Working with Airlines A

BUSINESS TRAVEL BUYER’S HANDBOOK 2016 AIRLINES Working with Airlines A. Obtain information about your travel program from your TMC databases, online booking systems and third- party data consolidators: 1. Top 20 city pairs by segment and passenger count, including carrier and origin and destination data. 2. Carrier spend per airline per route for the most recent 12 months. 3. Tickets and value per class of service, including full-fare economy, discounted economy, business class and rst class. Know the trade o s in using booked, ticketed or own data. While bookings data is available more readily and with less of a lag, it does not have the same precision as ticketed or own data. WITH THE FINAL MAJOR STEP IN THE AMERICAN AIRLINES-US AIRWAYS 4. Analyze corporate card data to nd consolidation completed last year, U.S. travel buyers ﬁ nd themselves with only three trips booked outside your TMC. legacy carriers left, and airlines globally continue to tighten up with alliances. Consolidation Airlines do not count those trips has continued this year, as Alaska Airlines agreed to acquire Virgin America. Even so, toward the volume you agreed in plenty of negotiating opportunities remain for corporate air programs, which usually your contract to provide, but the represent the biggest portion of overall travel spending. Airlines continue to want volume does add to your negotiat- high-yielding, corporate business and are battling to improve reliability and onboard ing power, particularly if you’re able experience in order to win it. Volume, of course, remains king in airline negotiations, but to articulate actions you’re taking to a smaller program that can demonstrate compliance and business on key routes will minimize leakage. have an advantage against larger programs with little grasp of data and traveler behavior. B. Investigate government and indepen- dent information on airlines. Perhaps I. BEFORE YOU COMMIT an airline has low load factors on a Most corporate discount deals are measured on market share, but buyers can gain leverage if route your travelers y frequently, or they have high-yield spend like rst or business class or full-fare coach available to shi to new perhaps another carrier has launched suppliers. Airlines also desire discounted economy or lowest-logical-fare business, providing service on the route, allowing you it’s business the carrier would not receive without o ering discounts. Considering that suppli- to negotiate aggressively. Be aware ers are consolidating, commit only to share you can manage. Many companies overcommit, of airline customer service metrics. and then underperformance puts programs at risk. Discount programs are structured based Some airline or third-party provid- on opportunities. Consider a few hundred thousand dollars as a minimum for the U.S. point ers o er reports on on-time perfor- of sale, though your agency can provide more exact benchmarks. If your volume does not mance, delayed ights and mishan- meet the minimum, look into revenue- or sector-based incentive programs for back-end dled baggage. ! e U.S. Department rebates, club passes, waivers and favors, upgrades and/or frequent- yer status. Some travel of Transportation provides such data management companies also provide their negotiated discounts to their customers, particu- for domestic airlines through the larly with international carriers. Determine whether human resources, frequent- yer loyalties Bureau of Transportation Statistics at and other costs of implementing preferred airline agreements are worth the bene ts. bts.gov. Also investigate each airline’s A. Estimate your domestic and international air volume for the next year based on last maintenance issues and the average year’s numbers and the company’s business plan, such as mergers and acquisitions, age of its aircra . new product lines and new locations. Consider air volume for meetings and inter- 1. Obtain marketshare information by nal trips like training. Remember that volume ultimately is determined by business city pair from the DOT, recognizing dynamics and the economy, not the travel manager. that such data is free but dated by at B. Ask frequent travelers which airlines they use and why, assess frequent- yer member- least a few months. Data from other ships, understand which air and ground amenities matter to travelers and determine sources, including ARC, travel willingness to support a preferred airline program. agencies, consultants and other third parties, can be costly. II. GATHER INFORMATION 2. Look closely at data for more than Proper data can help you win discounts for city pairs, multiple destinations from one one year to ensure you are refer- city, regionally or across your travel program. encing an established trend. Look

