BUSINESS BUYER’S HANDBOOK 2017 www.businesstravelnews.com Working With Airlines II. GATHER INFORMATION Proper data can help you win discounts for city pairs, multiple destinations from one city, regionally or across your travel program. A. Obtain information about your travel program from your TMC databases, online booking systems and third- party data consolidators: 1. Top 20, at least, city pairs by segment and count, including car- rier and origin and destination data. 2. Carrier spend per per route for the most recent 12 months. 3. Tickets and value per class of ser- vice, including full-fare economy, discounted economy, and . Know the tradeoffs in using booked, ticketed or flown data. AFTER A WAVE OF MAJOR U.S. AIRLINE CONSOLIDATION AND THE CONTINUAL While bookings data is available growth of airline alliances and joint ventures, business travel buyers today have fewer more readily and with less of a lag, it avenues to negotiate airline deals than existed a decade ago. Certainly, that doesn’t help does not have the same precision as buyers negotiating position, nor does a market where demand and load factors continue ticketed or flown data. to increase worldwide. But business travel remains a lucrative and desirable segment 4. Analyze corporate card data to find for carriers the world over, given the possibility of premium-class and other high-yield trips booked outside your TMC. travel, and airlines still will heavily compete for that business, despite the leverage that Airlines do not count those trips consolidation has delivered to them. Organizations with established airline programs toward the volume you agreed in that can prove compliance and an ability to deliver share will be in the best position to your contract to provide, but the receive those deals, and the following is a guide to help buyers develop one. volume does add to your negotiat- ing power, particularly if you’re able I. BEFORE YOU COMMIT to articulate actions you’re taking to Most corporate discount deals are measured on market share, but buyers can gain leverage minimize leakage. if they have high-yield spend like first or business class or full-fare coach available to shift B. Investigate government and indepen- to new suppliers. Airlines also desire discounted economy or lowest-logical-fare business, dent information on airlines. Perhaps providing it’s business the carrier would not receive without offering discounts. Considering an airline has low load factors on a that suppliers are consolidating, commit only to share you can manage. Many companies route your travelers fly frequently, or overcommit, and then underperformance puts programs at risk. Discount programs are perhaps another carrier has launched structured based on opportunities. Consider a few hundred thousand dollars as a minimum service on the route, allowing you to for the U.S. point of sale, though your agency can provide more exact benchmarks. If your negotiate aggressively. Be aware of volume does not meet the minimum, look into revenue- or sector-based incentive pro- airline customer service metrics. Some grams for back-end rebates, club passes, waivers and favors, upgrades and/or frequent-flyer airline or third-party providers offer status. Also look into the small-business programs some carriers offer. Some travel manage- reports on on-time performance, de- ment companies also provide their negotiated discounts to their customers, particularly layed flights and mishandled . with international carriers. Determine whether human resources, frequent-flyer loyalties The U.S. Department of Transportation and other costs of implementing preferred airline agreements are worth the benefits. provides such data for domestic airlines A. Estimate your domestic and international air volume for the next year based on last through the Bureau of Transportation year’s numbers and the company’s business plan, such as mergers and acquisitions, new Statistics at bts.gov. Also investigate product lines and new locations. Consider air volume for meetings and internal trips each airline’s maintenance issues and like training. Remember that volume ultimately is determined by business dynamics the average age of its aircraft. and the economy, not the travel manager. 1. Obtain marketshare information by B. Ask frequent travelers which airlines they use and why, assess frequent-flyer member- from the DOT, recogniz- ships, understand which air and ground amenities matter to travelers and determine ing that such data is free but dated willingness to support a preferred airline program. by at least a few months. Data from C. Determine the ‘value drivers’ of your organization and search for the most suitable other sources, including ARC, travel program accordingly. Make sure that the deal will satisfy your organization’s safety and agencies, consultants and other third security requirements as well. parties, can be costly. BUSINESS TRAVEL BUYER’S HANDBOOK 2017 AIRLINES www.businesstravelnews.com

