Mature industry sectors often consolidate in ebbs and flows
with periods of high activity followed by periods of digestion. The larger
aggressor companies need a couple of years to assimilate the new businesses and
stabilize balance sheets. The TMC sector looks as if it might need a breather
at the moment. But I think the opposite is happening: Activity is accelerating.
It’s fueled by a renewed need for scale, necessitated by three main factors.
First,
the technology gap is doing a U-turn. When online booking tools and other
systems became expected deliverables from TMCs, large outfits had an initial
advantage. But as IT became cheaper and ubiquitous, every TMC could afford
systems good enough to compete, at least at the local level. Stage 2 has begun
and it is all about OBT globalization—universal crossborder booking systems. The
fastest developing mega-OBTs are either in-house or preferentially tied to
global TMCs. Amex GBT now runs KDS. CTM owns Lightning. Egencia and Tripactions
are TMCs themselves. Cytric largely lives off Amex GBT, BCD and CWT. Also, it
may be that the well-funded OBTs attached to large TMCs will win in the area of
seamless online T&E management, offering integrated AI-enhanced approval,
risk and expense management functions.
As the
percentage of bookings able to be made via OBTs heads towards 100 percent, the
terms that a TMC has for its OBT supply become a bigger determinant of its
profitability. Smaller TMCs are at an early disadvantage again, but this time
they might not have access to competitive OBTs soon enough or cheaply enough because
of the greater control large TMCs have over the next generation of OBTs. And
this time the financial impact will be greater because more bookings are being
made online.
The second and third factors are NDC-related. Surprise
surprise.
TMCs will have to spend serious money to connect with
NDC-based booking channels. Reintegration will be a cost, and it looks like
TMCs will have to foot the bill. If GDSs do the job (which seems to defeat the
airline industry’s purpose a bit), that cost will be passed onto TMCs anyway.
The cost of integration was historically subsidized by the airlines. And the
airlines are in the process of removing the subsidy. One way or another, this
will hit TMCs in the form of higher IT costs, again favoring large TMCs.
The third factor is a simple financial impact. In many
cases, NDC means that TMCs no longer receive substantial commissions from GDSs
in the form of segment fees, which have accounted for a third to a half of
their profitability. Large TMCs have been making background compensatory deals
with airlines to soften the impact. These are confidential, but given the lack
of complaint from major TMCs about the impact of NDC on GDS segment fee
revenue, the compensation must be reasonably generous. Small agents and TMCs
are not receiving the same level of transitional assistance, putting their
balance sheets under further strain, making them less competitive, and making
them more eager to sell up.
I thought at one stage that my three-factor consolidation
model might be a bit theoretical. It sounds good, but is it really happening? I
stopped worrying when I heard that a midsize U.S.-based TMC had been knocking
on doors trying to buy small mixed retail TMCs in Australia. The fish are
hungry and roaming far and wide.
My concern for travel buyers is this: The next season of TMC
consolidation could happen too quickly for the industry to maintain good
service levels. Takeovers can cause serious service disruption for the acquired
and the acquirers if not done well. This is true for any industry. It takes
resources, care and time. TMC services are quite fragile by nature, and would
be susceptible to internal distraction, indifference or interference.