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at di erent quarters of the year to many of those fees. relationships ensure that changes determine the seasonal impact, 4. Analysis of your organization’s travel in regional sta do not eradicate acquisition or divesture activity patterns may present opportuni- contacts. Headquarters-level rela- and one-time impacts. ties for citypair-speci" c deals rather tionships may be limited, espe- 3. Focus on the capacity each airline than systemwide deals, but do not cially for smaller travel programs. has in given cities and on certain sacri" ce overall savings for sizable Many airlines conduct quarterly routes. ! e di erence between one citypair-speci" c discounts. For more or monthly progress reviews while carrier’s 60 percent market share on than one systemwide deal, carefully others will meet only once or twice a route and another carrier’s 20 per- analyze which airlines will maximize per year. Generally, more interac- cent share is signi" cant to the buyer’s citypair coverage without compro- tion is better, as strong airline opportunity to move share. mising your share obligation to pro- reps have a current understand- 4. Useful information can be obtained vide market share to other airlines. ing of market developments and from several third-party " rms and 5. Determine whether the carrier can share best practices regarding from consultants performing data participates in an airline alliance. contract management and policy. analyses with optimization model- Some airline partners o er joint 2. TMC contacts. ing. ! is will take into account both alliance deals, while others even have a. ! e TMC might have an estab- client tra# c and airline capacity developed antitrust-immune joint lished relationship with the airline. and determine the optimal airline ventures, through which partners b. TMCs frequently are the pri- or airlines to serve your travelers. manage capacity, fares and corporate mary source for your organiza- C. Document your plan to shi$ market deals as one entity. Determine the tion’s spending history and can share and in% uence travelers’ airline magnitude of alliance relationships be partners in negotiations. choices. Note past successes. and how it impacts the carrier’s 3. Peers and consultants can provide D. Determine how and to what degree negotiating leverage. Consider benchmarking data. Get involved you can leverage your employees’ whether the airline requires an with local boards, industry groups meetings and incentive travel. agreement through the joint venture for buyers and sellers and network- E. Airlines increasingly charge for à la as opposed to either an alliance or ing groups to share best practices carte o erings above the base fare. individual carrier agreement. and industry trends. Ancillaries include seat selection, 6. Note your negotiating leverage. C. Some organizations, especially larger checked bags, early boarding, Wi-Fi, a. Purchasing premium class fares ones, take a formal approach by onboard meals and upgrades. ! ough on long-haul routes on which distributing requests for proposals to many of these fees are not nego- multiple carriers compete for headquarters and local sales o# ces. tiable, travel buyers should attempt passengers works in your favor. Include essential information only. to capture spending through expense Airlines know they don’t have to Agencies and consultants can help reporting and corporate card data to work hard to sell economy fares formulate and streamline the process. show airlines the total amount spent. on a short-haul route on which F. Compile benchmarks. Data from one carrier has a monopoly. IV. NEGOTIATE THE DEAL peers and TMCs lend perspective. b. A demonstrated ability to shi$ A. Outline the bene" ts of your busi- travelers to an airline makes your ness to the airline. Typically, airline III. GET STARTED company a desirable customer. agreements are written by and for the A. Not all types of business are equally Failure to deliver on marketshare airlines, though your legal depart- attractive to airlines. Understand commitments you made to car- ment may seek modi" cations. your travel patterns and " nd a com- riers or inability to demonstrate 1. Even before you issue an RFP, patible supplier. that your policy can shi$ travelers provide data on your organiza- 1. Recognize airline network strengths: causes airlines to question your tion’s tra# c patterns and spend to Short haul versus long haul, hub and ability to deliver on commitments. prospective air partners. Highlight spoke versus point to point, interna- Noncontracted airlines will take areas of interest to the airline, in- tional reach versus domestic focus. note when they are receiving far cluding such high-yield purchases 2. Recognize product di erences. below their fair share of a market, as international business class. Some airlines are no-frills, low- as it indicates your ability to sup- Many airlines will require your cost operators, and others provide port preferred carriers. data to be processed through a comprehensive services. B. Communication is key to any busi- third-party data aggregator before 3. Recognize the total cost. Some ness relationship. they submit a proposal. Allow four carriers o er low fares but charge 1. Determine the degree of authority to six weeks to facilitate the data for seat assignments, carry-on the airline delegates to local cor- release authorization required for baggage and other ancillaries that porate account executives, regional this process, as it involves coordi- exceed the cost of a traditional sales managers and the corporate nation between the airline and any ticket. However, many airlines also sales or business development TMCs servicing your organization. contract services funds to o set director at headquarters. Such 2. Airlines are reluctant to o er trial

