In a previous post from August, 2020, we argued that post-pandemic business travel will have a new baseline at 20-30% below 2019 levels and that the travel management companies (TMCs) that have powered business travel will not be able to restore their business to pre-pandemic levels simply by following the pre-pandemic playbook. The new world of business travel, with fewer trips taken, and all trips more closely scrutinized for value, will call for new core capabilities and business models to effectively compete in the future. 

Since that post, several business leaders have affirmed that savings have been immense, and that they do not expect business travel spend to return to its former state.  Amazon’s CFO shared that the company has saved nearly US$1 billion in travel expenses this year. Bill Gates told The New York Times’ Andrew Ross Sorkin that “over 50% of business travel will disappear in the post-coronavirus working world” and that “there will be a "very high threshold" for traveling to carry out business meetings.” And industry analysts in a recent article by Scott McCartney of the Wall Street Journal concluded that the pandemic could cut business travel by up to 36%--permanently.  

Everyone — save our industry ostriches — understands that the once-robust business travel marketplace has wizened because of the pandemic, video conferencing, sharper pencils, rising employee eligibility (and desire) to permanently work at home, and a growing concern around the toll business travel  takes on our environment, our relationships, and our health.

What is not discussed, however, is how the business travel that remains, and slowly grows again, will be planned, purchased and managed. The answer, we believe, is: very differently, with more emphasis on duty of care, more scrutiny of necessity, and more demand for traveler flexibility within a framework that drives compliance. New-era TMCs are taking advantage of the turmoil and disrupting traditional TMCs in this unfolding reality . There is no turning back.

The Old Way: TMCs Grazing On A Flat Competitive Landscape

Mention TMCs, and the first companies that come to mind are  the giants like Amex GBT, CWT, and BCD that serve multinational corporations as they have for decades. When managed business travel contracts for these large companies go out to bid, the big TMCs are the ones slugging it out for opportunities representing tens or hundreds of millions in corporate travel bookings. Their products are similar enough that the customers resort to very detailed RFPs to catalog features here or there that might tease out a marginally better fit or price from one of them.

Enter The Disruptors

The big TMC's focus on their rivals has them matching feature for feature and getting their marching orders from salespeople rather than product managers. The devotion to the next sale comes at the cost of time and effort that should have been spent relentlessly observing customers to determine what they’ll really need both today and tomorrow. That’s when other forms of competition can gain a foothold and make substantial progress while staying under the radar. 

The vulnerability of sales-driven incumbents as they pursue higher-end and higher-margin customers with a rapid buildup of features is a key component of Clayton Christensen’s theory of disruptive innovation. He argued that the emphasis on accretion of features adds cost and complexity, leading to over-served and resentful customers.

Disruptors enter offering a simpler and cheaper product, better tailored to current and real needs, enabled by new technology. The disruptor gains a foothold among lower-end customers, while being dismissed by the incumbents. But the disruptor continues to refine its technology and offerings and works its way upmarket, claiming more and more customers from the incumbent.

If that’s starting to sound familiar, it’s because we’re seeing the effects of disruptors in multiple areas of travel and travel technology, including the TMC space.

The New Entrant TMCs: Competitive Disruptors

New entrants like TripActions and TravelPerk (there are quite a few TMC new entrants with similar value propositions,) both founded in 2015, built their business models and products around the traveler rather than the travel manager. Like Zoom, they are fundamentally B2B applications but, also like Zoom, they’ve been designed for the end user (traveler) and have resisted the many layers of corporate travel manager-inspired features needed to get that next sale. In addition to a user-centric design, their internal infrastructure replaces manual processes with technology and automated processes, and this is key to their longevity. Where the more established TMCs have technology developed over decades (with all that implies—good and bad), and sizeable labor forces to meet customer needs, the new entrants use more modern technology and fewer people. They develop to meet evolving needs more quickly, and they automate many of the tasks their old-line competitors have simply thrown bodies at. 

The incumbents, true to the disruptive playbook, are doing their part to remain dismissive of the disruptors. In a 2019 interview with  Amex GBT chariman Greg O’Hara, Philip Wolf asked if TripActions had any features or capabilities he found interesting. O’Hara replied: “I think they’ve got a super slick user interface. I don’t know that they solve a particular problem. Remember that business travel stuff that we develop is not designed in general to enable… It’s designed to inhibit behavior. So Philip wants to go and stay at the Plaza Athénée in Paris, the tools we have are designed to prevent you from doing that. You have to follow policy.” O’Hara followed up in a 2020 interview with a similar viewpoint. 

It’s not only an example of the incumbent trivializing a disruptor, it also points out one of the most significant weaknesses in the incumbent value proposition that TripActions and TravelPerk are exploiting: that the legacy TMC products pit travel managers and company policy against the traveler, forcing them to surrender to the travel policy. New entrants take into account the active role the traveler can play in compliance, building products that pull content from more sources, and provide options that invite and incentivize the traveler to save money for the company. The “super slick user interface,” as O’Hara calls it, is the last piece of the puzzle, bringing ease of use to actions that serve the traveler as well as the travel manager. The result: Mega TMC booking products often have compliance rates of 30-50% while TripActions claims compliance rates of over 90%. What's the relevance for corporations? Many decide it's better to have 10 good reports that cover 95% of their travelers than 300 reports that cover less than half. And the travelers are far happier as well.

Still, these new TMCs realize that there are capabilities (like a truly global footprint) that will take time to build, and this is the last remaining moat legacy TMCs have for multinational customers. The pandemic is helping them make up ground by forcing many of the more established TMCs to let go of significant numbers of staff and reduce operating costs to the bare minimum while these well-funded new entrants are accelerating product and engineering to close capability gaps and extend advantages relative to their bigger brethren. This new breed of TMC is now building, or acquiring, the capabilities needed to penetrate larger customers and markets. 

And so it goes. The adoption of new technology is one of the principal levers of disruption, and the pandemic is acting as a catalyst for digital transformation. Changes that might have taken a decade pre-pandemic are being accelerated into just months. If technology is a lever of disruption, then COVID is drawing one long enough to move the world.

A Grueling Pace of Change

Before legacy TMCs can reformulate their strategies to fit a new environment, they first must understand what that new environment is and where the forces of competition lie in it. The pandemic has been an earth shaking event, catalyzing change at an incredible rate and forcing digital disruption at more than 10X the ‘normal’ pace. 

Of course, all is not lost for the legacy TMCs. Christensen published a subsequent book, The Innovator’s Solution  with some incumbent strategies, and companies like Strategyzer describe solutions to help incumbents compete more effectively against disruptors. So there are ways incumbents can counteract disruptors, but recognizing them (and taking them seriously) is the first step. It will be up to the incumbent TMCs to find an effective path in this new era.