The onslaught of Covid-19 has been relentless. Air Travel has taken its mightiest blow ever in the history of post-war Civil Aviation. It created an almost complete lockdown for the Industry in terms of International Travel. The good news is that all of these effects will peak, and eventually when they find the vaccine, disappear. Post Covid-19 challenges will impact Travel Management Companies.
The blow the phenomenon has dealt the Travel Industry and many other businesses around the world, has no parallel. It has already changed the Business completely. Even as Airline heads are looking at a revival on their drawing boards, we know that Covid-19 has changed the face of travel forever.
As Airlines, orchestrate the relaunching of services, Travel Management Companies (TMC), are reviewing everything from staffing upwards. They are studying their operating costs. What will resurface from the depths of the disaster will be a different, more efficient, and cohesive Industry.
Post Covid-19 – Reviewing TMC Operating Costs
Ever since the withdrawal of Airline Commissions, TMCs have had to resort to charging their clients a fee. No fee structure in any service-oriented business will hold unless charges can be justified. Any service provider, anywhere in the world, will be able to charge a fee if they add value to the process chain they are involved in.
Wherever the TMC spends time in providing a service that as a net result, is appreciated by the client, the charged fees will be gladly paid. Several years ago the Travel Agent and all TMCs had to invent their fee structure. They had arrived at their fees just like a professional doctor or a lawyer, would charge his client. Or, had they?
In my personal experience, many clients did not agree that the payment was commensurate with the service they received. Was the client right? The response I would volunteer would be, “Yes and No!” Let me explain: from the TMC perspective, they were perfectly justified; from the client’s point of view, they were not.
This situation led to a constant tussle between client procurement departments and the TMC. At every business review, the clients wanted to drive costs down. They wanted to lower the Transaction Fee. Some TMCs managed that battle well; others found it a major challenge.
The Post Covid-19 Travel Scenario
Reviewing the post-Covid-19 scenario from the TMC perspective, there are critical areas that will need to be modified to stay afloat. These are mainly, Travel Operations, Account Management, and Financial Management Information Reporting. I would like to discuss them with you one by one. Let us start with Travel Operations.
Travel Operations is manpower intensive; it is the area where a TMC places the bulk of their staff. It is this important area which interacts on a daily basis with client Travel Bookers, and where client bookings come in. They are processed and E-tickets are issued. The post COVID-19 situation will not allow TMCs to continue with pre-Covid-19 staffing levels unless the client is willing to pay for additional manpower.
It is important for the TMC management to know exactly what the cost of production is, before they can price the product accurately. This is an area where many TMCs and Travel Agents fail. They do not know for sure, how much time is required to process a Travel booking. It is indeed one of the most difficult areas in the process chain to measure because the time required to execute a booking depends on the business culture (an intangible factor), of the client.
Clients who make many changes to an itinerary before it is ticketed, need to be prepared to pay higher Transaction fees. It is as simple as that. On the TMC side, they need to be able to measure the time spent on each booking.
Most TMCs do not bother, because it involves several elements: telephone and email communications, time spent on the Booking systems, changes made etc. Manual measurement is labour-intensive; but, the process has to be measured. Once these factors are measured, the TMC will be in a better position to review pricing.
Some of the Travel Advisors can also work from home offices. Staff clocking in and productivity can be measured through Information Technology programmes today. This will save on office space and of course rental costs.
I would ensure also that the client gets involved in the process of creating Company and Traveller Profiles on the GDS. This can be handled through a feed from the client’s Human Resource Management System with further additional input coming in from the actual traveller. All of this will only need to be done at the time of implementation of a client account. After that only changes in preferences may need to be updated as and when they happen. In the Arabian Gulf, some TMCs already use such processes well. Most however don’t, and this is an area where total change will have to come in.
Self Booking Tools
In most client service situation, in the post Covid-19 situation, I would push Self Booking Tools (SBT), available through Global Distribution Systems (GDS), companies. Utilising the easy-to-use tools, corporate travellers can make their own bookings, and even issue their own tickets.
In the case of some companies, they may wish to leave fulfilment (the process of issuing the E-Ticket), to the TMC. This scenario will then make way for Menu Pricing. I will handle the subject separately. The utilisation of SBTs would drive manpower costs down for the TMC.
Client Services Implementation
I refer to the process of migrating a client from the competition, to a newly selected Travel Management Company, as Client Services Implementation. This can be handled with Sales and Operational personnel at Middle Management levels. Account Management staff need only to get involved for larger accounts. Meticulous planning, client implementation presentations, and effective execution are necessary to make the transition smooth and error-free.
Client Account Management
In the Arabian Gulf, it had become the norm for all TMCs and even Travel Agents to provide Account Management to clients. This, for Travel companies, is an expensive service to offer. I would eliminate Account Management for any client (in the Gulf business environment), whose total Air Travel spend is less than US$ 1 Million per annum.
Clients with a lower level of spend than the stated amount can have their non-operational issues looked after by the Operations Supervisor from a Business Travel Centre. They can, of course, have an online annual business review using one of the many video conferencing applications available. This approach will reduce the number of staff involved in Account Management.
In modern business environments, it is not necessary for TMCs to provide their clients with credit. Corporates should really purchase their Travel through a Travel purchasing card issued by a credit card company. They will get a rolling 30 days’ credit, and additionally, free Travel Insurance for their travellers. The clients will also get excellent Management Information Reports from the Credit Card company. Once this is done, the TMC does not need to have any staff in their Finance Department spending time with Credit Control activities. The payment solution will also make it easier for the TMCs to handle airline payments.