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periods for contracts, but absent Keep the contract and the number b. Some airlines may o! er back-end the appropriate data, you may of discounts manageable. Cluster discounts or incentive payments be able to implement stair-step markets with similar discounts or to eliminate the risk of provid- agreements in which the level of share requirements where possible. ing an upfront discount with discount increases with the volume 2. Consider: no increase in share. Ensure all delivered. Be warned that such a. Agreements that include car- back-end rebates and discounts deals are never as good as a formal rier spend or segment goals are guaranteed and communi- bid based on historical data. might not be beneficial. cate the bene" ts of any back-end Alternatively, a back-end rebate b. Most airlines only o! er nomi- deals to business travelers. agreement may be a possibility for nal discounts on lower-bucket c. Airlines typically discount the newer travel programs with little fare types. Assess the impact of base fare only, meaning all taxes, or no track record. such practices. fees, surcharges and ancillaries B. Be persistent. Airlines are selective c. Obtain assurances that the carrier are added a$ er the discount. regarding the accounts on which will reduce your tra# c obliga- 4. Your discount might depend on they bid. O! ering more volume on tion when it lowers its frequency your TMC’s override agreement, international routes can revive rejected or aircra$ size in a given market. through which it receives compensa- requests for domestic discounts. Try Once the contract is implemented, tion to drive volume to a particular to tie the two together for maximum monitor events that could impact airline. % e TMC might pass on to purchasing power. Recognize that your agreement like strikes, you the production-based revenue airlines place higher value on high- weeks of severe weather at a hub, it earns from the airline on business yield purchases such as business class, excessive cancellations or work booked for your account. Be aware international service and full-fare slowdowns. % is will improve the that these agreements may not be economy, and they discount accord- discussion you and the carrier have in line with your preferred airline ingly. Historically, many companies about performance at the end of mix. % ough such agreements are have avoided putting all their eggs in the measurement period. If your con" dential to airlines and TMCs, one basket, as market conditions and business is particularly dynamic, it’s possible to learn the targets and travel demographics can change. How- you may even ask the airline to the value of your organization’s ever, as the dynamic between buyer consider a share gap target, which contribution to the override. and supplier becomes more strategic will automatically adjust targets 5. Most airline deals are net fare agree- and buyers gain stronger voices in the as your city pairs change or as the ments. However, some airlines only industry through advisory forums, this airline changes service levels. % ese provide back-end discount programs is no longer necessary. Willingness to contracts set the target as a market- in certain international markets. o! er exclusivity to an alliance should share gap over seat share. E. Agree on the types and levels of result in a better economic o! er. d. Don’t overestimate volume or international discounts. C. Show a strong front. the ability to deliver it to extract 1. Beware the pitfalls of carrier-spend 1. Have your controller or senior a higher discount percentage. goals. Buyers have no control over " nancial manager attend negotiat- Airlines o$ en respond to an currency-conversion & uctuations ing sessions to help crunch numbers inability to meet these obliga- or fare wars that negatively impact and describe the organization’s " scal tions with reduced cooperation, such goals on international routes. direction. Summarize your organiza- which will impact the value 2. Guaranteed upgrades can be tion’s value to the airline. of discounts earned in future obtained in lieu of a special fare 2. Depending on the organization’s negotiations. % is will impact or productivity-based free tickets. culture, include procurement and your organization’s credibility Capacity-controlled, one-class other departmental representatives and ability to negotiate favorable upgrades now are prevalent in at each step of the negotiating cycle. rates in future negotiations. speci" c markets. Make certain this 3. Invite your TMC, if helpful, but 3. Other discount options: does not con& ict with your travel inform the airline. a. Most airlines have " xed-percent- policy since upgrades with one D. Negotiate the types and levels of age meeting fare discounts for a airline may set a precedent. domestic discounts. group of people & ying to the same 3. Multinational agreements may 1. Most airlines base discounts on the destination, whether they’re start- include di! erent discounts in dif- market share or incremental share ing at the same departure point ferent regions but also may provide and/or revenue an organization or not. Group and/or zone fares a bonus for overall multinational can provide, on speci" c routes, on also may be available for groups performance and other umbrella multiple routes from one origina- of travelers. Buyers should assess incentives. Strive for point-of- tion point or on a systemwide basis. group and meeting products and origin pricing rather than point- Discount structures di! er by airline, the potential bene" ts of combin- of-sale pricing, so discounts are so understand which fare classes ing transient and meetings spend- available regardless of the country are included in any agreement. ing for negotiating leverage. in which an airfare is booked. www.businesstravelnews.com Business Travel News 59 BUSINESS TRAVEL BUYER’S HANDBOOK 2016 AIRLINES

