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BBT March/April 2019 cover
March/April 2019

Online obsession

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Stanislav's picture
Online obsession

Dear industry colleagues. 

It appears to me that our market has a blind obsession with “Online”.  Everywhere I turn, we seem to see it as the ultimate solution for today’s travel management issues. Yet, as I trawl through reports and case studies I am yet to find an answer to a simple question: where are the proven, rounded financial benefits for the corporation? 

We all know that online is sexy, anything technology-related is always aspired to, and featured in almost every travel management discussion. But still no one can demonstrate a clear calculation with the exact benefits and the true costs.  

We all understand there is one (so far only one that’s repeatedly identified) financial benefit: an average lower transaction cost. 

But each process and every model (and online is not an exception) has a fully considered financial balance: P (profit) & L (losses/costs). In this case: “P” stands for the benefit of lower transaction fees and/or head-count savings reflected in transaction costs.

And “L” should stand for all direct and indirect, clear and hidden charges – including the cost of training, IT, HR and operational implementation, the cost of communication and adoption, ongoing operation and future upgrades. And the cost of self search and select as client travellers undertake the role of the agent themselves etc. etc.

I do understand where the benefit of online products lies for the suppliers. For those owned by the GDSs, the self-booking tool products act as conduits to gain greater market share. I also understand where the benefit lies for the online TMCs, as they are new business models designed to attract their target audience and taking a share of the market.

But I still cannot see the proven financial benefit for the corporate customer. I would love for somebody to present me with an example of such financial analysis over a number of years so the true cost is reflected? It should be a very simple, proven story: of the P vs the L. 

Such analysis should help to identify:

From what level of number of transactions does online starts to be beneficial for the savings for a corporation?

And with what adoption rate?

And at what level of difference between offline and online transaction fees? 

Our obsession with online will continue – of that I’m sure.  But we should not make mistakes through poor analysis. Whatever experience we can garner from matured markets where you, colleagues, have already taken this road and gained valuable experience will greatly help us in less matured markets to have the right understanding of the subject.

Otherwise, I remain open-minded as to whether online is really the solution to all our woes.

Kostyashkin Stanislav, CEO Continent Express, Moscow

Simon McLean (not verified)
Anonymous's picture
Re: Online obsession

Hi Kostyashkin -

The real value of online services is transparency.

The revenue models of most traditional travel management companies (i.e. those with low online adoption rates) is generally underpinned by so-called "marketing agreements", which is a sophisticated label for what are actually plain old back handers. Push the right seats, in the right fare classes, on the right planes, for the right carriers and bags of cash labelled “swag” get delivered through the back door!

So when you call your traditional TMC you’d be forgiven for thinking that they’ve done a stellar job of hunting out a small number of options that are best suited to your journey and specific requirements. But they’ve probably spent more time researching which options are going to get them closer to the next rung of their ratcheted marketing agreements.

Online systems sweep this issue away because instead of presenting you just a few carefully selected options, they present you with a broad view of the entire marketplace (well, they should, and good ones do). More choice and more fares, ultimately leads to better decisions and increased savings.

And it’s not just air fares that benefit from transparency. For example, a client recently moved to us from a traditional TMC where they had virtually no online adoption. Just 6 months in and their online adoption is now over 90%, but even more astonishing is the fact that their average hotel rate has fallen by 24%, and their average train fare has fallen by 10%. 

Why? Well transparency means they are making better decisions: they are buying cheaper rates at the very same hotels they were staying at before, as well as choosing alternative properties that they didn’t even know existed. And they're buying rail tickets with flexibility to match their requirements because they now have a transparent view of all the fares that are available.

Another key benefit of transparency is visual guilt - the behaviour of your staff will naturally start to change when they can see clear as day that the hotel next door to the one that they normally stay in is half the price. Your online system might even be able to report on where users are not choosing cheaper comparable options which makes it even more powerful.

Regarding the “L” of your P&L debate, it will depend heavily on who you choose to provide your online system. There are a number of suppliers in the travel management arena doing what we call “an Oracle” - i.e. you pay a six or seven figure implementation fee and not much less in annual maintenance, training, support and consultancy and before you know it the system is a stand-out figure on the painful side of your P&L. 

But there are others (like us) that have swept this away too. For example, 96% of our users have never had any training because, thanks to our heavy investment in brilliant user interface design, they don’t need it. We’re a cloud service so there are no direct IT costs for out clients. Everything is covered by our low transaction fees - no fixed recurring costs or lump sums.

The proof is of course in the pudding, and I think our track record reflects this: we’ve already helped many organisations make the transition from a traditional way of thinking about travel procurement to one that has transparency driven by online services at it's core - and our 92% average online adoption rate, coupled with our 98% client retention rate (5 years in a row) is testament to the fact that our model is delivering outstanding results for our clients.

Simon McLeanManaging Director

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