ABTA’s Webinar in partnership with KATA on 23 July was attended by 65 Travel professionals and saw a panel of industry experts discussing the need for business models to change for Kenya-based TMC’s and Travel Agents, following the Covid-19 pandemic.
Our panel consisting of Agnes Mucuha, CEO – KATA Kenya, Edmond Obundo Okullo, Product Manager: Payments & Receivables – Citibank N.A Kenya, Jo Lloyd, Partner – Nina & Pinta, Dr Joseph Kithitu, Finance Director – Express Travel Group, Julie Dabaly Scott, Managing Director – CWT Kenya, Louis van Zyl, CEO – Carlson Wagonlit Travel South Africa, Mohammed Wanyoike, Group CEO – FCM Travel Solutions & KATA Chairman, Shalini Patel, Team Leader – Uber for Business and Tracy Scott, Managing Director – The Scott Travel Group Ltd shared the following insights:
1. KATA’s ‘No Credit’ Policy
The Kenya Association of Travel Agents (KATA) has done a great job at taking the reigns and pushing for positive change on behalf of their members. For any TMC’s and Travel Agents who are members – ensure that you are part of the conversation and getting involved where possible. For those that are not yet members, consider joining this association.
KATA has created a framework and has been working with industry on the ‘No Credit’ Polcy’. They are developing best practice around several items including standard operating procedures and new terms and conditions, and client payment terms is one of the leading items in this initiative.
Amongst other things, KATA will also seek to identify clients who regularly do not pay on time in order to ensure other members are aware and steer clear of working with these companies. In a market like Kenya where clients will sometimes not pay bills and then move on to other suppliers to fulfill their travel requirements, this will be a positive move in the right direction.
2. Credit terms for clients cannot continue
Immense pressure is put on TMC’s and Travel Agents when clients are granted extended payment terms – sometimes up to 90 days, effectively requiring them to act as banks on behalf of their clients. Sadly though, the panel agree that the industry has done this to themselves, often offering extended credit terms as a competitive edge.
The Covid-19 pandemic has shifted mindsets though, and sustainable business practices are now a key focus for travel companies, highlighting that these kinds of business practices simply cannot be allowed to continue.
This is not a small issue and clients need to realise that having a supply chain at risk of financial ruin due to poor, delayed payment practices puts their businesses at risk too.
2. Developing a two-way relationship
It is vital that Travel Agents and TMC’s focus on selling themselves as a professional service encompassing many elements of travel, and not just a travel booking service.
Relationships with clients need to go both ways and just as the TMC or Travel Agent must understand the client (payment terms, approval processes etc), so too must the client be educated on the challenges and requirements of the TMC, specifically around payment. Once both parties are fully armed with this knowledge, discussions can then be had with clients where there is mutual agreement around payment terms and processes that work for both parties.
3. Cover yourself contractually
Clients have historically faced no consequences for late payment and simply move their business to another supplier if their current supplier stops providing service due to payment delays.
TMC’s and Travel Agents need to ensure that all clients are legally contracted and that contracts are created with both parties in mind. Unfortunately the nature of travel, required on-going relationships, and a market flooded with travel suppliers means that there are fairly limited options as far as recourse on late payments. Whereas other professional services would often charge interest on overdue accounts, or even go the litigation route, this is not something many TMC’s and Travel Agents consider doing.
However, it is not unusual to have a ‘late payment clause’ built into contracts which needs to be clearly explained to the client while payment terms are being agreed.
4. Create the right partnerships
There are many different payment options available in Kenya which can see the client paying for services at point of sale, as opposed to 15, 30 or even 60 days later.
However, the level of knowledge on how these products work and what the benefits for their clients are, is something not enough Travel Agents and TMC’s are familiar with. It is thus very important that they have in-depth conversations with their banking partners to understand these products, to investigate what kinds of concerns clients might have (fraud, billng etc) and then feed this information back to their clients.
From a strategic perspective, it is also possible to offer reduced fees to clients who opt for better, more convenient payment methods, thus providing a win/win for all.
Understanding the marketplace and individual clients is of vital importance. This enables open conversations with clients around moving them towards more convenient payment solutions, especially when working towards a ‘no credit’ environment.
5. New remuneration models
In addition to reviewing and amending (or totally removing) credit terms, TMC’s and Travel Agents also need to consider making changes to their revenue structures. The conventional Service or Transaction Fee models provide challenges for TMC’s and Travel Agents at times when there is minimal travel (or no travel due to the current global crisis). In addition, the other conventional model of Management Fees is something that Travel Buyers will push back against if they are not seeing consistent monthly service from their travel suppliers, especially if they simply see them as issuing tickets and hotel vouchers.
In the coming months, we may see a combination of different options where monthly Subscription Fees are paid to the TMC or Travel Agent, along with Transaction Fees per travel transaction. The CostPlus option will combine monthly Management Fees with Transaction Fees. In this way, even on months where transactional value is less than what the client originally committed, the TMC or Travel Agent still recieves consistent Subscription or Management Fee income.
Under a Management or Subscription Fee model, it is vital to show value that is not only around travel bookings. Access to technology, content, educational resources, management information and other services that clients value and are willing to pay for monthly will become extremely important.
6. Change is upon us
It is vitally important that TMC’s and Travel Agents engage clients at the correct management level when communicating required changes, especially if these changes need to take place quickly. Speaking to the internal travel co-ordinators or protocol managers (where the relationships are often held) will not be advisable over this time. Senior TMC and Travel Agency management should hold discussions with senior client management at a Financial / Procurement level.
Companies all need to adapt and change, both internally and with their external suppliers. Given the Covid-19 pandemic, there has never been a better time for change and to engage clients on new business models and requirements in order to move towards healthier business practices.
If you missed this webinar, you are able to listen to it online HERE.
This resource is free of charge for ABTA Members and non Members pay R 250 ($15).