Race From Transaction Fees Remains Close to Starting Line

Travel management companies and consultants alike are expressing frustration that the needle has not moved too far away from transaction-based pricing, but they also are reporting success with some clients in pioneering new models, particularly those implementing more incremental changes.

Speaking in December at The Beat Live, BCD Travel president and CEO John Snyder said the TMC has seen “very little movement” away from transaction-fee models and said the lack of headway in changing the pricing structure was his “biggest frustration” since the onset of the Covid-19 pandemic. “I have huge regrets that we haven’t pushed harder, but we pushed pretty hard, and the customers have pushed back on us,” Snyder said.

Similarly, Flight Centre Travel Group chief experience officer John Morhous recently told BTN that he hasn’t seen any material shift to subscription-based models, noting that “there are different things happening, but this huge swell momentum shift … we haven’t seen that.”

Data from BTN’s survey shows a similar trend. Of TMCs surveyed, only about a quarter said they have fewer clients with transaction fee structures today than they did in 2019. Nearly two-thirds said there has been no change, and 9 percent said more clients have transaction-fee structures than before the pandemic.

On the buyer side, less than a quarter said their commercial structure with their TMC has changed since the pandemic, and 62 percent said they have a transaction-fee structure with their TMC. Only 2 percent said they had a subscription-fee model; 10 percent reported a management-fee model, and 12 percent had fully loaded pre-trip fee model.

Who’s to Blame?

Echoing what many TMC leaders have said over the past few years, Snyder said the pandemic has exposed “that the transaction pricing model was broken,” as TMCs were “not getting fairly compensated for the work they were doing.” As travel halted and transactions went into negative territory, Snyder said the TMC was thankful for “some great customers who stepped up and provided funding outside of transaction pricing agreements,” which were producing zero revenue. While he’s hopeful there never will be a long-term travel shutdown anytime soon, shorter-term shutdowns over the years—Sept. 11 and the 2010 Icelandic volcanic ash cloud, to name two—exposed similar weaknesses in transaction models.

Despite the proliferation of subscription models in other industries, however, it’s been difficult to persuade corporate customers to adopt them in travel, Snyder said.

“Everyone does in their personal lives everywhere: Netflix, Amazon,” he said. “Subscription pricing controls the world, but we can’t get out of that transaction mindset.”

The request-for-proposals process has been one stumbling block, CWT VP of finance Brady Jensen said. The traditional template is strict in pricing fields, requiring responding TMCs to fill them out in terms of transaction or management fees, he said, and offering other pricing options while remaining compliant is not easy. There has been progress there over the past year, he added.

“We’ve seen a bit of a shift in the RFPs, where the client is asking for a traditional transaction-fee model and wants to know how much they’ll be charged for after-hours calls and typical fees with ancillary services, but we’ve also seen them asking for what other models you have,” Jensen said. “I wouldn’t say every single RFP has that element, but the door has been opened to propose something that is outside of the traditional models.”

Snyder said some of the onus falls on consultants to convince corporations of the need to change. Jensen noted that the RFPs that were open to different pricing models tended to come from consultant-led processes as opposed to those led by non-consultant. Yet, consultants say they’ve had their own challenges in promoting subscription-based models, and they turned the finger of blame back toward TMCs. Responding to Snyder at The Beat Live, Festive Road managing partner Caroline Strachan said she has asked TMCs for “creative pricing” in “every single [request for proposals] we did since the start of the pandemic.” The vast majority of the time, the firm did not get a response to its request, she said.

“I think some of it is the mindset—some TMCs weren’t ready,” Strachan said.

Independent travel consultant Bex Deadman said she’s also seen slow movement from TMCs in shifting pricing models. One large U.K.-based client in particular, which has a mostly domestic travel program, was unhappy with their current TMC and the transaction model and didn’t understand what value they were getting out of it. When they tried to discuss the issue with the TMC, they were “unable to show innovation” in that area, Deadman said.