Financial Systems And Reporting
Many GDS companies today also provide mid and back-office systems. The ticketing data is automatically captured and sent off in different directions, including the Billing Settlement Plan (BSP) Office which will handle payments to be made to the different Airlines. Using such available IT solutions and modifying them to suit local needs will minimise staffing numbers in Finance Departments. With regard to Office location, the finance team can also work from home offices, using online IT systems and thus help in reducing rental costs. There really is no need to have an onsite finance team occupying prime and expensive real-estate.
The Travel Industry jumped on to Information Technology (IT) pretty early in their mechanisation process. The Industry has tried to take advantage of every development in Technology. Development however, has been in silos due to the different service providers involved in the business. Airlines developed their own. The advent of the GDS saw some integration in the process of booking Air, Hotel, Ground arrangements, Car rentals and fulfilment.
They have been working on financial reporting. The big gap lies in the TMC management area, special corporate deals and pulling it all together. The larger companies have tried to use their own Intranets to fill in the gaps, but total effective management for TMCs through IT systems has some way to go. Programmes that handle efficiencies need to be brought in to measure, coordinate and report on the total TMC business. Artificial Intelligence (AI) and Robotics will also have to play an increasing role in the business of Corporate Travel Management. To read my post on AI in Business Travel, please click here.
I would personally go for Menu Pricing. It is for me the means to achieving a profitable bottom-line objective. Each client would receive a ‘Price List’ that details charges as per the service configuration of the client’s needs. The rationale of charges will indeed be: the more time involved in processing and managing the Travel account, the higher the fees.
I would also bundle some of the fee structure. For example, Air Booking with two changes, hotel and car hire: fee of $XX. Only Air booking: $XX. Only Hotel: $XX. Changes: $XX. You may ask, “How will you record all this?” It is possible through scripting processes with the assistance of the GDS and other software for Email applications.
It is obvious that TMCs will have to flatten the pyramid. They cannot afford to have too many senior managers. Middle Management will have to be adequately empowered for the smooth functioning of the business.
The Way Forward
Coming out of Covid-19, the profitability of TMCs will involve a reduction of manpower. In my opinion, between 20 to 25% of the current staff will have to go. Click here to read my post on the future shape of TMCs that will create more effective Travel Businesses. The Industry will have to shrink before it can expand once again. It is inevitable that some staff will quit the industry altogether. Their exit will become an integral part of the recovery process.
It will be a good 18 to 24 months before TMCs commence any Human Resources expansion plans again. Travel Management Companies have no option but to change. They will need to reduce manpower to become more financially stable.
The process of change will have to be handled through a dialogue with clients and other service providers involved in the business.
Information Technology will have to play a larger role right across the entire gamut of Corporate Travel Management. While there will always be a select few brick-and-mortar boutique Travel operations, the bulk of the business will have to become leaner and more automated, for greater success.
Post Covid-19 TMC Restructuring – FAQs
Why are Travel Management Companies’ (TMC) costs high?
The Travel Management Company (TMC) Business is manpower intensive which in turn, comes back to clients as additional costs, especially to those corporates who make a lot of changes to their travel itineraries.
How can a Travel Management Company (TMC) reduce its costs?
The principal answer to a Travel Management Company’s cost reduction quest will lie in Information Technology (IT). They will need to create/modify applications to deliver to the Industry’s objectives. It is important to automate the process from start to finish.
What are Self Booking Tools (SBT)?
Self Booking Tools are reservation systems using which a traveller can make his or her own bookings using an online computer system that will result in creating airline, hotel and car-hire bookings for an intended business trip and will be routed to the appointed Travel Management Company through Information Technology.
Is Client Services Implementation a process that is necessary in handling Business Travel?
The short answer is, “Yes.” Client Services Implementation is an integral part of how a Travel Management Company (TMC), activates the process of Travel purchasing of a new client, through their own services. The implementation will iron out all the kinks that may exist in historical processes the corporate client may have become used to.
Is Client Account Management necessary for all Corporate Travel Accounts?
Client Account Management will not be required for smaller client accounts. Such accounts can be handled directly from the Operations area of a Travel Management Company (TMC).
Will a Travel Management Company provide financial credit to handle the process of Travel procurement?
A Travel Management Company (TMC) cannot function as a Bank as well. Travel procurement is best handled through purchasing cards issued by Credit Card companies.
Are Travel Management Information Reports (MIR) really important?
Yes. They are important when it comes to reviewing expenditure and orchestrating savings. A Travel Management Company (TMC) will be able to dice the information from many angles making an investigation really worthwhile. The Global Distribution System (GDS) used by a TMC will be able to provide a variety of Management Information Reports.
Is it possible to negotiate the pricing of the Travel Management service?
It is possible to negotiate the pricing of the Travel service. The corporate account will however always have to pay for the service they chart out, in conjunctions with the TMC. Touch-less services will cost the least. Comprehensive human interaction during the whole process of Travel procurement will cost the highest.
Updated 26 August 2023 © Mano Chandra Dhas
Note – Should you have any comments or queries, please use the comment box below. I will respond to every comment within a reasonable period of time. I’d be happy if you share this article with contacts of yours who may be interested, or benefit from its contents. Please use one of the Social Media share buttons below. Please subscribe to my blog: it is free and you will never miss a post!