The remuneration models of travel management companies lack transparency. This situation is not new. However, over the past five years the issue has grown more contentious. Previously travel managers were facilities manager.
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They were accustomed to and were more accepting of the industries? businesses practices. Now, the function of the travel manager is shifting into procurement?s area of responsibility. Procurement people are far less likely to accept the lack of clarity.
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TMCs often receive financial incentives from suppliers that are not disclosed to clients. These can take several forms. SMAs ? sales and marketing agreements with payments linked to activities provided by the TMC to promote the supplier. Overrides ? payments by a supplier to an agent as a reward for exceeding pre-agreed volumes. Commissions ? remuneration to an agent as a percentage of the value of product sold.
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This leads to suspicions from buyers that TMCs have higher profits than they claim. This debate led the ITM (Institute of Travel and Meetings), to start publishing a series of reports, beginning in 2009, into TMCs remuneration. It aimed to encourage greater disclosure from TMCs about costs, income sources and profit mark ups.
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The ITM also called for greater disclosure from buyers. It argued that a lack of information from the latter exacerbates the problem. Repeated booking changes and delaying of ticketing by company employees greatly increases the processing costs of TMC.
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However, this sort of information is rarely revealed to a TMC. They therefore cannot factor it into their costs when negotiating with procurement people. So they find that the costs of serving a client are much higher than they originally predicted. This encourages TMC?s to have multiple income streams as a safeguard.
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So what can buyers and companies do to encourage more openness? Having a strong business travel policy and enforcing it reduces their, and their TMC?s, costs. However the latter is still likely to resist greater openness; fearing that it will be used to push them into accepting lower profit margins.
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Full disclosure must come from both sides. It should be about relations with suppliers, costs and profit margins and companies? travel polices and the degree of compliance. This prevents either party from feeling they were taken advantage of.
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