BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com Working with Airlines loyalty to improve production on your preferred airline or airlines. C. Determine the value drivers of your company and search for the most suitable program. Make sure the deal will satisfy your company’s safety and security requirements, as well. In considering requirements, be sure that your travel policy can support the deal you are considering or can be changed to support any discounts you will need to promote in order to satisfy the commercial terms of the agreement.
II. GATHER INFORMATION Proper data can help you win discounts NEGOTIATING WITH AIRLINES, WHICH GENERALLY FORM THE LARGEST for city pairs, multiple destinations PORTION OF spending in a corporate travel program, can be deceptively from one city, regionally or across your complex. While airline consolidation over the years has left buyers largely at travel program. the mercy of three major U.S. carriers and three global alliances, competition A. Obtain information about your among those alliances and from low-cost carriers remains fierce on several routes travel program from your TMC key to corporate travel, including transcontinental routes across the U.S. and databases, online booking systems transatlantic routes. Winning and maintaining corporate market share remains and third-party data consolidators: a priority for carriers, as corporate business generally is more profitable due to 1. At least the top 20 city pairs by bookings often made closer to trips and to use of premium cabins. Even with this segment and passenger count, competition, however, buyers need to demonstrate volume and compliance to including carrier and origin and get the best deals, and this begins with the data. destination data. 2. Carrier spend per airline per I. BEFORE YOU COMMIT route for the most recent 12 Most corporate discount deals are measured on market share, but buyers can gain months. leverage if they have high-yield spend like first or business class or full-fare coach 3. Tickets and value per class of ser- available to shift to new suppliers. Airlines also desire discounted economy or vice, including full-fare economy, lowest-logical-fare business, providing it’s business the carrier would not receive discounted economy, business without offering discounts. Considering that suppliers are consolidating, commit class and first class. Know the only to the share you can manage. Many companies overcommit, and then under- tradeoffs in using booked, ticket- performance puts their airline programs at risk. Discount programs are structured ed or flown data. While bookings based on opportunities. Consider a few hundred thousand dollars as a minimum for data is available more readily and the U.S. point of sale, though your agency can provide more exact benchmarks. If with less of a lag, it does not have your volume does not meet the minimum, look into revenue- or sector-based incen- the same precision as ticketed or tive programs for back-end rebates, club passes, waivers and favors, upgrades and/ flown data. or frequent-flyer status. Also look into the small-business programs some carriers 4. Analyze corporate card data to offer. Some travel management companies also provide their negotiated discounts find trips booked outside your to their customers, particularly with international carriers. Determine whether HR, TMC. Airlines do not count those frequent-flyer loyalties and other costs of implementing preferred airline agreements trips toward the volume you are worth the benefits. agreed to provide, but the volume A. Estimate your domestic and international air volume for the next year based on does add to your negotiating last year’s numbers and the company’s business plan, such as M&A, new product power, particularly if you can lines and new locations. Consider air volume for meetings and internal trips like articulate actions you’re taking to training. Remember that volume ultimately is determined by business dynamics minimize leakage. and the economy, not the travel manager. Airline usage also is determined by ori- B. Investigate government and inde- gin lift, especially for travelers based on airlines’ hub cities. pendent information on airlines. B. Ask frequent travelers which airlines they use and why, assess frequent-flyer Perhaps an airline has low load memberships, understand which air and ground amenities matter to travelers factors on a route your travelers and determine travelers’ willingness to support a preferred airline program. Use fly frequently, or perhaps another BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com
