African Travel Management Companies

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It’s Their Time

Travel is a thriving business and Africa is in the spotlight, with increased interest in the continent, predominantly from a business travel point of view. With this type of travel representing the ‘cash cow’ for many TMCs across the world, just what are the current challenges facing those operators with bases in Africa, and just what is the current state of the industry? Lisa Witepski did a tour of some of the bigger players, to get their thoughts on just where African TMCs stand, and what the future holds for them.

Africa is a complex place to do business. On the one hand, there is great opportunity and even more opening up all the time, making it exciting frontier country and the place where everyone wants to be. On the other, there are some very real challenges to be overcome if one is to succeed. The travel business is not exempt from this and travel management companies across the continent are at the coalface of what is an increasingly dynamic industry.

At face value, it appears that the industry’s growth is being spurred by development on the continent itself, driven by large investment, thanks predominantly to Africa’s mineral wealth and the attitude that the continent is the last of the world’s untapped resources. All of which means that the travel industry is well poised to cash in. Or is it?

“There is a lot of opportunity within the African market as Africa is one of the few markets where double digit growth can be guaranteed over the next few years,” says Morne du Preez, CEO of Tourvest Travel Services, just one of the big groups based in South Africa, and who have a significant presence across the rest of the continent. Tourvest is the master franchise holder for the American Express Travel brand in the whole of Africa, and the group comprises a host of travel agency brands, including Seekers Travel, Maties Travel, Indojet Travel and Travel.co.za.

Du Preez, therefore, is well qualified to speak on what opportunities there are across Africa, with American Express Africa TMCs operating under guidance from American Express Travel Services South Africa, which, according to Tourvest, “ensures the streamlining of processes and service levels across the continent.”

So, the strings are still pulled from South Africa, as with many of the big travel groups. South Africa likes to regard itself as the economic powerhouse of the continent, but that doesn’t mean the approach in the rest of Africa, follows its lead, it seems.

“In the rest of Africa, the focus is more on competitive pricing and getting seats on flights, whereas in South Africa, we concentrate more on the value adds,” says Robert Wilke, CEO of Travel With Flair.

For Shaun Anderson, Business Development Director at HRG Rennies Travel, it’s not that simple, and he believes that more thought needs to be given to the issue of different approaches in different markets.

“It’s actually dependent on the African market in question,” says. “The markets that are improving are those that receive global business and have to adhere to a certain level of service across borders.”

According to Ben Langner, Managing Director of Carlson Wagonlit, the majority of the big, global TMCs have a presence in Africa, whilst there are also a number of emerging TMCs that have entered the fray and operate on a regional basis. That being said, most of the major players have their bases in South Africa and manage offices or satellite offices centrally.

The existence of this large number of players may be why Mike Gray, CEO of Uniglobe, says that the African TMC industry is best described as ‘overtraded’.

“Of course, it’s impossible to generalise,” he says. “But on the whole, there are more TMCs in operation than there is business available. As a result, there is tremendous price competition.”

This competition is intensified by the fact that the industry – which is ‘quite mature’ – has consolidated around a few key global brands. Collectively, these outfits control more than 75% of the market.

Nonetheless, demand for travel into Africa is certainly there, driven by trends like globalisation and the international economic downturn, which have forced businesses which may previously have held reservations about entering African territories, to review their strategies. That said, while demand is growing, there are certainly challenges that make it difficult to service this demand.

“Political and economic reforms may be creating huge potential, but at the same time, they are exposing unique obstacles. Africa is a destination that requires special corporate travel expertise,” says Themba Mthombeni, CEO of Duma Travel. Mthombeni goes on to cite the issues of cultural differences and climate, along with the special attention that must be given to entry visas and immunisation requirements. On top of that, travellers should not take for granted things which may be considered fundamentals in other destinations, like cell phone coverage and Internet access. A knowledge of suppliers (which are limited), evacuation contingency plans and payment methods, are all crucial, according to Mthombeni.

Gray agrees. He maintains that “keeping up with technological advances, especially those brought about by the development of GDS, third party solutions and the Internet, are among the key challenges faced by TMCs in Africa. A second major issue is finding and keeping competent staff,” he says. Gray is not referring to the competencies which have traditionally been sought, but the up to date technical, financial accounting and expert communications skills, which are essential in the workplace of the 21st century.

Simon Phage, Chief Operating Officer at Wings Travel Management, identifies local payment solutions as a specific challenge facing TMCs in Africa. This is particularly pertinent in Angola and West Africa, he says.