2. Look closely at data for more than many airlines also contract services at headquarters. Such relationships one year to ensure you are refer- funds to offset many of those fees. ensure that changes in regional staff do encing an established trend. Look 4. Analysis of your organization’s travel not eradicate contacts. Headquarters- at different quarters of the year to patterns may present opportuni- relationships may be limited, determine the seasonal impact, ties for citypair-specific deals rather especially for smaller travel programs. acquisition or divesture activity and than systemwide deals, but do not Many airlines conduct quarterly or one-time impacts. sacrifice overall savings for sizable monthly progress reviews while others 3. Focus on the capacity each airline citypair-specific discounts. For more will meet only once or twice per year. has in given cities and on certain than one systemwide deal, carefully Generally, more interaction is better, as routes. The difference between one analyze which airlines will maximize strong airline reps have a current un- carrier’s 60 percent market share on citypair coverage without compro- derstanding of market developments a route and another carrier’s 20 per- mising your share obligation to pro- and can share best practices regarding cent share is significant to the buyer’s vide market share to other airlines. contract management and policy. opportunity to move share. 5. Determine whether the carrier 2. TMC contacts. 4. Useful information can be obtained participates in an airline alliance. a. The TMC might have an es- from several third-party firms and Some airline partners offer joint al- tablished relationship with the from consultants performing data liance deals, while others even have airline. If so, ensure your organi- analyses with optimization model- developed antitrust-immune joint zation’s goals are compatible with ing. This will take into account both ventures, through which partners this relationship. client traffic and airline capacity and manage capacity, fares and corporate b. TMCs frequently are the primary determine the optimal airline or deals as one entity. Determine the source for your organization’s airlines to serve your travelers. magnitude of alliance relationships spending history and can be part- C. Document your plan to shift market and how it impacts the carrier’s ne- ners in negotiations. share and influence travelers’ airline gotiating leverage. Consider whether 3. Peers and consultants can provide choices. Note past successes. the airline requires an agreement benchmarking data. Get involved D. Determine how and to what degree you through the joint venture as opposed with local boards, industry groups can leverage your employees’ meetings to either an alliance or individual for buyers and sellers and network- and incentive travel. carrier agreement. ing groups to share best practices E. Airlines increasingly charge for à la 6. Note your negotiating leverage. and industry trends. carte offerings above the base fare. a. Purchasing premium-class fares C. Some organizations, especially larger Ancillaries include seat selection, on long-haul routes on which ones, take a formal approach by dis- checked bags, early , Wi-Fi, multiple carriers compete for tributing requests for proposals to onboard meals and upgrades. Though works in your favor. headquarters and local sales offices. many of these fees are not negotiable, Airlines know they don’t have to Include essential information only. travel buyers should attempt to capture work hard to sell economy fares Agencies and consultants can help spending through expense report- on a short-haul route on which formulate and streamline the process. ing and corporate card data to show one carrier has a monopoly. airlines the total amount spent. b. A demonstrated ability to shift IV. NEGOTIATE THE DEAL F. Compile benchmarks. Data from peers travelers to an airline makes your A. Outline the benefits of your busi- and TMCs lend perspective. company a desirable customer. ness to the airline. Typically, airline Failure to deliver on marketshare agreements are written by and for the III. GET STARTED commitments you made to car- airlines, though your legal department A. Not all business is equally attractive to riers or inability to demonstrate may seek modifications. airlines. Understand your travel pat- that your policy can shift travelers 1. Even before you issue an RFP, provide terns and find a compatible supplier. causes airlines to question your data on your organization’s traffic 1. Recognize airline network strengths: ability to deliver on commitments. patterns and spend to prospective air Short-haul versus long-haul, hub and Noncontracted airlines will take partners. Highlight areas of interest to spoke versus point to point, interna- note when they are receiving far the airline, including such high-yield tional reach versus domestic focus. below their fair share of a market, purchases as international business 2. Recognize product differences. Some as it indicates your ability to sup- class. Many airlines will require your airlines are no-frills, low-cost opera- port preferred carriers. data to be processed through a third- tors, and others provide comprehen- B. Communication is key to any busi- party data aggregator before they sive services. ness relationship. submit a proposal. Allow four to six 3. Recognize the total cost. Some car- 1. Determine the degree of authority weeks to facilitate the data release au- riers offer low fares but charge for the airline delegates to local cor- thorization required for this process, seat assignments, carry-on baggage porate account executives, regional as it involves coordination between and other ancillaries that exceed the sales managers and the corporate the airline and any TMCs servicing cost of a traditional ticket. However, sales or business development director your organization. BUSINESS TRAVEL BUYER’S HANDBOOK 2017 AIRLINES www.businesstravelnews.com