4. If you strike a deal with an airline that extend for two years, though understand their role in implement- distributes your tra c to codesharing organizations may want to press ing it. foreign partners, ensure systems are for even longer agreements. Most 1. Make sure you and your suppliers in place to guarantee the business is airline agreements include formal understand which party is responsi- credited to the contracted airline. periodic reviews and exit clauses, ble for fare % ling and consider regular F. Determine how the airline provides generally at 30 days’ notice. audits to verify accuracy. access to promotional fares and how 2. Some airlines o# er so-called ever- 2. De% ne procedures both for travel- they can be used and counted within green options, wherein the terms, ers and for agents so they’ll book contracted programs. conditions and boilerplate legalese the preferred airlines. G. Some airlines may have a preferred of agreements are retained, allowing 3. Agree upon a recourse if a travel payment or lower-cost payment vehicle buyers and airline sales personnel agent fails to book the preferred that could impact airline ! exibility. to focus exclusively on the commer- airline or mention its availability. H. Other considerations. cial terms at regular intervals. Failure to take the discount on an 1. Keep traveler productivity in mind, K. Consider ethics. eligible fare is a common error when as well. Keeping travelers on con- 1. Airlines o" en will squelch deals if processing corporate accounts. necting ! ights when nonstop ! ights they’ve been used to set a target level 4. Specify what the TMC and online are available or putting them on for negotiations with their competi- booking tool must do when your options that arrive the day before tion. Be careful: Word gets around corporate traveler rejects a ! ight on or depart the day a" er meetings about such double-dealing, and you the preferred airline. For instance, come with a very real economic could be precluded from discounts the traveler’s refusal of a contracted cost. While the ticket cash savings with carriers in the future. airfare might trigger the produc- may look attractive, in reality, the 2. Keep the terms of your deals tion of an exception report that is hidden costs o" en can overwhelm con% dential. Most airline contracts forwarded to the travel o ce and the easier-to-measure cost savings. are bound by nondisclosure agree- the traveler’s supervisor. 2. Make sure airlines’ proposed dis- ments that prohibit the sharing 5. Consider asking the TMC to counts align to your historical usage of any information without the publish the savings and losses of by booking class. Eye-popping dis- airline’s approval, except for ticket- accepting the preferred airline counts on seat classes your travelers ing instructions to your agency or booking on travelers’ itineraries. never use or can’t access at the time airline-appointed data processors. 6. If your spend is su cient, airlines of booking have no value. will allow your TMC to contact a 3. Home carriers do not need to work V. MANAGE THE DEAL special desk for major corporate for business originating from their A. Inform employees, emphasizing accounts. $ rough this channel, air- hubs or countries. Competitors senior management support for lines will consider matching prices o" en o# er aggressive commercial the program. on speci% c itineraries, enabling the proposals, provided you can shi" 1. Post your travel policy on a organization to save money while travelers from airlines to which corporate intranet page and use ful% lling marketshare commitments, they have loyalty attachments. both your online booking tool and or will provide other such waivers 4. Airlines aren’t motivated to dis- agency to steer travelers to book and favors to support the program. count routes they dominate, so try preferred airlines. 7. Ensure your TMC does not have linking discounts on these monop- 2. Consider sending a memo that travel counselor booking incen- oly routes to marketshare commit- reiterates travel policy and encour- tives that con! ict with your orga- ments on routes where they have to ages the use of your preferred nization’s interests. compete more for passengers. airline or airlines. C. Monitor the deal through management 5. If your policy and culture allow, 3. Consider holding employee semi- reports from your travel agency and explore connecting ! ights as cost- nars. Include in a presentation: airline, both to assess the e# ectiveness savers, especially for long-haul trips a. Potential savings from their use of the current deal and to prepare for in which connection time is a small of preferred airlines. future negotiations. Airlines use sophis- portion of the total journey. b. Descriptions of any special ticated tracking tools to gauge corporate I. Ask to review the airline’s contractual programs to encourage use of client performance so they can amend terms and conditions at the begin- the airline, including monetary or cancel the contract if goals are not ning of negotiations. A legal review prizes, upgrades, advance seat met. In many cases, the airline will can extend beyond the negotiation assignments, access to airport provide the buyer with reports. Before for the commercial discounts. $ is lounges, extra frequent-! yer an airline review, prepare for any perfor- does not commit an organization to a mileage as agreed to by the air- mance or opportunity discussions. $ e formal agreement. line or perhaps free trips not tied airline will prepare data and objectives. J. Set the contract length. to a frequent-! yer program. 1. Watch corporate traveler com- 1. Traditionally, deals negotiated B. Ensure your TMC and its repre- pliance with the agreement and between organizations and airlines sentatives are aware of the deal and consider deploying incentives to