“In many developing countries, there are no universal payment systems and cash is often the accepted payment method. This can create a cumbersome, inefficient process,” says Phage.

Du Preez agrees, saying: “One of the main issues faced when entering the African market are difficult payment facilitation processes, as well as government trading legislations and regulations. For example, the withholding of taxes etc.”

Everyone knows that in Africa, ‘cash is king’. So, Du Preez and Phage should be happy to hear that MasterCard is on a big drive to play some role in moving some of the bigger African economies towards a cashless society. Nigeria is very much on their radar, but by their own admission, they face a huge challenge in changing the culture, notwithstanding the technological challenges that exist. Very simply, it’s going to be some time before cash is not the preferred payment method on the African continent, but financial services players such as MasterCard have at least recognised the need and the opportunity.

For Anderson, though, the focus, going forward, should be elsewhere.

“From a client perspective, data quality and an adherence to the travel policy is king,” says Anderson. “Global compliance and ensuring best practice, as well as consistent service levels across the various markets, is also very important. Traveller safety and well-being is important when companies procure travel on the continent. Travel consultants need to be experts and provide real value – that is, checking routings, airlines, hotel quality, hotel pricing, secure transfers etc.”

That might be a bit more than some TMCs are currently offering, but in these tight economic times, clients are always looking for ‘more bang for their buck’. With companies in all industries having to watch their overheads, some TMCs could be caught out, as they attempt to look after the bottom line.

In this environment, warns Bulelwa Kolyana, CEO of the South African Travel Centre, agencies need to be realistic about low profit margins, especially in an industry that has been severely affected by disintermediation. Moreover, although barriers to entry are low, the market is not an easy one, particularly for newcomers.

“Although the entry of new airlines has stimulated the market, the base of travellers still needs to grow,” says Kolyana. However, for those players who are ready to brave the market, the rewards may be considerable.

Currently, it’s the big international travel groups who are reaping those rewards, and it may require a brave and dynamic individual, or group of individuals, to start something new and take on the big boys.

But, what about the countries themselves? Opportunity must be specific to certain countries and those where the market is buoyant, whilst not being over-traded. Is that indeed the case?

“It’s market specific,” says Anderson. “But in the following countries – South Africa, Kenya, Nigeria, Ghana, Angola and Tanzania – the market is improving continuously. These countries service multinational clientele and are operating in the global travel management framework. Some smaller markets still do not have much international exposure, but this is increasing and will continue to increase as long as there is a growing demand to be doing business in Africa.”

In Kolyana’s opinion, online travel has not taken off in Africa to the same extent as in other markets, largely because travellers still have strong relationships with agencies and depend on them to a large degree – never mind the fact that the technological infrastructure is just not there, along with low Internet penetration in many countries.

“In spite of all the technological advances made, the value of the human touch is highly appreciated by clients, especially when it comes to booking international travel,” she says. Kolyana, though, would do well to monitor the progress of Lagos-based Wakanow, which appears to be gaining serious traction in the Nigerian online market.

Then you have Skyjunxion, the agency that is entirely web-based – a feature it believes enables it to “offer world class functionality at a price to make clients smile,” according to Managing Director, Yvette Charles. “Why pay for costly traditional infrastructure when, most of the time, you don’t need it?” she says.

Since the company has focused on online channels since inception, it hasn’t tried to make its processes fit into traditional channels. So, everything the customer experiences has been designed specifically for the digital environment. That said, Skyjunxion does also have an offline service for those who are not entirely comfortable with the online environment. It is part of a global network and the powers-that-be may find more of a challenge outside of South Africa, in the African countries that are less developed, from a technological point of view.

The technology argument is one issue. Another is corporates deciding to dispense with the services of a TMC, to cut costs by taking their travel management in-house.

However, Andrew Stark, General Manager of Corporate Traveller, warns that the do-it-yourself concept for corporates isn’t appropriate for the African context.

“Some company offerings make it sound as though customers can do their own travel management internally, and that this is more cost effective, but there is not one success story to prove that this works,” he says.

Du Preez, in turn, says he’s not fazed by the threat of losing business, as more corporates look to tighten their belts and take their travel management in-house.

“We do not see a danger, as all companies focus their energies on their own expertise and will always benefit from having a TMC assisting them with saving on travel and negotiating good corporate agreements on their behalf,” he says.