2. Airlines are reluctant to offer trial kets with similar discounts or share ing transient and meetings spend- periods for contracts, but absent requirements where possible. ing for negotiating leverage. the appropriate data, you may be 2. Consider: b. Some airlines may offer back-end able to implement stair-step agree- a. Agreements that include carrier discounts or incentive payments ments in which the level of discount spend or segment goals might not to eliminate the risk of provid- increases with the volume deliv- be beneficial. They can be useful ing an upfront discount with ered. Be warned that such deals are for growing companies, though. no increase in share. Ensure all never as good as a formal bid based Consider revenue-based targets back-end rebates and discounts on historical data. Alternatively, a in lieu of segment-based targets, are guaranteed and communicate back-end rebate agreement may be a as high-revenue segments as they the benefits of any back-end deals possibility for newer travel programs carry higher discounts. to business travelers. with little or no track record. b. Most airlines only offer nominal c. Airlines typically discount the B. Be persistent. Airlines are selective discounts on lower-bucket fare types. base fare only, meaning all taxes, regarding the accounts on which Assess the impact of such practices. fees, surcharges and ancillaries are they bid. Offering more volume on c. Obtain assurances that the carrier added after the discount. international routes can revive rejected will reduce your traffic obliga- d. Determining the details of how the requests for domestic discounts. Try tion when it lowers its frequency airline will provide access to their to tie the two together for maximum or aircraft size in a given market. promotional fares is very important. purchasing power. Recognize that Once the contract is implemented, 4. Your discount might depend on your airlines place higher value on high- monitor events that could impact TMC’s override agreement, through yield purchases, such as business class, your agreement like strikes, which it receives compensation to international service and full-fare weeks of severe weather at a hub, drive volume to a particular airline. economy, and they discount accord- excessive cancellations or work The TMC might pass on to you the ingly. Historically, many companies slowdowns. This will improve the production-based revenue it earns have avoided putting all their eggs in discussion you and the carrier from the airline on business booked one basket, as market conditions and have about performance at the for your account. Be aware that these travel demographics can change. How- end of the measurement period. agreements may not align with your ever, as the dynamic between buyer If your business is particularly preferred airline mix. Though such and supplier becomes more strategic dynamic, you may even ask the agreements are confidential to airlines and buyers gain stronger voices in the airline to consider a share gap and TMCs, it’s possible to learn the industry through advisory forums, this target, which will automatically targets and the value of your organi- is no longer necessary. Willingness to adjust targets as your city pairs zation’s contribution to the override. offer exclusivity to an alliance should change or as the airline changes 5. Most airline deals are net fare agree- result in a better economic offer. service levels. These contracts set ments. However, some airlines only C. Show a strong front. the target as a marketshare gap provide back-end discount programs 1. Have your controller or senior over seat share. in certain international markets. financial manager attend negotiat- d. Don’t overestimate volume or E. Agree on the types and levels of inter- ing sessions to help crunch numbers the ability to deliver it to extract national discounts. and describe the organization’s fiscal a higher discount percentage. 1. Beware the pitfalls of carrier-spend direction. Summarize your organiza- Airlines often respond to an in- goals. Buyers have no control over tion’s value to the airline. ability to meet these obligations currency-conversion fluctuations or 2. Depending on the organization’s cul- with reduced cooperation, which fare wars that negatively impact such ture, include procurement and other will impact the value of discounts goals on international routes. departmental representatives at each earned in future negotiations. This 2. Guaranteed upgrades can be obtained step of the negotiating cycle. will impact your organization’s in lieu of a special fare or produc- D. Negotiate the types and levels of do- credibility and ability to negotiate tivity-based free tickets. Capacity- mestic discounts. favorable rates in negotiations. controlled, one-class upgrades now 1. Most airlines base discounts on the 3. Other discount options: are prevalent in specific markets. market share or incremental share a. Most airlines have fixed-percent- However, it can be difficult to mea- and/or revenue an organization age meeting fare discounts for a sure their value, and assessing how can provide, on specific routes, on group of people flying to the same carriers report their value is critical. multiple routes from one origina- destination, whether they’re start- Make certain this does not conflict tion point or on a systemwide basis. ing at the same departure point with your travel policy since upgrades Discount structures differ by airline, or not. Group and/or zone fares with one airline may set a precedent. so understand which fare classes are also may be available for groups 3. Some multinational agreements included in any agreement. Keep of travelers. Buyers should assess may include different discounts in the contract and the number of group and meeting products and different regions but also may pro- discounts manageable. Cluster mar- the potential benefits of combin- vide a bonus for overall multination- BUSINESS TRAVEL BUYER’S HANDBOOK 2017 AIRLINES www.businesstravelnews.com

