It's time to make important decisions about your partnerships with airlines, hotels and travel management companies.
Covid has changed everything, and vendor relationships in corporate travel are no exception. On the one hand your company is almost certainly travelling far less than before the crisis. Therefore you are spending less than budgeted with contracted travel suppliers and service providers such as travel management companies. On the other hand, when your people do travel, you need better care for them than ever, so it is critical to have viable partners to provide these essential services.
As a result, the dynamics between travel suppliers and their corporate customers are changing quickly, and there are some urgent questions to answer for buyers. Here are three of the most important supplier relation issues you need to deal with now.
How do I protect against travel partner failures?
Travel management companies
The travel industry is in serious trouble. The most recent figures from the International Air Transport Association show passenger demand in July 2020 was 80 per cent below the same month in 2019. At this drastically reduced level, the future of all travel partners cannot be assured.
TMCs are vital for many tasks including managing pre-trip approval processes, providing guidance on destination requirements and chasing refunds for cancelled flights
“We have virtual meetings every month with the TMCs we are using around the world to check how they are doing,” says TravelpoolEurope managing director Søren Schødt. “We also monitor very carefully how efficiently our TMCs are fulfilling reservations and delivering services. You can never be 100 per cent certain but we think we would detect the signs if any of them was in serious trouble. However, we have also developed short-term and long-term contingency plans in case there is a failure.”
Carriers are burning cash fast and some have already come close to failure. Try to help your preferred airline suppliers by giving them as much of your business as possible, but identify alternatives you can introduce at short notice if necessary.
Review your airline payment methods as well. At a difficult time like this, card is the safest option because you can initiate a chargeback through your issuer if the airline fails. However, make double-sure that chargebacks are allowed under the card product you using.
Some hotels have closed during the pandemic and it is not clear whether they will re-open. Fortunately, there are normally alternative properties, though less so outside larger cities. Once again, try to help your preferred hotel suppliers, for example by exploring longer contracts or pledging to use them for conferences as well as regular stays.
Do I need to review my fee structure with my TMC?
A major headache for TMCs has been the inadequacy during the pandemic of some client fee structures that worked well for them during normal times. In particular, TMCs’ revenues plummet if they rely on earning a fee per transaction at a time when few new transactions are taking place, yet they are having to handle extra unpaid tasks like cancellations or refunds. “TMCs are having to do more work for less revenue,” says Schødt.
There has been much discussion in the business travel press about moving to subscription fees. Under this arrangement, the client pays the TMC a regular amount to cover all services, even if there is no travel. It guarantees a regular, up-front income for the TMC at reduced risk. In return, the client might expect to pay less because the risk premium has been removed.
Introducing a subscription fee is not straightforward for clients. While transaction fees can be passed on internally to budget-holders, subscription fees have to be paid centrally, perhaps funded by an internal re-charge . That may prove unpopular, especially with departments which have paused all or most of their travel.
However, contributing to a subscription fee might prove more acceptable than the alternative methods TMCs have been using to recover income. These have included introducing charges for communicating with account managers and running data reports.
Do I need to change my hotel and air agreements?
In normal times, companies negotiate deals with hotels, airlines and other preferred travel vendors based on historic booking and spend data.
Coronavirus has changed that. “It is difficult to have normal sourcing procedures because there has been no volume in 2020,” says Schødt. With both the epidemiological and economic outlook completely uncertain, neither buyers nor suppliers can make reasonable forecasts for how many reservations corporate customers will make in 2021.
In the absence of reliable information, TravelpoolEurope has decided to keep its supplier agreements as they are. “We aim to extend our 2020 contracts, which were based on 2019 data, with no changes,” says Schødt.
However, to make sure members never pay too much, TravelpoolEurope is also introducing robotics which constantly review hotel and air bookings to see if a better price becomes available on the open market after the initial reservation. If that happens, the original booking is cancelled and a new one made. This strategy makes the negotiated price the maximum the traveller will pay.
Schødt believes that extending 2020 agreements into 2021 is the fairest solution for both sides. “We cannot pressurise hotels to give us lower negotiated rates because we have no volume to pressurise them with,” he says. “We are finding that suppliers are accepting the extension, even though we didn’t meet our contracted volume requirements for 2020, because demand is so low and they want to retain our business. We have worked with a lot of our suppliers for many years, and both sides want to keep those good relationships.”
The TravelpoolEurope perspective – The conversation is just beginning
The dominant theme right now in corporate travel buyer-supplier relationships is continuity. Buyers need continuity of service, especially from TMCs, whose support is so important when every business trip has become a major logistical undertaking. Suppliers and service providers want continuity of income so they can keep operating.
After that will come a second phase as companies re-consider their entire travel programmes and how that changes the way they work with suppliers and service providers. For example, if a business is travelling less than in the past, it will have less buying power to strike favourable deals with airlines, hotels and TMCs. That could be a good moment to consider a travel purchasing consortium like TravelpoolEurope, which harnesses the collective strength of many different companies to leverage the best terms with vendors.