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ensure it. Pass along management perhaps due to a carrier decreas- them from certain ancillaries. reports to department heads to ing the service it provides in a B. Upgrades. track performance. Internal bench- particular market. 1. Many airlines award upgrades marking, or measuring compliance D. Consider hiring a third-party audit almost exclusively to elite mem- among departments or lines of % rm to monitor your TMC’s perfor- bers of their loyalty programs, but business, can serve as a powerful mance in booking your organization’s increasingly airlines are making travel management tool. preferred airlines. $ is may prove seat upgrades available for sale at 2. Keep track of whether your organi- particularly helpful for an organiza- the time of check-in. zation is booking ! ights at a pace tion with multiple agencies. 2. Make sure travelers know if you that will meet the agreed-upon 1. Have the auditor examine available have a deal providing upgrades on marketshare commitments. Keep data, including the percentage of a space-available basis. in mind seasonal travel patterns. time your agency o# ered the dis- C. Airport lounge admissions. What might look like a shortfall count fares when such discounts 1. Some airlines o# er complimentary or excess volume at one point were applicable, how frequently airport lounge memberships in might end up being corrected by travelers accepted them and why lieu of discounts or with certain year-end. Your travel agency may travelers declined to accept them. types of tickets, usually in pre- have tools for managing multiple 2. Determine whether the airline mium classes. contract goals at the point of sale. imposed limits that aren’t in the 2. Some provide a limited number 3. Maintain an open line of com- contract on the availability of of airport lounge admissions munication with your travelers via discounted fares. on request. corporate intranets, email, surveys, E. Renegotiate the deal, if warranted. 3. Airlines increasingly o# er recipro- social networks and memos to In most cases, if an organization cal airport lounge access for cus- hear their opinions about whether has generated even a small increase tomers of airline partners or those the airline is providing acceptable in market share for the airline, it within an airline alliance. service. Have copies of all queries probably can get at least a one-year D. Often, corporate deals offer execu- and complaints are forwarded to renewal. If an organization consis- tives special services. The number your o" ce. tently exceeded targets or met them of executives that may be enrolled 4. Maintain contacts with multiple despite obstacles, it should request generally is based on the organi- levels within airline sales organi- a larger discount. Travel buyers zation’s spend. Airlines also may zations to develop long-term should regard the contract as a provide separate airport check-in relationships and to ensure the living document. As travel patterns for some accounts. organization and airline share a change, amend goals and discount E. Some airlines sell bulk-purchase view of how the agreement is levels. Keep abreast of mergers and tickets or ! ight passes, which require being honored. Establish acquisitions that could impact your an upfront payment but can provide multiple contract-performance company’s travel patterns. savings when contracted upfront checkpoints throughout the F. Monitor the competitive dynam- discounts are di" cult to secure. course of a contract. ics of key routes. If a new entrant $ ese programs can o# er great value 5. Many large companies use third challenges your preferred airline on if an organization can manage the parties to analyze contract perfor- a monopoly route, try renegotiat- internal aspect. Typically, one cost mance and understand how airline ing a more favorable deal with your center makes the deposit and other yield management a# ects preferred current preferred airline. Alterna- cost centers burn o# the credit. corporate deals. tively, if a carrier exits a route and F. Some airlines will consider prepay- 6. Compile data from management a remaining airline monopolizes it, ment at fixed rates in certain city reports for use in negotiations make sure your discounts cover the pairs and payment on a cost-per- at least one month before the correct booking classes in case the mile basis, perhaps with a pay-at- contract is set to expire. Such data airline decides to yield-manage its use concept. should include: inventory to take advantage of its G. Investigate an airline’s international a. Average fare per negotiated stronger market position. safety and security procedures and route for preferred and nonpre- airport facilities. ferred airlines. VI. MISCELLANEOUS H. Ensure the airline will relieve you b. $ e amount of business directed A. $ ough airlines largely are unwilling of all airline contract commitments to the airline before and currently. to eliminate baggage fees, they o& en during labor-related work stoppages c. If applicable, reasons why the waive them for frequent-! yers. Major or slowdowns. traveler did not use the preferred airlines are willing to negotiate a Prepared by Michael B. Baker with airline, such as travel agent error, limited number of instant elite status assistance from Jake Cefolia, United schedule, employee refusal, the designations or status matches, which Airlines vice president of sales in the organization’s lowest-logical-fare can help frequent travelers transition Americas, and Informatica global travel policy or unavailability of seats, to a new preferred carrier and shield manager Rick Wakida.

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