Hardly had 2024 got underway than the first of two big TMC acquisitions were announced, a foretaste of the consolidation many believe is gathering pace now balance sheets have recovered from the pandemic.
One global brand acquiring another may appear to be insignificant to many travel buyers whose accounts perhaps are not large enough to attract the attention of such TMCs, but make no mistake, consolidation will may have an impact on choice and cost in future.
Stephen Inskip, Meon’s commercial director, is positive about the situation, believing a period of consolidation can create opportunities for TMCs: “The potential for others to step into verticals areas that may be vacated by businesses that have been acquired certainly exists. The bigger the beast, the harder it is to customise the programme, which is at odds with what buyers and travellers are telling us they want,” he says.
Inskip is mindful of the potential pitfalls for buyers: “The key is to think “What will change short-term and what are the benefits and threats to my travel programme? Are these likely to deviate from the original purchase decision. Think about personnel, product and get some steer on the business strategy. Change naturally creates uncertainty, so if I am a buyer I need to understand the short and medium term strategy behind the usual spin around sand ask if the TMC is aligned and indeed able to service that.”
There has certainly been some movement in the market. The year started with Gray Dawes’ acquisition of Netherlands-based VCK Travel, whose €220 million turnover pushed the combined company beyond the £500 million mark and sees it close to becoming a top 10 player in Europe. Gray Dawes now has a footprint on the continent and the VCK deal follows other 2023 acquisitions in Australia and Florida.
This, however, was eclipsed in March, with Amex GBT buying CWT. The agreement meant Europe’s market leader absorbed its third-placed rival in a $570 million swoop – although regulators in both the US and Europe have still to give their blessing due to potential competition concerns.
In June, Reed & Mackay acquired Italy’s Regent International, its sixth acquisition in three years and one that gives it a presence in all top five European markets for business travel spend.
Deals of this magnitude always highlight “shareholder value” and “synergy opportunities” – great news for investors, but not necessarily for their clients. Amex, for example, boasted of $155 million in expected annual synergies over the next three years from its CWT purchase, 35% of which is to be achieved by 2025. What that means has yet to be fully explained.
Amex GBT chief executive Paul Abbott told the Financial Times he expected consolidation among TMCs to continue in a “very large, fragmented and growing industry”. A large part of this would be driven by the need to offer the latest software, something that bigger companies, by virtue of their scale and buying power, will likely lead.
Abbott put the total industry value at $1.4 trillion and even after Amex absorbs CWT, there is still another $950 million segment that will inevitably consolidate at some scale.
He is correct in that there is a long tail of smaller TMCs that are potential targets. BTN Europe’s UK Top 50 list (in which Meon sits mid-way) estimates sales at the 50th biggest TMC at around £7 million, about 100 times smaller than CWT, so there is plenty of scope for consolidation either by the big players swooping in or through mergers of similar-sized smaller TMCs. As we continue to dust ourselves down from the pandemic and TMCs transition from recovery mode, it all adds up to a potential narrowing of choice as some become acquisitive in the months and years ahead.
The Experts’ View
Mark Frary, editor of BTN Europe Leading TMCs, believes the post-Covid business travel landscape means more consolidation to come:
“In my opinion, we will see some of the small to medium-sized businesses get snapped up as their owners retire or decide that the financial risks are now too high,” he says.
“I also predict we will see a shakeout of the sector following the billions of dollars of venture capital that has entered it. Investors will want to see returns and that could come through greater consolidation, with more deals along the lines of Navan/Reed & Mackay or decisions to exit the sector if growth projections have not lived up to expectation.”
The changes in the market following Covid are a significant push factor, he feels.
“Although business travel has bounced back since Covid, with most major markets in Europe now at 2019 levels in terms of travel spend, the headline figures hide the fact the number of business trips in many markets is considerably lower than before the pandemic – the increased spend is because of higher inflation and the higher costs of travel,” he says.
“Margins are very tight as a result. It is getting more expensive to do business and corporate buyers are getting more demanding about what they need from TMCs, not least in the area of technology, which, whether you develop it in-house or work with a partner, is costly.”
Put succinctly, fewer trips from more demanding clients will inevitably mean a decreasing number of players among TMCs.
What Does This All Mean for the Buyer?
The after-effects of mergers can radically change the relationship between buyers and TMCs. The first sign is often the disappearance of the familiar account manager to work elsewhere following restructuring. This in itself can disrupt service delivery. The next upset can be a withdrawal of some services the new owners don’t see as necessary or cost-effective and there is the obvious drawback that fewer players in the market means less competition, with upward pressure on pricing.
Carol Randall, founder and managing director of Sage Travel Consulting, is used to dealing with these issues and finds market uncertainty means many buyers yearn for things to remain exactly as they are.
