Expect Further TMC Consolidation in 2024

2023 was a year of marked movement toward New Distribution Capability adoption. After more than a decade of industrywide planning and significant pushes from carriers around the world, including Lufthansa Group and British Airways, American Airlines became the first of the big three U.S. airlines to place a major strategic bet when it removed 40 percent of its fares from EDIFACT and instead made them available directly or through NDC-enabled channels. United Airlines and others also took steps to move fares to NDC in 2023. This activity on the part of suppliers is pushing the industry even more quickly into a when, not if, mentality—and it is likely to drive changes among travel management companies.

The transition to NDC has brought about widely discussed challenges for TMCs, from content fragmentation to technology turbulence. NDC is disruptive to the operations of many TMCs, creating growing pains and added pressure on economic arrangements in the industry. In turn, TMCs are seeking more efficiencies and alternate sources of revenue. I believe this will lead to further consolidation among TMCs in 2024.

TMCs were among the organizations hit hardest during the pandemic as business travel was put on pause. As they scrambled to deal with the lack of transactional revenue, many have faced layoffs and some consolidation in recent years. 

These challenges will be exacerbated by NDC acceleration this year. As BTN readers may know, TMCs rely heavily on segment fees from global distribution systems and supplier incentives for a large chunk of their revenue—in fact, less than half of a typical TMC’s revenue comes from customers. NDC massively disrupts the typical revenue stream for TMCs. In addition to revenue, TMCs are also working through how to best service and support tickets without a traditional passenger name record.

NDC fares that are not available in the GDS also add to the stress and responsibilities of in-house travel managers, who are left explaining to employees the discrepancies between online booking tools that don’t enable NDC and supplier websites, and then trying to make sure they have visibility into all travel, even when it’s not booked through approved channels. Some opt to employ technologies that allow booking outside the OBT and bring those bookings back into the managed travel program so they can realize corporate discounts, perform duty of care responsibilities and improve data. Business travelers are often happy to acquiesce to this omnichannel approach, since it opens opportunities for personalization and unique bundles. Although direct bookings help to solve the challenges that travelers, travel managers and their companies face, TMCs may miss out on revenue streams from the GDSs and suppliers.

Even though we’re years past the introduction of NDC, we’re still in the early stages of adoption. NDC currently represents a small percentage of the fares processed by Airlines Reporting Corporation. As reported in The Beat, as of July 2023, only 13 percent of tickets are processed by ARC Direct Connect, ARC’s program for NDC sales. However, that is up from the 7 percent of total ARC transactions processed through that channel in January 2023—and the percentage will continue to increase as NDC adoption accelerates among suppliers.

As adoption accelerates, TMCs will continue to be forced to adapt, whether that means changes to their pricing structures, providing additional value to create new revenue streams, or something else. Artificial intelligence and generative AI present potential opportunities for greater efficiencies and personalization—providers with access to robust travel and expense data will be able to provide standout experiences for travelers, travel managers, accounts payable and auditing departments, and more. 

Some will be able to do that effectively, but others will struggle. 

TMCs continue to be a vital part of our industry and a necessary component to a managed travel program, but I suspect the above factors, exacerbated by the increased adoption of NDC, will lead to further TMC consolidation this year.