al performance and other umbrella ney time a traveler could expect. a. Potential savings from their use of incentives. Strive for point-of-origin 6. Ensure you know which country’s ju- preferred airlines. pricing rather than point-of-sale risdiction govern the contract terms. b. Descriptions of any special pricing, so discounts are available 7. Ensure your organization’s legal programs to encourage use of the regardless of the country in which an department reviews the deal before airline, including monetary prizes, airfare is booked. signatures are applied. upgrades, advance seat assignments, 4. If you strike a deal with an airline that I. Ask to review the airline’s contractual access to lounges, extra distributes your traffic to codesharing terms and conditions at the beginning of frequent-flyer mileage as agreed to foreign partners, ensure systems are negotiations. A legal review can extend by the airline or perhaps free trips in place to guarantee the business is beyond the negotiation for the commer- not tied to a frequent-flyer program. credited to the contracted airline. cial discounts. This does not commit an B. Ensure your TMC and its representa- 5. If dealing with a joint venture or an organization to a formal agreement. tives are aware of the deal and under- alliance, push for full coverage from J. Set the contract length. stand their role in implementing it. all airlines from all points of sale. 1. Traditionally, deals negotiated 1. Make sure you and your suppliers F. Determine how the airline provides between organizations and airlines understand which party is respon- access to promotional fares and how extend for two or three years, with sible for fare filing and consider they can be used and counted within the latter preferred by many larger regular audits to verify accuracy. contracted programs. organizations given the time neces- 2. Define procedures both for travelers G. Some airlines may have a preferred sary to negotiate a deal. Most airline and for agents so they’ll book the payment or lower-cost payment vehicle agreements include formal periodic preferred airlines, and define the that could impact airline flexibility. reviews and exit clauses, generally at minimum savings required for the H. Other considerations. 30 days’ notice. acceptable use of nonpreferred 1. Keep traveler productivity in mind. 2. Some airlines offer so-called ever- carriers. Keeping travelers on connecting green options, wherein the terms, 3. Agree upon a recourse if a travel flights when nonstop flights are conditions and boilerplate legalese agent fails to book the preferred available or putting them on options of agreements are retained, allowing airline or mention its availability. that arrive the day before or depart buyers and airline sales personnel to Failure to take the discount on an the day after meetings come with focus exclusively on the commercial eligible fare is a common error when a very real economic cost. While terms at regular intervals. processing corporate accounts. the ticket cash savings may look K. Consider ethics. 4. Specify what the TMC and online attractive, in reality, the hidden costs 1. Airlines often will squelch deals if booking tool must do when your often can overwhelm the easier-to- they’ve been used to set a target level corporate traveler rejects a flight on measure cost savings. for negotiations with their competi- the preferred airline. For instance, 2. Make sure airlines’ proposed tion. Be careful: Word gets around the traveler’s refusal of a contracted discounts align with your historical about such double-dealing, and you airfare might trigger the produc- usage by booking class. Eye-popping could be precluded from discounts tion of an exception report that is discounts on seat classes your travel- with carriers in the future. forwarded to the travel office and the ers never use or can’t access at the 2. Keep the terms of your deals con- traveler’s supervisor. time of booking have no value. fidential. Most airline contracts are 5. Consider asking the TMC to publish 3. Home carriers do not need to work bound by nondisclosure agreements the savings and losses of accepting for business originating from their that prohibit the sharing of any the preferred airline booking on hubs or countries. Competitors often information without the airline’s ap- travelers’ itineraries. offer aggressive commercial propos- proval, except for ticketing instruc- 6. If your spend is sufficient, airlines als, provided you can shift travelers tions to your agency or airline- will allow your TMC to contact a from airlines to which they have appointed data processors. special desk for major corporate loyalty attachments. accounts. Through this channel, air- 4. Airlines aren’t motivated to discount V. MANAGE THE DEAL lines will consider matching prices routes they dominate, so try linking A. Inform employees, emphasizing senior on specific itineraries, enabling the discounts on these monopoly routes management support for the program. organization to save money while to marketshare commitments on 1. Post your travel policy on a corporate fulfilling marketshare commitments, routes where they have to compete intranet page and use both your on- or will provide other such waivers more for passengers. line booking tool and agency to steer and favors to support the program. 5. If your policy and culture allow, travelers to book preferred airlines. 7. Ensure your travel management explore connecting flights as cost- 2. Consider sending a memo that reiter- company does not have travel coun- savers, especially for long-haul trips ates travel policy and encourages the selor booking incentives that conflict in which connection time is a small use of your preferred airline or airlines. with your organization’s interests. portion of the total journey. Make 3. Consider holding employee semi- C. Monitor the deal through manage- clear in policy the maximum jour- nars. Include in a presentation: ment reports from your BUSINESS TRAVEL BUYER’S HANDBOOK 2017 AIRLINES www.businesstravelnews.com

