Understanding Travel Agency Compensation (TMC)
Travel Management Companies (TMCs) are companies that specialize in selling tour packages and managing business travel. TMCs may offer international travel, cruises, tours, flights, car rentals and hotel reservations. TMCs can also handle business travel management, booking airfare and hotels for company employees who need to travel for business reasons.
The role of TMCs is to facilitate the planning and organization of travel, providing personalized services and expert advice to clients. Travel agencies can offer negotiated rates with travel service providers, such as airlines and hotels. Business travel agencies can offer flexible payment options and options to cancel or change reservations.
In short, TMCs are businesses that help travelers plan and organize their trips by offering a full range of travel services and great rates. TMCs can also manage business travel for companies by booking airfare and hotels for employees.
A statement about TMCs by Saad Berrada, CEO of Fairjungle :
Saad Berrada: It's rare to be able to put a number on the added value of a business travel agency (TMC). The concept of return on investment (ROI) is not common in our industry. Agencies suffer from this situation, but they are also partly responsible: they fight a price war by offering lower and lower service fees, which they compensate for with increasingly opaque practices or by sacrificing service quality. As a result, their compensation lacks transparency (customers do not know what they are paying) and they do not participate in customer education. However, there is some information that can easily be put forward.
From a purely financial perspective, a professional travel agency generates a return on investment (ROI) of between 5 and 9 times the cost of the agency. It is possible to detail this by highlighting three key points:
- A corporate travel management company (TMC) can help enforce travel policies, control and limit budget overruns, which can prevent up to 10% of additional costs on the travel budget.
- A TMC can save employees time by managing reservations and handling expense reports, which can represent up to 8% savings on the travel budget by avoiding unproductive hours.
- A TMC can help to obtain advantageous rates by acting as a central purchasing agent, which can result in savings of up to 4% on the travel budget, especially for hotels (less for transportation, where negotiation margins are limited).
A classic travel agency (TMC) has mainly 4 sources of income:
- Revenues related to suppliers & distribution service (GDS): as a business provider, agencies are eligible for supplier retro-commissions. These revenues are very often proportional to the volumes brought by the agencies to these suppliers. These can be generous, as in the hotel sector, or very limited, as in the airline sector for example.
- Revenues related to clients: this part includes file fees, management fees (cancellation, change of tickets)...
- Revenues related to Advice and consultation revenues: travelers may need help in planning their itinerary or directing them to the right people.
- Revenues related to the marketing of complementary products: for example, agencies may offer travel packages that include insurance or other complementary services in addition to the trip.
How should a modern agency be compensated?
Modern travel management companies (TMCs) should be compensated based on the value they bring to their clients, rather than as a standard outsourcing service with a per-booking fee. Clients should increasingly adopt the fixed recurring licensing models that are common in enterprise software.
In the long run, TMCs should be compensated based on cost savings, carbon footprint reduction and time saved. TMCs need to move away from the practice of pay-per-ticket and emphasize the value they add to ensure fair compensation and transparency in their business. Return on investment (ROI) estimation tools could also be used to convince clients of the added value of TMC services.
To help you find the right agency for you, we have developed "Fairfees", an agency fee comparator, a Google sheet containing all the possible costs one may encounter when dealing with traditional travel companies.