Travel / Meetings / Incentives / Conferencing / Events
The truth behind low TMC fees
30 Sep 2018 - by
Some TMCs are offering very low fees, and in some cases, even zero fees. This despite being required to deliver more than ever before when it comes to systems and services to their clients. How can this be?
In a recent GBTA webinar, Tony O’Connor, ceo and founder of Airocheck, tackled this topic, as he noted a significant reduction in fee level and total cost of services from TMCs. “Even in some large tenders where the stakes were high, we’re seeing some incredibly low fees,” he pointed out.
Looking for explanations for the low fees being seen during tender processes, O’Connor considered several possibilities, such as falling operational costs, greater efficiencies, growth in commissions or the sinking of TMC profitability, but reached the conclusion that these were unlikely options.
Instead, he pointed out that travel buyers should be aware that TMCs could be turning to another revenue source, in the form of fare mark-ups. “Sometimes fare mark-ups get blended into discussions about commissions, but they are totally different,” he explained. “A fare mark-up is when a TMC arbitrarily adds an amount onto the fare level during the fare creation and quotations phases.”
“Fare mark-ups happen more often than people realise,” he warned, stating that it is often the result of buyers pushing too hard on commissions and fee reductions. He said if buyers continued down this path, they are likely to break the model and force the TMCs into something else that isn’t nearly as acceptable in the form of fare mark-ups. “They are very hard to detect, and the pendulum is swinging in that direction.”
He said that not only are fare mark-ups an uncontrollable increase on corporate travel costs, but it can also spread. “If one TMC marks up, then they can reduce their fees and therefore pressure other TMCs into following suit,” he added. This form of deriving revenue is also bad for the airline industry as it disrupts their pricing strategies and airlines lose business because their product is getting more expensive, which means they won’t sell as many flights, but won’t derive any additional income from that increase in fare.
When it comes to looking for the tell-tale signs, O’Connor says buyers should be hear warning bells if TMC fees are much lower than their competitors. Also, he says buyers should pay attention if their TMC offers them invoice terms – which is when TMCs offer to settle up at the end of the month for fees and travel expenditure, essentially acting as a bank.