Anderson whistles a similar tune, saying: “We do not see this being a danger. Clients will in all likelihood investigate moving travel booking into an online environment to reduce costs, before taking the programme in-house, which is not always cheaper. During tough economic times, the norm is for companies to tighten belts and more importantly, focus on their core business. Travel is not their core business. Yes, they will look to find ways to reduce travel spend, which for most companies is the second largest expense behind manpower, but our experience shows that to take this entirely in-house is not always viable.”

Some fairly strong arguments in favour of TMCs versus the in-house travel option. But, well, these gentlemen would say that, wouldn’t they, as all the TMCs quoted in these pages would not be doing their jobs, if they didn’t attempt to protect their turf. But, there is some merit in what Stark, Du Preez and Anderson are saying.

As already mentioned, there’s also the question of infrastructure – an issue which affects TMCs as much as it does travellers. That’s because travel companies have had to invest significantly in uninterrupted power supplies, such as generators. That is equipment which is costly, both as an initial investment and on an ongoing basis.

“The lack of infrastructure adds a time factor for business travellers, because it takes much longer to get from one place to another,” says Wilke. “This sometimes results in missed flights. This snowball effect – which is exacerbated by a lack of regular flights –places a lot of pressure on the local TMCs.”

Wilke is confident, though, that there is much scope for growth on the African continent, and while economies become stronger, TMCs will enjoy better opportunities. There are some basic stumbling blocks to be overcome, however. While Africans are famed for their can-do attitude and a service ethic which ensures that everything is done with a smile, more attention must be paid to training and development, particularly when it comes to informing staff about new products and industry trends.

And what of the general state of the industry, taking into account some of the challenges already pointed out?

“The impact of the recession has definitely been felt,” says Kolyana. “Nonetheless, TMCs have come up with strategies to leverage economies of scale by negotiating lucrative deals with suppliers.”

Gray has also observed the impact of the recession which, he says, has put pressure on prices and the margins needed to maintain investment in technical solutions and human development.

“Suppliers and customers are constantly looking for opportunities to disintermediate TMCs, so that they are cut out of the transaction,” he says. “The costs of their services are viewed as a source of improving margins or reducing costs.”

But, he says, few corporates are, in fact, able to in-source the management of business travel (from policies to business intelligence) at a lower cost with any degree of success, because the industry is so complex. All the same, clients are ever more demanding, and place increasing pressure on TMCs to reduce travel costs (including costs associated with internal processing and management), whilst maintaining a medium risk level of travel service for their staff. These demands make the industry an even more complex one to work in, especially when it comes to implementing client accounts – which, if done correctly and in line with current best practice, requires significant investment in high-tech and high-touch solutions, that evolve business intelligence and travel service needs.

According to Mthombeni, many TMCs fall short, because they expect international travel models to be imposed on regional African travel, with the same degree of success.

“While certain countries, such as Zimbabwe, Kenya and Ethiopia have very well established travel systems – such as hotels, airlines, payment systems, transfers and TMCs – others, such as Angola still have very rudimentary systems in place,” he says.

In his view, the effects of the recession in Africa are, in fact, an extension of its impact on the rest of the world.

“The economic downturn resulted in a depressed international corporate travel market. While we are seeing corporate travel volumes increasing, margins are not following suit,” he says.

But there is an upside.

“There has been a dramatic increase in Africa-to-Africa travel in the corporate market, and many large companies have opened branches in Africa to better service this market,” says Mthombeni. 

For Langner, the presence of so many TMCs at different stages of maturity, together with the fact that their offerings evolve and develop at different paces, has created a complex environment.

“You might find some companies that perform at the same levels as those in Europe or North America, while others are simply unable to match this service, often for reasons outside of their control. Compare TMCs in South Africa and South Sudan, for example,” says Langner.

But where African TMCs do have the upper hand, he continues, is that they are able to offer corporate clients a service that is relevant to their travellers, smoothing over any challenges they may encounter – problems with payment systems, for example (because credit cards are not accepted on many parts of the continent); or reducing safety, security and health risks. Their local knowledge further empowers them to identify appropriate solutions for transport in areas where road and general infrastructure is poor, or to assist in overcoming bureaucratic obstacles.

“Such support is not only operationally important to corporates doing business in Africa, it’s essential in terms of their obligations to their travellers – especially given current day expectations related to their duty of care to their staff,”  says Langner.

The last word goes to Stark, who notes that, although micro and macro markets are under pressure with tighter budgets, Africa’s TMC market is growing.

“The smarter, innovative companies will continue to flourish, while the conservative ones are under threat,” he concludes.

As with every industry out there, it’s a competitive market, and as sure as night follows day, only the strongest and most adaptable will survive.

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