carrier has launched service on you can leverage your employees’ joint alliance deals, while others the route, allowing you to negoti- meetings and incentive travel. even have developed antitrust- ate aggressively. Be aware of airline F. Airlines increasingly charge for a la immune joint ventures, through customer service metrics. Some carte offerings above the base fare. which partners manage capacity, airline or third-party providers offer Ancillaries include seat selection, fares and corporate deals as one reports on on-time performance, checked bags, early boarding, Wi- entity. Determine the magnitude delayed flights and mishandled Fi, onboard meals and upgrades. of alliance relationships and how baggage. The U.S. Department of Though many of these fees are not it impacts the carrier’s negotiat- Transportation provides such data negotiable, travel buyers should at- ing leverage. Consider whether for domestic airlines through the tempt to capture spending through the airline requires an agreement Bureau of Transportation Statistics expense reporting and corporate through the JV as opposed to at bts.gov. Also investigate each card data to show airlines the total either an alliance or individual airline’s maintenance issues and the amount spent. carrier agreement. average age of its aircraft. G. Compile benchmarks. Data from 6. Note your negotiating leverage. 1. Obtain marketshare information peers and TMCs lend perspective. a. Purchasing premium class fares by city pair from the DOT, recog- H. Seek independent advice from an on long-haul routes on which nizing that such data is free but expert with no financial interest in multiple carriers compete dated by at least a few months. the process if you do not have inter- works in your favor. Airlines Data from other sources, includ- nal subject matter expertise. know they don’t have to work ing ARC, travel agencies, consul- hard to sell economy fares on a tants and other third parties, can III. GET STARTED short-haul route on which one be costly. A. Not all business is equally attractive to carrier has a monopoly. 2. Look closely at data for more than airlines. Understand your travel pat- b. A demonstrated ability to shift one year to ensure you are refer- terns and find a compatible supplier. travelers to or away from an encing an established trend. Look 1. Recognize airline network airline makes your company at different quarters of the year to strengths: Short haul versus long a desirable customer. Failure determine the seasonal impact, haul, hub and spoke versus point to deliver on marketshare acquisition or divesture activity to point, international reach ver- commitments to carriers or and one-time impacts. sus domestic focus. inability to demonstrate that 3. Focus on the capacity each airline 2. Recognize product and value your policy can shift travelers has in given cities and on certain differences. Some airlines are causes airlines to question your routes. The difference between no-frills, low-cost operators, and ability to deliver on commit- one carrier’s 60 percent market others provide comprehensive ments. Noncontracted airlines share on a route and another car- services. will take note when they are rier’s 20 percent share is signifi- 3. Recognize the total cost. Some receiving far below their fair cant to the buyer’s opportunity to carriers offer low fares but charge share of a market, as it indi- move share. for seat assignments, carry-on cates your ability to support 4. Useful information can be baggage and other ancillaries that preferred carriers. Monitoring obtained from several third- exceed the cost of a traditional daily production can help you party firms and from consultants ticket. However, many airlines boost a carrier’s share to assure performing data analyses with also contract services funds to compliance to contract terms. optimization modeling. This will offset many of those fees. B. Communication. take into account both client 4. Analysis of your organization’s 1. Determine the degree of authority traffic and airline capacity and travel patterns may present op- that the airline delegates to local determine the optimal airline or portunities for citypair-specific corporate account executives, airlines to serve your travelers. deals rather than systemwide regional sales managers and the C. Document your plan to shift market deals, but don’t sacrifice overall corporate sales or business devel- share and to influence travelers’ savings for sizable citypair- opment director at headquarters. airline choices. Note past successes. specific discounts. For more than Such relationships ensure that D. Have your travel agency run one systemwide deal, carefully changes in regional staff do not quality-control checks to docu- analyze which airlines will maxi- eradicate contacts. Headquar- ment the difference in available fare mize citypair coverage without ters-level relationships may be for those instances when travelers compromising your obligations limited, especially for smaller did not use the preferred carrier in to provide market share to other travel programs. Many airlines order to show carriers where their airlines. conduct monthly or quarterly fares stand against what was actually 5. Determine whether the carrier progress reviews while others will purchased. participates in an airline alli- meet only once or twice per year. E. Determine how and to what degree ance. Some airline partners offer Generally, more interaction is BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com
