Nobody Likes TMC Transaction Fees 

For the two decades leading up to early 1995, corporate travel agencies were able to win business account in large part on the basis of the rebate they were able to offer to their (larger) corporate clients. Demand for service and online booking tools were not as strong a consideration as cold-hard-cash.

As soon as commissions were reduced—then eliminated—by the airlines, travel agencies had to “flip” the model and rebrand themselves as travel management companies. 

That’s enough of a history lesson to explain why that model seemed to be fine for TMCs until we saw a significant change in transaction volume, first going back to 9/11 and more recently as a result of Covid-19.

There are a multitude of problems with the transaction-fee model. I will focus on three major areas: They have dual income streams, they are calculated by SWAG, and the fees are uniformly applied.

Dual Income Streams

BTN has reported on quotes from some of the largest global TMC executives, who have confirmed that the “majority of” earnings before interest, taxes, depreciation and amortization “comes from supplier revenues.” I commend them for their transparency, but that dependence means that passenger name records that don’t have robust supplier income contributions drive down TMC profits, and therefore drive up the TMC fee model.  

As an example, if the client company has a significant amount of net hotel rates, multiple chainwide hotel deals and a high unattached hotel rate, and corporate deals with all major carriers, that drives down TMC supplier income. The incumbent TMC knows the math; the bidding TMCs are guessing. (I will get back to that.)

Calculated by SWAG

I don’t mean the goodies you get at a trade show; it’s about the scientific wild-a** guess. 

As indicated above, bidding travel management companies have to estimate their supplier income as well as expenses to come up with a fixed transaction fee that applies across all categories of transactions—VIP, international and corporate, among others. The best way for the TMC to “protect themselves” is to raise the fees to a level that minimizes their miscalculations. That’s certainly not scientific!

Uniformly Applied Fees

Let’s use the following offline fees for illustrative purposes:

• $40 domestic

• $50 international

• $60 VIP

The premise of those three fees is that they require different agent skill sets, which means a higher-cost agent, and labor is upwards of 50 percent of the transaction cost. Sound fair? No, it sounds democratic.  

• Traveler A, call him Andy for any of the above personas, makes a round-trip JFK-LAX passenger name record and is out of town for four nights but doesn’t have a hotel booking made through the TMC.

• Traveler B, call her Beth for the same three personas, books the same dates but in business class and has a four-night stay at a commissionable (to the TMC) hotel rate.

The problem: In both cases Andy and Beth would be charged $40 for offline unless one or both are VIPs, and in that case each gets charged $60. The problem with that “averaging” is that Andy’s PNR has zero hotel segment, so no global distribution system segment income to the TMC, and no hotel commissions to the TMC. Beth’s booking on the other hand could potentially produce an additional $90 to the TMC; yet both get charged the same transaction fee! 

The application of a uniform transaction fee is unfair to both Andy and Beth. Andy is paying too little, and Beth is paying too much. What would make more sense to me is to make Andy pay a higher transaction fee because of the unattached hotel; at a minimum, that will drive behavior.

The bigger picture here is that the corporation is paying fees based on estimated averages, and the TMC carries labor costs to meet service-level agreements that are not sufficiently flexible to deal with significant “ups and downs” in a transaction-based model.

This dilemma can be solved by having a shift to an overall management fee, with transaction “fees” for PNRs that are out of policy. Charging the same fees to everyone is “democratic” but anything but scientific.