Tesla and Microsoft Are Looking For Corporate Travel Agencies to Adopt Customized Business Models

Some conversations just won’t go away, and that includes how travel management companies turn a profit.

The transaction fee is back under the microscope, and travel managers at Tesla and Microsoft have renewed calls for a shake-up.

In April’s peak lockdown, Skift raised the issue about why it’s time to reboot the corporate travel agency model as questions arose as to how these companies would survive an extended travel ban.

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Traditionally, an agency charges a company client a transaction fee for a business trip. They’re paying for booking the travel, but bundled into that fee comes all of the other agency-provided extras, such as traveler tracking, data reporting and more. Without those bookings, there’s still no revenue. “It’s going to have to be a hot topic going forward,” Dominic Short, president of the Association of Swiss Travel Management, told Skit at the time.

And four months on, yes it’s still a hot topic because the pandemic’s resurgence means most business trips are still on hold. In the past few weeks, many agency groups, like a lot of other travel industry companies, have been forced to make layoffs as furlough support comes to an end — with operations staff particularly impacted.

At Your Service?

“I was surprised not to see anyone with a pandemic backup plan. It’s not the first pandemic, but it’s the worst one so far,” said Steve Sitto, global head of travel and meetings at Tesla. “The agencies are figuring out how to pivot quickly, and course correct … Today, this should have been solved already. We find ourselves discussing different pricing measures and making sure the agency doesn’t go under.”

Speaking at WIN Global Travel Network and Hickory Global Partners’ recent ITMC Virtual event, Sitto added the current transaction fee structure wasn’t sustainable. His counterpart at Microsoft agreed.

“Something needs to change,” said Eric Bailey, global director travel, VenueSource and payment at Microsoft. Also speaking at the online event, he argued that while the transaction fee wasn’t working for the agency in a downturn, the subscription model — where a travel agency is paid on a regular basis regardless of the amount of bookings  — wouldn’t make sense for Microsoft either.

“That’s a model that right now is good for the travel management company, not so good for the corporate,” Bailey said, referring to subscriptions.

New models need to take into account the purpose of travel, as well as service definitions, some argue.

Microsoft’s Bailey said the industry could look to the cloud model, such as his company’s own computing service Azure platform, for inspiration. “It’s about consumption, usage and success. And you don’t pay if you don’t get success,” he said. “The value we are providing is not getting people on planes and in hotels. We have no need to do that. We need to look at the value of the trip.”

Video conferencing, for example, would now be considered more seriously if the end result was similar, such as an employee giving a speech at a conference. “The way we look at travel will change. It’s about productivity, connection, and meeting. If you don’t look at that, you go back to the same,” he added.

Tesla’s Sitto also asked questioned why hotels’ models have evolved from static, chain wide and then to dynamic pricing, but travel agencies had stayed where they were. “I don’t know if that’s driven by the big agencies that everyone follows when it comes to the pricing model? Or if it’s driven by commissions. But something needs to change for the travel management company to stay alive,” Sitto said.

Event moderator Paul Tilstone, managing partner at consultancy Festive Road, recalled how one agency was considering abandoning the concept of “owning the transaction”, because its job actually was to take the data feed to support the traveler, no matter where they booked it.

Bailey added that the greatest value an agency could provide is support on the ground.  “Having someone on the ground in China, Japan or India adds a lot of value. It’s not just data, but having someone help interpret the data,” he said.

Tesla’s Sitto said he valued the ability of an agency to optimize the Concur booking and expense platform for his company, for example, because that was expertise he didn’t have in-house.

Should the definition of good service be based on traveler sentiment, Tilstone asked. Could an agency be paid on the basis of how happy employees are when on the road?

The Future Is Customized

The future debate may need to revolve around company culture, one consultant has argued, because the broad-brush approach isn’t working.

When it comes to measuring traveler happiness, forward-thinking companies like Microsoft and Tesla could do this, said Dan Raine, founder at Unlocked Data. “But if you’re dealing with government travel, for example, the procurement people don’t care what the traveler’s experience is. They’re removed from them,” he added.

Raine has 16 years’ travel agency experience, with two years recently spent as director of strategy and development at American Express Global Business Travel, before he set up his travel consultancy in April.

He said that 20 years ago, the average revenue from a booking was $30 to $50.
Today, with online booking and a more price-competitive environment, it’s dropped to $10 per transaction.

“The revenue model has changed over the years, with a greater focus on supplier revenues at the expense of customer revenues. If the aviation industry is struggling, they’re not going to be in a position cutting the big checks to the agencies that they were,” Raine said.

This reduction in supplier commission may be the final straw that pushes agencies to rethink their models.

As the meetings sector looks to the hybrid model, blending physical and virtual events, so too should agencies start mixing their models.

Microsoft’s Bailey is suggesting agencies will adopt customized pricing for each account, in the future.

Festive Road’s Tilstone also advocated agencies could put in place a “business unusual” pricing structure, on top of a “business as usual” structure. “(Corporates) could swallow a fee for heightened activity for three or four weeks, and then see that come down,” he said, “like turning on a generator when the electricity goes out.”

A new take on technology is also needed to help improve service.

“Service used to mean putting people on the phone,” said Raine. “But that’s always going to be unaffordable. The answer is technology. Part of the service is being able to put more of that data into the hands of the traveler, why they’re being asked to do certain things, what their options might be. It’s not about how quickly the agency can pick up the phone … There’s an opportunity to change, and the agency world will look different.”

The conversation isn’t over, but does need to end soon.

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