better, as strong airline reps have volume delivered. Such deals are basis. Discount structures differ a current understanding of mar- never as good as a formal bid by airline, so understand which ket developments and can share based on historical data. Alterna- fare classes are included in any best practices regarding contract tively, a back-end rebate agree- agreement. Keep the contract and management and policy. ment may be possibile for newer the number of discounts manage- 2. TMC contacts. travel programs with little or no able. Cluster markets with similar a. The TMC might have an track record. Back-end rebates are discounts or share requirements established relationship with increasingly rare though. Refer where possible. Pull out impor- the airline. If so, ensure your to someone who knows airline tant markets the carrier does not company’s goals are compatible contracts well if you think you’re serve well or at all. with this relationship. getting a no too quickly. 2. Consider: b. TMCs are the primary source B. Be persistent. Airlines are selective a. Agreements that include car- for your company’s spending regarding the accounts on which rier spend or segment goals history and can be partners in they bid. Offering more volume might not be beneficial. They negotiations. on international routes can revive can be useful for growing 3. Peers and consultants can provide rejected requests for domestic dis- companies, though. Consider benchmarking data. Get involved counts. Try to tie the two together revenue-based targets in lieu of with local boards, industry for maximum purchasing power. segment-based targets, as high- groups for buyers and sellers and Recognize that airlines place higher revenue segments carry higher networking groups to share best value on high-yield purchases— discounts. practices and industry trends. such as business class, international b. Most airlines offer only nomi- C. Some companies, especially larger service and full-fare economy—and nal discounts on lower-bucket ones, take a formal approach by discount accordingly. Historically, fares. Assess the impact of distributing RFPs to headquarters many companies have avoided such practices. and local sales offices. Include -es putting all their eggs in one basket, c. Obtain assurances that the sential information only. Agencies as market conditions and travel carrier will reduce your traffic and consultants can help formulate demographics can change. However, obligation when it lowers its and streamline the process. as the dynamic between buyer and frequency or aircraft size in a supplier becomes more strategic given market. Once the con- IV. NEGOTIATE THE DEAL and buyers gain stronger voices tract is implemented, monitor A. Outline the benefits of your busi- in the industry through advisory events that could impact your ness to the airline. Typically, airline forums, this is no longer necessary. agreement like strikes, weeks agreements are written by and for Willingness to offer exclusivity to of severe weather at a hub, the airlines, though your legal de- an alliance should result in a better excessive cancellations or work partment may seek modifications. economic offer. slowdowns. This will improve 1. Even before you issue an RFP, C. Show a strong front. the discussion you and the provide data on your company’s 1. Have your controller or senior fi- carrier have about performance traffic patterns and spend to pro- nancial manager attend negotiat- at the end of the measurement spective air partners. Highlight ing sessions to help crunch num- period. To facilitate this, have areas of interest to the airline, bers and describe the company’s the travel agency implement including such high-yield pur- fiscal direction. Summarize your a reason code that helps track chases as international business company’s value to the airline. irregular operations due to class. Many airlines will require Share your policy and any proof strikes, weather, etc., so you can your data to be processed through that it works or has been enforced show how much that affected a third-party data aggregator regarding supplier selection. your ability to reach contract before they submit a proposal. Al- 2. Depending on the company’s goals. If your business is low four to six weeks to facilitate culture, include procurement and particularly dynamic, you may the data-release authorization other departmental representa- even ask the airline to consider required for this process, as it in- tives at each step of the negotiat- a share gap target, which targets volves coordination between the ing cycle. marketshare gap rather than airline and any TMCs servicing D. Negotiate the types and levels of seat share; this kind of contract your company. domestic discounts. will adjust targets automati- 2. Airlines are reluctant to offer trial 1. Most airlines base discounts on cally as your city pairs change periods for contracts, but absent the market share or incremental or as the airline changes service the appropriate data, you may share and/or revenue a com- levels. be able to implement stair-step pany can provide, on specific d. Don’t overestimate volume agreements in which the level routes, on multiple routes from or your company’s ability to of discount increases with the one origin or on a systemwide deliver it in order to extract a BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com
