The Value of the Onion … the intermediation in Business Travel

First of all THANK YOU for reading! The truth is I’m delighted with the support and monitoring. As I am translating the post we are close to 1000 visits in over 20 different countries! For a rookie in Social Media, and a blog as specific as this, I do think is a good shot!  really thank you very much to everyone. I will try to maintain the level!

The tourism chain is probably one of the most mediated chains in the economy world. Intermediaries depending on market and product, do have a cost, and a higher or lower value for someone, either the supplier or the last customer. Whether we like it or not, there is a minimum of two intermediaries, which can reach five or more, depending on the service.

[IS A PICTURE OF AN ONION ;-)), THE THICKNESS HAVE NOTHING TO DO WITH REAL COSTS … just in case there is a procurement director …]

Even so, this is not the problem. Intermediaries add a cost, but also a value, and as long as it is accepted by the parties, be consistent, “almost” transparent (I think that full transparency is difficult ;-)) and add in the value proposition, the end customer and supplier are willing to take that extra cost, as it provides value for which it pays.

The problem occurs when:

  • Some part of the chain has an excess of power and that ends adding too much costs. Cost does not compensate its real value.
  • A change of  the rules of the game, and the value provided is not worth the cost because there are other cheaper ways ( more efficient) to do the same.
  • The value “promised” does not occur, the deal do not compensate one of the sides, or someone benefits without paying.

CREDIT CARDS

Perhaps an example of consolidated layer of onion, which adds value but is also subject to changes, is the form of payment in air tickets, as it is simple and adds great value. It is also a curious case where historically the one who pays the costs (the airline) it brings “extra free” benefits to others (client and agency), although this is changing as we shall see, and follow the path of the famous ancillarys (or fees).

As in other brokerage services money “passes” through the mediator, in airline tickets it is not the case. If the payment is done with the credit card, it goes directly to the airline (which is why the card statement says IBERIA, instead of TRAVEL XXX). This “rarity” has been caused by the airlines that, in exchange for paying the merchant, did reduce the financial risk of the traditional channel, the travel agencies. If someone pay an airline ticket in cash to a travel agency, the travel agency pays later to  the company (monthly or weely, depending of the country). This was a great financial risk to the airlines, reduced risk if the ticket was paid using a credit card.

Credit cards have become a key issue in the Business Travel. The vast majority of air ticketing is paid by card, as the use of the credit card gives many advantages over other alternatives.

When a company decides to use a credit card, not only does not cost more (until yesterday), the truth is that the company is receiving a lot of benefits for which many will be willing to pay considerable amounts (which are beginning to pay), and the companies get money back … something strange happens, right? Consider the advantages:

  • Security of transparency of the transaction, pay the amount directly to the airline through what is called UATP (as if the merchant is not the agency, is the airline through the GDS). In this sector there is much pirate with a tie, this issue is relevant … If I was a company, this will be a must for me.
  • Reduces supplier risk, say they are more creditworthy airlines than travel agencies.
  • Advantages operational changes, refunds, etc..
  • Get a very comprehensive insurance, and today essential to the head of the traveler, and HR heads.
  • Detailed statements with reconciliation.
  • Minimum 30-day credit
  • Points programs
  • Sophisticated consumer reporting.
  • Etc

The airline will have a cost (IATA data, average)  of 12.50 USD per ticket … is like another fee! that has been paid “tasty” in the past, and business customers  have had a cost of a percentage of …… -0.x% (negative!i), which is what the credit card gives (with a significant volume) for giving all these advantages!! The truth is that it’s incredible. I am sure that many companies, if they had to pay for the usage of credit card payments with the benefits they have today, they would, as it provides tremendous value (just have to try to match the life insurance and see what it costs!) .

Who pays for the party? For this party (for companies) is an open bar with malta whiskey! It is quite clear, in this case the supplier, the airline, which historically have compensated for this payment (especially becouse if gived them a much lower financial risk than having settlements on credit through travel agents, remember that with the credit card holder pays the provider directly to the final).

So this piece of onion (end customer that not only does not cost, but adds), seemed stable, but … because we are not for parties anymore, everything changes, and airlines have realized (finally) that customers are willing to pay to use credit card, because not only it is a form of payment but has advantages (especially the insurance and transparency) that offset the surcharge. And now, following the strategy of Low Cost, the traditional start to charge for using credit cards and customers pay.

The future? Some innovative companies like Southweast accepted Paypal years ago, or Qantas accept direct payments with a model called BPAY, but of course the future is mobile. The fact that new players can enter the small club of the payment methods is difficult, but Paypal has shown that it is possible.

Personally I am surprised that premium cards have a cost differential (for the airline) against non premium cards.  I do think that in the past the premium traveller use to give a higher yield, that together with the “airline’s former lack of feeling of property of the customer”, could explain the past. A business traveler receives some values ​​but I do not understand why the airline pays the extra mile … the traveler will pay premium card benefits, so tough negotiations glimpse. In fact British Airways, I do admit that the British are tough to negotiate, was planted some years ago with AMEX and reached “fight” commercially. Another case is LowCost, since most do not accept premium cards to pay …

My conclusion is that today, nobody wants to pay more than his due, and that the pencil is sharpened to the extreme. Would not surprise me that the charges could be segmented by card type. The trend to more and more ancillaries is unstoppable, and will confuse the buyer. They will find  multiple players adding extra charges, before, during and after the service. The thickness of the lines of onion costs will decrease and it will be more proportional to the one who generated it,  with a bit more freedom for the traveler – someone might prefer to pay with Paypal and save a few euros (few) on the ticket … and so the companies could in that “perfect market” view a slightly lower price.

I hope I have served, good week

One response to “The Value of the Onion … the intermediation in Business Travel

  1. Pingback: El Valor de la Cebolla … la intermediación en el Business Travel | business travel spain

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