and airline, both to assess the effec- b. The amount of business directed Major airlines are willing to negotiate tiveness of the current deal and to pre- to the airline before and currently. a limited number of instant elite status pare for future negotiations. Airlines c. If applicable, reasons why the designations or status matches, which use sophisticated tracking tools to traveler did not use the preferred can help frequent travelers transition to gauge corporate client performance so airline, such as travel agent error, a new preferred carrier and shield them they can amend or cancel the contract schedule, employee refusal, the from certain ancillaries. if goals are not met. In many cases, the organization’s lowest-logical-fare B. Upgrades. airline will provide the buyer with re- policy or unavailability of seats, 1. Many airlines award upgrades ports. Before an airline review, prepare perhaps due to a carrier decreas- almost exclusively to elite mem- for any performance or opportunity ing the service it provides in a bers of their loyalty programs, but discussions. The airline will prepare particular market. increasingly airlines are making seat data and objectives. D. Consider hiring a third-party audit upgrades available for sale at the 1. Watch corporate traveler compliance firm to monitor your TMC’s perfor- time of check-in. with the agreement and consider mance in booking your organization’s 2. Make sure travelers know if you deploying incentives to ensure it. Pass preferred airlines. This may prove have a deal providing upgrades on a along management reports to depart- particularly helpful for an organization space-available basis. ment heads to track performance. with multiple agencies. C. admissions. Internal benchmarking, or measur- 1. Have the auditor examine avail- 1. Some airlines offer complimentary ing compliance among departments able data, including the percentage airport lounge memberships in lieu or lines of business, can serve as a of time your agency offered the of discounts or with certain types of powerful travel management tool. discount fares when such discounts tickets, usually in premium classes. 2. Keep track of whether your organiza- were applicable, how frequently 2. Some provide a limited number of tion is booking flights at a pace that travelers accepted them and why airport lounge admissions on request. will meet the agreed-upon market- travelers declined to accept them. 3. Airlines increasingly offer reciprocal share commitments. Keep in mind 2. Determine whether the airline airport lounge access for customers seasonal travel patterns. What might imposed limits that aren’t in the of airline partners or those within an look like a shortfall or excess volume contract on the availability of dis- airline alliance. at one point might end up being cor- counted fares. D. Often, corporate deals offer executives rected by year-end. Your travel agency E. Renegotiate the deal, if warranted. In special services. The number of execu- may have tools for managing multiple most cases, if an organization has gener- tives that may be enrolled generally is contract goals at the point of sale. ated even a small increase in market based on the organization’s spend. Air- 3. Maintain an open line of communi- share for the airline, it probably can get at lines also may provide separate airport cation with your travelers via corpo- least a one-year renewal. If an organiza- check-in for some accounts. rate intranets, email, surveys, social tion consistently exceeded targets or met E. Some airlines sell bulk-purchase tickets networks and memos to hear their them despite obstacles, it should request or flight passes, which require an up- opinions about whether the airline a larger discount. Travel buyers should front payment but can provide savings is providing acceptable service. Have regard the contract as a living docu- when contracted upfront discounts are copies of all queries and complaints ment. As travel patterns change, amend difficult to secure. These programs can forwarded to your office. goals and discount levels. Keep abreast offer great value if an organization can 4. Maintain contacts with multiple of mergers and acquisitions that could manage the internal aspect. Typically, levels within airline sales organiza- impact your company’s travel patterns. one cost center makes the deposit and tions to develop long-term relation- F. Monitor the competitive dynamics of other cost centers burn off the credit. ships and to ensure the organization key routes. If a new entrant challenges F. Some airlines will consider prepay- and airline share a view of how the your preferred airline on a monopoly ment at fixed rates in certain city pairs agreement is being honored. Estab- route, try renegotiating a more favor- and payment on a cost-per-mile basis, lish multiple contract-performance able deal with your current preferred perhaps with a pay-at-use concept. checkpoints throughout the course airline. Alternatively, if a carrier exits a G. Investigate an airline’s international of a contract. route and a remaining airline mo- safety and security procedures and 5. Many large companies use third nopolizes it, make sure your discounts airport facilities. parties to analyze contract perfor- cover the correct booking classes in H. Ensure the airline will relieve you mance and understand how airline case the airline decides to yield-manage of all airline contract commitments yield management affects preferred its inventory to take advantage of its during labor-related work stoppages corporate deals. stronger market position. or slowdowns. 6. Compile data from management re- ports for use in negotiations at least VI. MISCELLANEOUS Prepared with assistance from Turkish one month before the contract is set A. Though airlines largely are unwill- Airlines regional corporate account manager to expire. Such data should include: ing to eliminate baggage fees, they Uğur Akkaş and GoldSpring Consulting a. Average fare per negotiated route. often waive them for frequent flyers. partner Neil Hammond