higher discount percentage. these agreements may not align airlines from all points of sale. Airlines often respond to an with your preferred airline mix. F. Some airlines may have a preferred inability to meet these obliga- Though such agreements are payment or lower-cost payment tions by reducing cooperation, confidential to airlines and TMCs, vehicle that could impact airline which will impact the value it’s possible to learn the targets flexibility. of discounts earned in future and the value of your company’s G. Other considerations. negotiations. This will impact contribution to the override. 1. Keep traveler productivity in your organization’s credibility 5. Most airline deals are net fare mind. Keeping travelers on con- and ability to negotiate favor- agreements. However, some air- necting flights when nonstop able rates in negotiations. lines provide back-end discount flights are available or putting 3. Other discount options: programs only in certain interna- them on options that arrive the a. Most airlines have fixed-per- tional markets. day before or depart the day after centage meeting fare discounts E. Agree on the types and levels of meetings come with a very real for a group flying to the same international discounts. economic cost. While the ticket destination, whether starting at 1. Beware the pitfalls of carrier- cash savings may look attractive, the same place or not. Group spend goals. Buyers have no in reality, the hidden costs often and/or zone fares also may be control over currency-conversion can overwhelm the easier-to- available for groups of travel- fluctuations or fare wars that measure savings. ers. Buyers should assess group negatively impact such goals on 2. Make sure airlines’ proposed dis- and meeting products and the international routes. counts align with your historical potential benefits of combining 2. Guaranteed upgrades can be usage by booking class. Eye- transient and meetings spend- obtained in lieu of a special fare popping discounts on seat classes ing for negotiating leverage. A or productivity-based free tickets. your travelers never use or can’t possibility is to add meetings Capacity-controlled, one-class access at the time of booking have travel agencies to your list of upgrades now are prevalent in no value. approved agencies to apply specific markets. However, it 3. Home carriers do not need to your discounts and guard can be difficult to measure their work for business originating against having that volume value, and assessing how carriers from their hubs or countries. benefit the meetings agency report their value is critical. Make Competitors often offer aggressive instead of your travel program. certain this does not conflict with commercial proposals, provided b. Some airlines may offer back- your travel policy, as upgrades you can shift travelers from air- end discounts or incentive with one airline may set a prec- lines to which they have loyalty payments to eliminate the risk edent. Understand the terms of attachments. Carriers competing of providing an upfront dis- the upgrades, as some can be very in markets that are not their hubs count with no increase in share. difficult to use. More liberal terms or home countries often offer Ensure all back-end rebates and may be easier to use. Airline sales aggressive commercial propos- discounts are guaranteed and representatives typically have als to win business, provided you communicate the benefits of access to upgrades with different can shift travelers to use them. any back-end deals to business terms for usage. Many will offer mileage or status travelers. 3. Some multinational agreements matching as an added enticement c. Airlines typically discount may include different discounts to switch. the base fare only, meaning in different regions but also 4. Airlines aren’t motivated to all taxes, fees, surcharges and may provide a bonus for overall discount the routes where they ancillaries are added after the multinational performance and dominate, so try linking discounts discount. other umbrella incentives. Strive on these monopoly routes to mar- d. Determining the details of how for point-of-origin pricing rather ketshare commitments on routes the airline will provide access to than point-of-sale pricing so where they have to compete more their promotional fares is very discounts are available regardless for passengers. important. of the country in which an airfare 5. If your policy and culture allow, 4. Your discount might depend is booked. explore connecting flights as cost- on your TMC’s override agree- 4. If you strike a deal with an airline savers, especially for long-haul ment, through which it receives that distributes your traffic to trips in which connection time compensation to drive volume codesharing foreign partners, is a small portion of the total to a particular airline. The TMC ensure systems are in place to journey. Make clear in policy the might pass on to you the produc- guarantee the business is credited maximum journey time a traveler tion-based revenue it earns from to the contracted airline. could expect. the airline on business booked 5. If dealing with a JV or alliance, 6. Ensure you know which for your account. Be aware that push for full coverage from all country’s jurisdiction governs the BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com