“A lot of clients are hesitant to go to RFP because they are unsure what the market is going to look like. However, there’s no guarantee the market is going to settle,” she says.
“If they’re reasonably satisfied with their TMC, they will probably stay put unless procurement forces them to go to RFP, although they may try to renegotiate some contract terms.”
She adds consolidation means uncertainty about the number of bidders that can emerge and whether a brand that was recently absorbed will continue with its own business model or that of its new parent. “Buyers are having to do quite a lot of risk analysis for their RFP process, asking what consolidations could happen and what the outcome could be.”
TMC takeovers and mergers are naturally a secretive process, but Randall nevertheless urges buyers to cover their backs in negotiations by asking outright about the prospect.
She advises: “Definitely ask the question, even though nobody will tell you the truth. But you have to ask from a risk mitigation perspective. Is the legal entity still going to exist? Will the online booking tool or service centres still be there? Be really specific, write a very detailed service level agreement and make it contractually binding.”
Despite the lack of clarity, there is abundant evidence travel managers are still placing their faith in TMCs. A poll of around 100 travel managers by the Institute of Travel Management showed nearly three-quarters of buyers believe TMCs will continue to be “the critical partner in their programme in the next five years”.
Frary spots another trend: “What is clear from the Leading TMCs 2024 is that many now have a much greater focus on offering consultancy services,” he says.
This has cost implications: “Even if they can push transaction fees higher, they are trying to charge more significant sums for consulting on sustainability, duty of care and traveller well-being services. In some other European markets, particularly the Nordics, consolidation has gone much further and there is a more limited range of choice. Here buyers may find it harder to get leverage in their negotiations.”
The IT Issue
Technology is another issue about which Randall is having to advise her clients. Some are building their own tech and relying on their TMC just for fulfilment, she says, while others seek TMCs with their own technology solutions.
Others, she describes as “like supertankers”. “The large TMCs are still not delivering NDC,” she points out, adding that disrupters like Spotnana, the cloud-based platform, is doing so and offering itself as a white-label solution.
“Everybody is trying to partner with them. That kind of thing is small and agile, they can develop tech faster,” Randall says.
Platforms such as Spotnana cannot be underestimated, but Meon’s Inskip still believes there is a balance to be found between technology and personal service, in the same way people travel for that personal connection.
“Tech is not the silver bullet, it’s not going to make your life perfect,” we only need to look back at previous innovations to see how the deployment has evolved the product and indeed how people harness it he says. He advises: “Think about what you might sacrifice in terms of personalisation for a shiny new piece of technology… even with AI? It’s all underpinned by people.”
He believes Meon is at a very exciting intersection of the market: “We’re seeing more traction with a consultative and considered approach to building partnerships with clients. Our size enables us to be agile and importantly build a solution that meets the requirements of our Clients, not a cookie-cutter approach. It’s not necessarily that tech is less important, you need to deploy it the in the right way, fused together with a service-orientated approach.”
Frary believes the future will see technology and booking tools coming more to the fore but that TMCs that adapt will come into their own.
“I always ask the companies who take part in the Leading TMCs about what they fear most regarding their survival. Concerns about direct booking with suppliers and the fragmented nature of ‘content’ have only increased,” he says. “In an NDC world where airlines are trying to make more people book direct, booking tools which can pull all this disparate content together – whether developed in-house or by third parties – are set to become even more important.”
We Still Need the Human Touch
Despite the ongoing tech revolution, Frary identifies definite needs for the traditional TMC sector as it evolves.
“I think new generalist TMCs are unlikely to appear on the market,” he says. “However, I can see space for a few more niche specialists in specific industries. There are a number of marine travel and entertainment specialists, for example, who have done very well catering for the very specific needs of those industries. Other industries could benefit from similar treatment.”
Similarly, he feels the rise of the personal travel advisor is another area where TMCs will adapt and survive.
“Some TMCs who work with independent consultants took advantage of Covid when others had to let go of their staff. Those like Internova and Travel Counsellors did very well in attracting these consultants – it suited the whole ‘remote working, reduced risk vibe’ and they will do well out of it.”
This could even lead to new entrants to the market, just as in leisure travel, where Inteletravel’s entry in the UK has seen 20,000 sign up, mostly part-time. “You can see how individuals who fancy starting up in the sector might choose to do it via that route too, rather than taking the risk of starting their own TMC with all the high overheads and tight margins,” Frary says.
The trend in the traditional TMC sector, however, is almost certainly towards fewer players, and the advice to buyers is to make clear their needs – and that these will be provided for throughout the term of the contract – whatever name is above the door.
