Craig Fichtelberg, co-founder and president of Chicago-area AmTrav, discusses the pitfalls of fee-based TMC pricing and the opportunities in switching to a subscription model.
Travel management company pricing has become stale and outdated. The fee-per-transaction model surfaced 20 years ago when the airlines cut commissions. The industry's knee-jerk reaction to offset the lost revenue was to charge a fee for each transaction. Over the years, that one fee has multiplied into a nauseating fee menu. A booking may start with a simple $9 online fee, but as the trip progresses the fees quickly accumulate, and what started as a $9 fee could end up at hundreds of dollars. Today there are change fees, after-hour fees, hotel/car-only fees, offline fees, prepaid hotel fees, international fees, VIP fees, upgrade fees, expense management fees, reporting fees and soon there will be open-booking fees. The list goes on and on. At a time when new business travel models are surfacing, designed to pull travelers away from their TMC, the industry needs a more traveler-centric pricing model that provides a better incentive for travelers to stay with their TMC.
Enter the subscription model.
Imagine a scenario in which the company pays a fixed amount per traveler per month. The more the traveler uses the TMC, the more the company maximizes its monthly subscription value. Gone would be the days of booking away from the TMC to try and reduce company costs at the expense of service. The tides would be turned.
The benefits extend well beyond the obvious cost savings. A monthly fee per traveler eliminates an enormous administrative headache for both the traveler and the company. At some point, the multitude of fees for a trip need to be accounted for. In a subscription model these fees disappear. The company would account for the TMC cost once per month and the travelers would not have to concern themselves with any fees on credit card statements or expense reports__a huge economic savings. TMCs should be looking to simplify travel and reduce costs, not further complicate travel with the administrative nightmare associated with reconciling so many fees.
The TMC also benefits from subscription model pricing. Most obvious, invoicing each trip is dramatically simplified. The same fees that the traveler and company need to reconcile, the TMC needs to charge. Billing would be straightforward, simple and done once a month. Second, a TMC could package services into different monthly pricing bundles and allow companies to self-select the package that best fits their needs. Third, with TMC fees clearly separated from vendor charges it will be much easier for a TMC to justify their value by comparing savings through vendor contracts and travel policy to their monthly fee.
But most importantly, the subscription model addresses a challenge in the marketplace today that threatens the existence of the TMC model. Naysayers claim that travelers are better off booking outside of the TMC channel. But business travelers need service and support that they are not getting going direct. The current transaction-fee model discourages travelers from booking with a TMC. A subscription fee changes the traveler incentives. The door that the TMC has been slowly closing on their travelers is now wide open, and everyone benefits.