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BBT July/August 2018
July/August 2018
For Business, Corporate Travel & Meeting Buyers & Arrangers

Analysis: distribution evolution

Distribution evolution

The latest developments in airline booking highlight how TMCs must get smarter to ride the storm, says Mark Frary

Travel management companies are a dynamic bunch. No, really. When you think of the ground-shifting changes that have been thrown at them in the past couple of decades, it is amazing that so many are not just still in business, but actively thriving. The loss of airline commissions and the advent of the internet are just two of the threats they have faced and come through the other side.

Will the same be the case with the rapidly changing distribution landscape – and if so, what will the future TMC look like? The potential threats to TMCs come in the shape of the New Distribution Capability (NDC) – the IATA (International Air Transport Association) standard that promises to allow airlines to sell a wider and richer range of content and direct connects, distribution pipes that link airlines and corporations with little or no influence from traditional intermediaries.

“You cannot continue to put sticking plasters over the cracks that are appearing,” says Paul Tilstone, partner at consultancy Festive Road. “It is time for TMCs to fundamentally rethink what they do and how they do it.”

The continuing health of the TMC has been questioned, particularly in light of British Airways’ recent announcement of a so-called Distribution Technology Charge of £8 per fare component for bookings made outside “an NDC-based connection, or other low-cost channels” and due in November.

Ken McLeod, director of industry affairs at the Advantage Travel Partnership consortium, says that while BA’s distribution technology charge was expected, the timing was “not the best”, referring to the worldwide IT outage the airline suffered in May.

“It ended up with travel agents trying to get BA out of a hole just as they are being asked to pay more, which is bizarre,” says McLeod. “One of the challenges for TMCs is they have built models around GDS [global distribution system] technology. To change that takes time and money. BA says it will institute its charge on November 1. That’s not a long period in the technical world.”

British Airways’ charges
The GDSs are understandably concerned about BA’s move and its effect on TMCs (read the view from Amadeus).

“We regret that British Airways and Iberia are imposing what looks like the equivalent of a travel agency APD, seeking to penalise consumers who enjoy the benefits of choice, efficiency and value by booking through the travel agency medium,” says Paul Broughton, Travelport’s regional managing director for the UK and Ireland.

“We remain fully engaged with British Airways and Iberia to work in good faith on mechanisms to connect with travel agencies and travellers, including the integration into our system of their content through their API – when it is fully functioning – just as we have done with other airlines.

“Connecting to multiple direct connects is time-consuming and inefficient,” argues Broughton. “Many have few similarities between their standards, which reduces the relevant content and drives inefficiencies to the TMCs.”

That said, some TMCs are looking at changing the way they operate, notably HRG .Advantage’s McLeod says that “the big boys” – ie, the large TMCs – can throw money at the problem “but eventually the cost will get through to the corporate or consumer. It’s a bit like the White House and the Mexican wall.”

For the GDSs and TMCs though, the importance of existing TMC workflows cannot be underestimated. “Our technology automates the agency workflow for the TMC and is the means by which multiple sources of content are integrated into what the corporate traveller buys – a trip,” says Broughton. “It is the means by which changes to itineraries are synchronised across all parts of the itinerary, and the means by which the crucial data that TMCs rely on for their reports to their clients and their internal management is generated.”

Pat McDonagh is CEO of Clarity Travel Management, which announced, along with Click Travel, the creation of NDC-enabled direct connects with Lufthansa in April. He says: “If NDC is delivered without the GDS, how do you make sure the workflows within the TMC are efficient enough to ensure you can offer the pricing the client is looking for from a transaction fee?

“We have a choice. You can say it was much easier when things were all done through the GDS, or we can look at what this means and be part of the early stages of adoption of things like NDC and direct connect, and see how it is going to work. It might be that it doesn’t work without the GDS.”

Content is king
There is an argument that GDSs have already begun moving along the road towards NDC or offering a NDC-like range of rich content. “All of the GDSs, in some form or another, are embracing API distribution, personalisation and merchandising, and they recognise that content is king,” says Tilstone. “If they don’t have the right content, what are they to anyone?”

