By Neil Hammond, GoldSpring Partner
We thought we'd take a check on how corporate travel managers are currently finding ways to make investments in their programs. It's been almost two decades since the airline commission cuts forced the TMCs to look more towards the clients for revenue.
Most TMCs today now operate on a model where almost half of their revenue is derived from client fees rather than supplier revenue. The fact that they are getting revenue from both sides is a subject for another day perhaps. For now, we will focus on the different methods clients are using to address these costs and make additional investments in their programs.
Our recent survey shows that 35 percent of managed travel programs fund their programs from an annual budget within a central procurement or travel function.
In other words, the company as a whole has accepted the overall ROI proposition of managed travel and prefers to keep it simple by paying out of one central budget. As well, they may wish to keep down the friction levels by hiding the investment costs directly from the end users.
That leaves 65 percent of programs that push the costs back to either the end user or their departments. The two main mechanisms are internal rebilling of the CONTACT US
costs that are paid from central budgets
(24 percent), and applications of the transaction
fee at point of sale (41 percent).
In terms of visibility, the former of these two methods allows department managers to see the fees, whilst the latter provides transparency and visibility all the way to the end user. The POS fee recovery mechanism is almost always used in conjunction with a corporate card program. This can incur some incremental merchant fees and even taxes accrued into the process.
In my experience as a buyer, I was always a fan of transparency in the process even though at times it lead to push back from end users as yet another gripe against the managed travel program. An opportunity I took full advantage of in the POS recovery mechanism was to adjust the fees to drive traveler behavior towards a more desired pattern.
I remember fixing the differential on the offline versus online fee charged to the end user at a much wider rate than the TMC's actual fees. The impact on online booking adoption was both significant and very immediate. All the cajoling and marketing efforts that we had engaged in up to that point resulted in marginal but hard-fought gains. Making the difference between desired and undesired behavior show up on a very visible fee provided overnight success.
It is worth mentioning that 30 percent of the programs using the POS recovery fee mechanism over recover on the fees intentionally. This means they recover more than the TMC invoices, thus providing a budget to make investments in other areas of the program. This revenue can cover internal costs, integration and implementation costs, investments in third-party technology and consultancy support.
We didn't see the impact of the corporate travel department (CTD) model or even limited hotel CTD methods register in our survey, although we know they are out there. We expect supplier commissions to rise in some cases in the current environment. Companies that have decided to capture the commissions directly will be seeing increases, particularly those that have devoted resources towards full recovery efforts. There will be a fight between TMCs and those clients over the revenue streams, but both may see some short-term benefit.
How does your program handle these issues? We’d be happy to talk to you in more detail about the best option that meets your needs for investing in your program for future success.