Guy Snelgar is global business travel director at the Advantage Travel Partnership, a consortium of business and leisure travel agencies responsible for more than £4.5 billion in sales annually
Developments in technology in recent years have made it far easier for suppliers to step away from those giant aggregators of travel content, the global distribution systems, and to explore their own avenues of how they want to distribute their products and services.
The API economy has created an environment where pretty much any system can, in theory, connect with another, and myriad different distribution channels and aggregators have emerged. It arguably started with the so-called web carriers selling only through their own websites and has since evolved to include hotel bedbanks, rail and ground transport providers, ancillary services and, most recently of course, NDC – New Distribution Capability. All of this content can ‘easily’ be accessed by any agent or online booking tool wanting to book those services and content.
More content from a wider range of suppliers is undoubtedly a positive for the industry. The booking of that content, however, was never the main issue – it’s everything that comes after it. From air ticket issue, application of preferred payment methods, setting up hotel billbacks or pre-payment, to car hire vouchers, itinerary and invoice generation, data capture and traveller tracking… the list goes on.
By standardising the way suppliers’ content was presented and processed by TMCs, some may claim the GDS have stifled the creative pricing and product marketing that those suppliers craved. What it did do, though, was to create an incredibly effective workflow which allowed these bookings to be automatically processed quickly, accurately, consistently and cheaply. That highly efficient, cost-effective fulfilment has been a major factor in the steady drive down of TMCs transaction fees.
Now, however, we have a more diverse range of content channels and with that comes a whole variety of capabilities and challenges for how those bookings can be completed, changed and processed. For example, air bookings made through a traditional GDS channel can be held for a defined period of time to allow trips to be confirmed or approval to be given, without losing the seat or the fare. Bookings made through web or low-cost carriers are generally instant purchase and therefore cannot be held.
For a TMC trying to deliver a smooth, simple and consistent travel booking process to corporate customers and their travellers, there is a now a sizeable amount of heavy lifting they are having to do in the background to ‘normalise’ all of this. There are further challenges as GDSs and airlines try to bill the TMC for creating the booking record that they need to issue for that trip and capture all the relevant company data associated with it.
The pandemic was a catalyst for major change as automated and online systems that relied on consistent, predictable content and processes became increasingly redundant. As travel returned, it needed human intervention. Travellers wanted reassurance and the regular changes to travel restrictions, supplier capacity and schedules meant bookings were frequently changed or cancelled. Some of the newer distribution channels were not able to support this as efficiently as the older, tried and tested methods. NDC, for example, does not support involuntary flight changes in the way the GDS used to.
Cue the four-hour phone call by the TMC to the airline to
change a ticket, at a time when staffing levels were under massive pressure!
Whilst those were extraordinary times, they highlighted an important fact: the content fragmentation that has come from many of these new channels has made the process of travel management significantly more difficult. The new distribution channels undoubtedly offer great potential for the way travel providers market, sell and price their products. They have the potential to offer much greater flexibility and personalisation and, in many ways, make it easier for new entrants into the distribution market. However, there is a long way to go.
Right now, much of the work is going into replicating functionality that already existed in legacy systems. Unsurprisingly, initial developments were concentrated on the front-end – the ability to engage with a customer to quote and sell a ticket – with the back-end functionality needed to fulfil and manage that booking taking a while to catch up.
The reality is that NDC cannot currently do a lot of things that the traditional GDS channels can – and don’t let anyone tell you otherwise. It will get there and, in my opinion, it is absolutely right that air distribution is moving in that direction, embracing what it can offer. But it will be a bumpy ride and corporates will need the expertise of TMCs to help manage that.
Which brings us to the bottom line – TMC fees. The technology and standardisation which enabled the growth of ‘touchless’ online bookings was fundamental in the steady drive down of transaction fees. As the proportion of trips that could be booked online – with limited or no human intervention – grew, TMCs were able to manage more bookings with fewer staff at the lower fees that many corporate clients were now demanding. The problem is that when something goes wrong – strikes, weather events, ash clouds, or a dreaded pandemic – it is not always possible to have the staff in place on telephone lines to handle the fallout.
Understandably, distribution cost is part of the drive by suppliers to move away from those legacy channels that they consider expensive. That then requires TMCs to invest more into the systems and manpower to manage that diverse content, often just moving that distribution cost onto the TMC, which can be a double-whammy as some of those GDS booking incentives also start to dwindle.
These increased costs are causing many TMCs to carry out serious analysis of which bookings and which customers are profitable for them. Certain booking types always had very slim margins – a cheap domestic or short-haul air ticket booked through an online tool with a very low transaction fee was only going to just about cover its costs. I know that many TMCs are reviewing not just their fees in the light of current inflation and rising staff costs, but the whole structure of what they charge for. It may no longer be financially viable to include unlimited booking changes that were previously covered by the initial transaction fee.
The fee model needs to be redefined to recognise where the work and system costs are incurred. In some cases that may even lead to corporate customers being told their business is no longer sustainable without a significant increase in fees.
As with so many areas, distribution in this post-pandemic world is still trying to find its ‘normal’. But I suspect there is a simple reality that will emerge: if we want to make travel content available that spans the whole range of suppliers, delivered through the distribution channels and technology that best suit the suppliers’ need to differentiate their diverse products, this is going to take cost and resource to present and manage it all in a standard way for the corporate customer.
If some of the costs of distribution are moving from the supplier to the booker while, simultaneously, more staff are required to manage the process and provide support in the event of disruption and difficulty, TMCs costs will rise significantly and, with them, so too the fees that they need to charge to corporate customers.