Travelport’s Broughton says: “Any so-called ‘direct connect’ can be managed through our platform in the same workflow. Booking travel has changed significantly over the years. The TMCs have asked us to deliver the broadest and most relevant content for their business and end-user corporate travellers.

“They expect us to be able to aggregate content from multiple sources: ATPCO (the Airline Tariff Publishing Company), direct connect and NDC, and to normalise and present this wide content through our platform to provide access for their needs.”

Travelport is not anti-change, says Broughton. “Done correctly, intelligent automation will help drive high travel performance to free up more travel consultancy time to do value added work. Data and analytics can also serve up much more relevant content to mobile apps, while delivering content in a way that matches the change in traveller shopping.

And all of this, in terms of mobile, data and analytics, improved personalisation and intelligent automation, is going to require even tighter alignment between TMCs and their technology providers if TMCs are going to address and capitalise on the opportunities ahead of them.”

Festive Road’s Tilstone believes that even though TMCs have survived external influences such as 9/11, self-booking tools and the rise of procurement, they are facing a grave threat now. “I do think this is a more fundamental moment with all of those forces coming to a head,” he says. “It is a challenging time for TMCs, but also a huge opportunity for them to start differentiating themselves.”

Clarity’s McDonagh argues: “Things evolve. The industry dealt with the removal of commissions and moved to a transaction fee model. As the TMC does more consultancy work and clients realise the value for that, there will be a willingness to pay, but the customer has to see a return on investment.”

Role of buyers
Buyers will be crucial in this new operating model. “They are in as much of an information-gathering mode as their TMCs at this stage,” says Tilstone. “TMCs can work with buyers and design their future roles together. It takes a certain mindset, investment and time.”

While Lufthansa Group and British Airways have started levying distribution charges, what does it mean for TMCs booking with other airlines?

“If you are a big company and you do the vast majority of your bookings through direct connects [with Lufthansa and BA], that affects your relationship with the GDS. It puts the whole commercial model on a different level,” says McLeod.

If they do not make money on bookings with Lufthansa and BA, it is clear that GDSs may have to put up the costs for other airlines, which may force the issue.

On the other side of the coin, this may affect the GDS incentive payments. “Any TMC that relies on income from GDS sector payments is not being run in a sustainable fashion and that may come home to roost,” says Clarity’s McDonagh.

However, Travelport’s Broughton says that, at least currently, changes to the present structure of GDS incentive payments to TMCs are “unlikely”.

Tilstone believes not all TMCs will survive these changes. “A number of TMCs have got caught in a commoditised game of who can get lowest pricing and no other way to demonstrate value.”

Tilstone adds, “For the owner-managed TMC who started 35 years ago, say, does he or she have an appetite to fundamentally change what they do? Probably not. Are they making reasonable money at the moment? Probably. What they will do is then sell to another TMC at a later stage.”

Ken McLeod, on returning from IATA’s recent Business Travel Summit on NDC, was clear on one thing. “Actually, nobody knows where this is going to end up.” 

The future shape of the large TMC
In a recent investor presentation, HRG outlined a vision for the future of the corporate travel market.

The company said that the market today was siloed, and characterised by market-specific GDSs, limited direct connects, lengthy compliance processes, and slow and inconsistent data and reporting.

Its vision is one in which the TMC aggregates rich content and offers from a range of GDSs and direct connections and presents this to customers in real-time through every possible channel, with consistent service levels and content, irrespective of the market.

Direct connects are a key focus. The company said: “We have already successfully implemented airline direct connect solutions for a large German client [Volkswagen] and see further demand for these solutions going forward.”

It adds: “We have also started work on our enhanced ‘Direct Connect Platform’, which will enable HRG to remain the market leader as we enter the next phase of travel distribution.

“Within our global branch network we have continued to deploy our ‘smart’ booking app agent desktop and our unified communications strategy. This paves the way for further enhancements as we create an omni-channel digital end-customer platform to enable us to communicate in multiple ways.”

So, what do people think of this approach?

Festive Road’s Tilstone says: “HRG definitely stands out. It has made a fundamental decision about who it is. That is a big tick. Has it got it right? Only time will tell.”

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