While non-transaction-based models make sense for TMCs on paper, actually implementing them is a more complicated process.

“It’s a big shift,” Deadman said. “They’ve built models and systems on current commercial models, and many suppliers are still in the transaction-fee models. Much like with [New Distribution Capability] and commissions, it’s taking them a long time to wake up.”

Adjusting the Offer

Both BCD and CWT say they have been polishing alternative pricing models to make them more attractive to corporate customers. Snyder said BCD has gotten “a lot of customers” under the “cost-plus” model, in which customers pay for direct expenses as well as a markup, and that model proved better for TMCs than traditional transaction-fee models during the pandemic.

CWT last May announced availability of a new subscription-fee model, in which clients pay a monthly fee that covers all services based on forecasted transactions and services needed, that it had been testing with select clients for about a year. As it presented that model to clients, however, the TMC heard a recurring issue, Jensen said. While clients liked the idea of having a clearer picture of how to budget for TMC costs—since they wouldn’t, for example, have to predict how many after-hours calls they will have in a year—they also did not have a central budget from which they could pay a subscription fee. They still needed fees at the point-of-sale so they could be associated with the respective budgets in their company, he said.

As such, CWT introduced what Jensen called “subscription fee version two,” in which clients pay an all-inclusive, standard global transaction fee at the point of sale.

“We’ve maintained the elements of simplicity and a highly bundled fee but have been able to offer this so that the travel departments aren’t trying to figure out how to pay a central invoice from a central budget,” Jensen said. “You’re not going to get charged separately for after-hours or other ancillary services; it’s an all-inclusive charge.”

CWT’s new subscription model, and especially the bundled transaction-fee version, has been most popular among its tech clients, Jensen said, likely because it resembles the traditional software or cloud-based pricing model. In a larger sense, it has tended to resonate more with large, multinational clients.

“The more complex and more countries a client is in, the more opportunity there is to simplify and do single billing in one country,” Jensen said.

Mark Walton, who was formerly with Options Travel and recently launched a new TMC, Solutions Travel, said he’s still seeing most clients ask for transaction fee models, though the traditional transaction fee model is “probably one that we would try to move away from as much as we can.” Clients have been accepting of per trip fees, which is easier to budget, as well as the “hybrid Corporate Travel Department Model,” which shows the revenues a company receives and the expenses that exist and then takes a portion of that net as a management fee

Success Stories

Consultants say they are making progress from the buyer end as well. Despite the low response rate from TMCs on alternative pricing models, Strachan said one client in particular has found success.

“We had to do something different, and we had to create transparency,” she said. “There were certain contractual clauses we had to create, but they are enjoying a very great relationship.”

Deadman said the client that was dissatisfied with the TMC has since launched a travel solutions tender—a microservices tender focused on risk management—that did not even allow a transaction fee as an option, opening it not only to TMC but also other travel service companies as well. Besides eschewing transaction fees, the client also stripped out the need for fare comparisons, with the reasoning that it is beyond the TMC’s control what airlines and hotels charge. 

“We really want to look at services, and that’s where TMCs can glaze over,” Deadman said. “At the end of the process, we think we’ll end up with a TMC, but the [service-level agreements and key performance indicators] will be different.”

Rather than traditional KPIs—whether the website is up or whether calls were answered, for example—the client will be interested in seeing how the TMC helped them travel better and, perhaps, traveled less. “Show us how to do it better, and we’ll incentivize them in how to do it,” she said.

Deadman said she expected the company’s progress ultimately could be a model for other companies. “This is the first tender I’ve written like this,” she said, “but it won’t be the last.”

CWT, meanwhile, recently signed its first client based outside of the U.S. to its original subscription model, which Jensen said boded well for further adoption.

“Now we’re getting that global reach and have educated internally as well, as internal training also takes time,” Jensen said. “We’re getting tentacles to folks outside of the original pilot, and we’re pretty confidant the word is getting out more globally.”