per-employee subscription pricing model to its travel management clients.
“The per-transaction-fee model has scared away” many SMEs, Fichtelberg said—adding that such a structure “discourages users to use the TMC since every touchpoint results in additional fees.” By contrast, the subscription-based model Fichtelberg advocates incentivizes companies to use the platform, he noted.
“The more they use it, the lower the average fee per transaction becomes,” he said. “They will get the support they need… and not be penny-pinched for transaction fees along the way.”
But even subscription models aren’t immune to disruption; in the case of that pricing model, the risk is on the side of the buyer, who runs the chance of being on the hook for paying a set price each month, even in the event of a significant downturn in travel activity, such as was the case after Covid.
Patrick Linnihan, CEO of midmarket-focused Gant Travel, reported facing pushback from the travel management company’s relatively few clients who were on subscription pricing deals in the wake of the pandemic, causing Gant to pause a planned push to move more of its clients to the model.
“We were looking to move more in that direction, but we got tripped up [by Covid],” Linnihan said. “We [had] people coming back to us asking, ‘Now that we aren’t traveling, can we stop paying the subscription pricing?’ It’s really hard to win.”
Are pricing agreements between TMCs and their clients doomed to be simply a zero-sum game, with one party bound to hold the upper hand depending on the level of travel activity? Or is there a model that can be truly mutually beneficial, aligning both parties’ interests under all circumstances?
The SME segment offers some promising possibilities on that front, with solutions based upon fully embracing evolving conceptions around what value and services a TMC should bring to the table for its clients.
“As far as a TMC’s value to a corporation, booking is becoming an increasingly minimal part of that,” said Aash Shravah, general manager of midmarket-focused TMC JTB Business Travel. “We decided we want to solve bigger problems and that what we’re here for is not to book travel, but instead to provide services after the booking of travel.”
With that driving force in mind, JTB offers an initiative called Experience Zero, a fixed-fee pricing model that does away with transaction and traveler numbers-based pricing in favor of a flat management fee. Experience Zero’s pricing is holistic, based on overall travel volume and the “scope of services” a client wants, according to Shravah.
“If your volume goes up, we don’t automatically say, ‘You have to pay more.’ Of course, if a client has $1 million in travel and that goes up to $10 million, we’ll have a conversation.”
While a management-fee model isn’t new, it fell out of favor for what was considered the more transparent transaction-fee model, which itemizes all charges. This model, however, may be too cumbersome for the SME market, which has seen an uptick in subscription and all-in-one trip fee pricing in recent years.
JTB’s back-to-the-future move to flat-fee pricing wasn’t motivated by the Covid-19 pandemic—it has been offering the program for the past two years. But the structure helped buoy the TMC in the face of plummeting transaction volumes that have stung many transaction fee-reliant providers.
“We’re not in a bad shape with [revenue],” said Shravah. “We do have some clients still on a transaction-fee model—but by the end of the year, we don’t want to have a single customer on that model,” he said.
Otsuka America Pharmaceutical has used JTB’s fixed management-fee structure since signing on with the TMC more than a year ago.
The structure proved crucial to Otsuka’s management of Covid travel disruptions by ensuring resources were available to manage service calls. It remains critical to supporting a new company initiative aimed at facilitating the gradual resumption of travel in the wake of the pandemic, according to Danielle Amoroso, senior corporate travel and expense manager for Otsuka.
“That structure alone has helped us navigate [the pandemic] a lot better,” Amoroso said. “It also allows JTB to be able to keep our original staffing in place, so as soon as we were ready to bring the hotel pilot onboard, JTB had the staff ready to go.”
Shravah sees the model as much more than an elastic solution for Covid-era travel management. He sees it, instead, as a harbinger of an entirely new way of looking at how a travel management company serves its clients, including trips not booked with the agency of record.
JTB recently announced channel-agnostic trip servicing via its Open Choice program. Under the initiative, JTB provides support for bookings made through any channel, including online travel agencies or directly with suppliers. After a traveler books a trip, they forward the email itinerary to JTB, which subsequently provides services including trip disruption support and travel risk management—both expected to be increasingly high-value services in the post-Covid corporate travel environment.
“If you want to be true about where your value is, you have to say, ‘You can book wherever you want, and no matter how you booked we’ll still provide you with services like disruption assistance and global risk monitoring,’ ” Shravah noted. “So we’re giving companies the services they really value even though they book outside of JTB.” The management-fee model wraps a commercial value on that, with the added benefit of shielding the travel management company from transaction valleys.
“A lot of TMCs are [exploring flat-fee pricing] now because there are no bookings,” Shravah said. “We didn’t do it for that reason. We did it for the right reason, which is, ‘How do I take care of the traveler in the right way?’”