While estimates range according to source, global business travel spend is somewhere north of $750 billion. When you consider volume by mega-TMC’s, super regionals, and new marketplaces, less than 10% of the industry’s total volume is formally managed. On even closer inspection, a significant minority of that scant 10% is represented by the top 200 or so corporate accounts in the world. What this means is that most business travel is unmanaged, and most are not large companies. Most travelers, 90% or more, work for small to mid-market companies and book business trips on their own, with no support from a traditional travel management company. So, why all the hype recently about SMB business? Why is the latest news about American Airlines and its new SMB program important? How does NDC play a role? How can SMB business be so BIG, if it seems so insignificant to managed travel?
Follow the Money
For simplicity, any company with less than $10 million in annual air spend is considered SMB and any company that spends more than $10 million is at least partially managed under a traditional TMC relationship. The bottom line is that virtually every company in the world is SMB and any traditional TMC will tell you that this is business that they have always sought. The “under-served” SMB client has been historically left out of managed travel primarily because the TMC’s business model is better aligned with large market clients and from an operational perspective its very challenging to serve both client types.
Large market clients tend to be more policy driven than SMB companies because large clients can negotiate point of sale supplier discounts and qualify for back-end override payments. These benefits ultimately make their way back to TMC’s through direct payments, management fees, or transaction fees. Big clients also mean more GDS segment revenue to TMC’s. As a result, TMC’s have historically structured their businesses both in terms of technology or process integration and financially to accommodate this type of client.
SMB clients are much different. They demand more flexibility in terms of how they book because many lack the financial incentive to drive policy compliance. The trickle-down effect of this is that the more SMB business a TMC has, the less it can control the market share it directs to its airline partners. Too much SMB business can possibly have an adverse impact on a TMC’s commission and override programs. Still, TMC’s have pursued SMB business in a variety of ways just due to the sheer size of the market opportunity but all have met with uneven degrees of success in pursuit of this business.
In the early 2000’s, Expedia for Business (now Egencia) and others re-packaged its popular leisure offerings to SMB clients. More recently, massive investment in corporate travel technology startups including travel marketplaces, FinTech, and automated expense companies have developed strategies to capture the SMB client. The primary model promises an easier booking process, better access to a range of content, payment, and automated expense wrapped together. Over the past 4 years, nearly $1 billion in new investments have been made to chase this market segment.
What New Technology Investment Means to SMB Business
The market research we have done at CapTrav has shown that over the past 4 years, new marketplace technologies are spending between $500k-$1 million per month on social media and pay per click advertising. The result has been a sort of awakening for the under-served SMB client. Suddenly, managed travel seems achievable and meaningful for many of these companies and the result is that more SMB clients are now seeking some type of managed travel solution. While most large market clients took several years to return to normal travel levels after the pandemic, some SMB clients never stopped traveling and those that did returned much quicker than large clients and in greater numbers. SMB focused TMC’s tended to fare better financially than those TMC’s focused on large market clients.
Technology Investment, NDC, and the Changed Landscape of Corporate Travel
The portion of business travel that is traditionally managed is growing and we have SMB clients to thank for that. But new technology and a rapidly changing distribution strategy amongst suppliers is having a significant impact on how all clients are managed. NDC, continuous sourcing, and American Airlines unabashed strategy to pull travelers directly to their website and away from the TMC aligns directly with consumer choice and their desire for ease of use and brand loyalty. For the first time I can remember personal choice is outweighing travel policy.
At CapTrav, we believe corporate clients can enjoy the best of both worlds. Unlike most new technology, ours requires no change in user behavior. At the same time, our solution still enables a client to choose to use their TMC and travel counselor for bookings as they desire. The technology aligns with the market.
SMB clients are the catalyst behind this movement of industry change, driven partially by a changing workforce demographic, partly by new technology that recognizes this vastly underserved and large opportunity, and leveraged by suppliers who recognize that now is the time to break from the norm.
As we continue to see positive results from suppliers, large clients are also starting to think about these options as well. The result is that for the first time I can remember, managed travel is not only being re-defined, but the target audience now includes both historically managed large market travel clients as well as unmanaged SMB clients who never thought they could participate.
10% of $750 billion is big for sure but the tent is expanding rapidly as is the forecasts for overall global growth of corporate travel in general. Some predict global travel to grow by nearly 50% in the next 10 years, toppling $1 trillion. small is BIG!