Can TMCs Really Influence Business?

Ever since airlines created travel agencies 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 illusions, 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!This post was republished with permission from the blog of former managing director of HRG UK Mike Platt.