Prologue:
When you think about a “double-agent,” perhaps you recall the most famous and recent one, FBI Special Agent Robert Philip Hanssen, who ultimately became the most damaging spy in Bureau history. He held a senior position at the FBI, yet he was caught trading highly-classified secrets to the KGB for cash, diamonds and Rolexes (assuming they are easier to conceal).

A fascinating TV series titled “Americans” was about two KGB officers who posed as a married couple and American citizens with two children. Their “cover” was that they owned a travel agency in Washington, DC. They maintained their cover for five seasons, even from the FBI agent who lived next door. I’m not suggesting that any real-life travel agency owners are “spies,” but I will draw the parallel of “double-agent” after I tie this to the recent changes in real estate agent commissions.

Real Estate Agent Model:
The real estate agent model goes back to 1915. The National Association of Realtors (then knowns as the National Association of Real Estate Exchanges) created the standardized commission structure where the seller of the home pays a percentage of the sale price to the seller’s agent, who then shares the commission (rebate) with the buyer’s agent.

In cases where the seller and the buyer are both represented by the same agent, the agent gets both sides of the income. As an example, let’s consider a house selling for $500,000: The commission is typically 6 percent, so each agent shares equally in the $30,000 commission. The commissions are tied to the sale price and shared between both buyer and seller agent. Part of the challenge with this dual-income stream is that in many cases, the buyer agent would scan the MLS System (the GDS for realtors) and cherry pick the homes for sale that paid the highest commission.

That is, until recently…

The New Realtor Model:
In November, a Federal jury in Missouri found the NAR and two large brokerage firms had conspired to keep commission costs artificially high, awarding $1.8 billion in damages, which could rise to more than $5 billion under antitrust rules. Faced with that, and a spate of similar lawsuits across the country, realtors reached a settlement that included significant changes in the commission model.

“So much of the industry doesn’t make sense from a commonsense point of view,” said Stephen Brobeck, a senior fellow with the Consumer Federation of America, who’s been advocating for realtor commission changes for decades. “The key argument was it’s just not fair for sellers to pay both the listing agent and the buyer’s agent.”

Now, a seller will need to decide whether, and how much, to pay a buyer’s broker. Whatever the decision, that information can no longer be included in what’s known as the multiple listing service, or MLS, the official real estate data service used by local realtor associations.

The TMC Compensation Model:
Now let’s draw the analogy with TMCs. Ever since the airlines “cut commissions” (that does not mean they don’t pay overrides), the Travel Agency model changed itself to be the Travel Management Company (TMC), arguing they “were no longer agents of the airlines, they work for the corporate client.” The reality is that, for the TMC, the model is still a dual-income stream. The TMC is paid a Transaction Fee, or PNR Fee, but also earns compensation (cash, soft dollars, etc.) from the major suppliers (airlines, hotels, GDS). I am not saying that the model should be one or the other (not yet anyway), but let’s use a similar analogy to the home sale I provided previously.

The Challenge:
Let’s look at two PNRs, both flying JFK-LAX on the same days and at the same time of day:
• PNR “A” is round trip on a network carrier in Business Class, has a 4-night stay at a 4-star property at $500/night and it’s not at the client’s negotiated rate (therefore commissionable).
• PNR “B” is on an airline without “hubs” and the passenger did not book the hotel through the TMC or the OBT (which happens 50 percent of the time for the last decade).

In both cases the TMC charges the same transaction fee if the booking is “Online Touchless” or Offline (by phone or e-mail). The challenge is that in PNR A, besides earning overrides (and possibly commissions for premium cabin), the TMC earns GDS incentives for the flights and the hotels. The TMC also earns $200 in hotel commissions whether it’s online or offline. This does not make sense as a financial model, or a business model.

The client that only books half of their hotel rooms via the TMC is negatively impacting the TMC’s income on GDS incentives and hotel commissions (which are allegedly the highest revenue stream to the TMC).

I propose that an “Unattached PNR” (meaning no hotel booked but the flights are overnight) should have a higher transaction fee from the TMC because it impacts their income, is non-compliant to policy and affects the company’s ability to locate an employee in a city that has been adversely affected by weather, riots, strikes, etc.

On the flip side, how does a TMC justify a transaction fee on top of PNR A when we know they will be paid more than $200 from the hotel, the GDS and probably the airline?

In Conclusion:
The dual-role and therefore dual-income stream for a TMC needs to be re-examined. If there’s limited-to-no transparency in the supplier income generated by an account, perhaps it’s time for the TMC to decide (on a case-by-case basis) if the corporate account generates sufficient supplier income to waive the Transaction Fee; or on the flip-side, perhaps the client can receive the majority of the supplier income (hotel commissions, overrides) and the TMC can charge an appropriate higher fee.

Blending the transaction fee is the simplest model, as it is retaining all commissions. That doesn’t mean it’s the most appropriate way to run a TMC-client relationship. It certainly benefits the TMC more than it benefits the client who has no visibility to the supplier income streams to the TMC.

NB: As to consultants who play a dual-role: “Caveat Emptor.”

Andrew W. Menkes, CTC, is the Founder and CEO of Partnership Travel Consulting, a global corporate travel sourcing and strategy company. A business travel pioneer, Andrew has led technology innovation in the industry, including the first internet-based electronic ticket purchase. He was the first travel manager to be accredited by ARC to operate a Corporate Travel Department. He has been named Travel Manager of the Year, listed twice in the Top 25 Most Influential Business Travel Executives, and was the first travel buyer to be inducted into the Business Travel Hall of Fame.