contract terms. reiterates travel policy and en- they will provide other such 7. Ensure your company’s legal de- courages the use of your preferred waivers and favors to support the partment reviews the deal before airline or airlines. program. signatures are applied. 3. Consider holding employee semi- 7. Ensure your TMC does not H. Ask to review the airline’s con- nars. Include in a presentation: have travel counselors booking tractual terms and conditions at a. Potential savings from their use incentives that conflict with your the beginning of negotiations. A of preferred airlines. company’s interests. legal review can extend beyond b. Descriptions of any special C. Monitor the deal through man- the negotiation for the commercial programs to encourage use of agement reports from your travel discounts. This does not commit an the airline, including monetary agency and airline, both to assess organization to a formal agreement. prizes, upgrades, advance seat the effectiveness of the deal and I. Set the contract length. assignments, access to airport to prepare for future negotiations. 1. Traditionally, deals negotiated lounges, extra frequent-flyer Airlines use sophisticated track- between companies and airlines mileage as agreed to by the ing tools to gauge corporate client extend for two or three years, airline or perhaps free trips not performance so they can amend or with the latter preferred by many tied to a frequent-flyer program. cancel contracts if goals are not met. larger organizations given the B. Ensure your TMC and its repre- In many cases, the airline will pro- time necessary to negotiate a deal. sentatives are aware of the deal and vide the buyer with reports. Before Most airline agreements include understand their role in implement- an airline review, prepare for any formal periodic reviews and ing it. performance or opportunity discus- exit clauses, generally at 30 days’ 1. Make sure you and your suppli- sions. The airline will prepare data notice. ers understand which party is and objectives. Have travel agencies 2. Some airlines offer evergreen op- responsible for fare filing, and track the published fare for what tions—wherein the terms, condi- consider regular audits to verify you buy and the contracted fare tions and legalese are retained— accuracy. to validate their application of the allowing buyers and airline sales 2. Define procedures both for travel- discounts and to tell you how much personnel to focus exclusively on ers and for agents so they’ll book your contract was worth to you. the commercial terms at regular the preferred airlines. Define the 1. Monitor traveler compliance to intervals. minimum savings required for the agreement. Consider de- J. Consider ethics. the acceptable use of nonpre- ploying incentives. Pass along 1. Airlines often will squelch deals ferred carriers. management reports to depart- if they’ve been used to set a 3. Agree upon a recourse if a travel ment heads to track performance. target level for negotiations with agent fails to book the preferred Internal benchmarking, or their competition. Be careful: airline or mention its availability. measuring compliance among Word gets around about such Agents’ commonly fail to take the departments or lines of business, double-dealing, and you could be discount on an eligible fare. can serve as a powerful travel precluded from discounts with 4. Specify what the TMC and online management tool. carriers in the future. booking tool must do when 2. Track whether your company is 2. Keep the terms of your deals your corporate traveler rejects a booking flights at a pace that will confidential. Most airline con- flight on a preferred airline. For meet marketshare commitments. tracts are bound by nondisclosure instance, a traveler’s refusal of a Keep seasonal travel patterns in agreements that prohibit the shar- contracted airfare might trig- mind. What might look like a ing of any information without ger an exception report that is shortfall or excess volume at one the airline’s approval, except for forwarded to the travel office and point might end up being cor- ticketing instructions to your the traveler’s supervisor. rected by year-end. Your travel agency or airline-appointed data 5. Consider asking the TMC to list agency may have tools for manag- processors. on travelers’ itineraries the sav- ing multiple contract goals at the ings and losses of accepting the point of sale. V. MANAGE THE DEAL preferred airline. 3. Maintain an open line of commu- A. Inform employees, emphasizing 6. If your spend is sufficient, airlines nication with your travelers via senior management’s support for the will allow your TMC to contact a corporate intranets, email, sur- program. special desk for major corporate veys, social networks and memos 1. Post your travel policy on a cor- accounts. Through this channel, to hear their opinions about porate intranet page and use both airlines will consider match- whether the airline is providing your online booking tool and ing prices on specific itinerar- acceptable service. Have cop- agency to steer travelers to book ies, which enables the company ies of all queries and complaints preferred airlines. to save money while fulfilling forwarded to your office. 2. Consider sending a memo that marketshare commitments, or 4. Maintain contacts at multiple BUSINESS TRAVEL BUYER’S HANDBOOK 2019 AIRLINES www.businesstravelnews.com
levels within airline sales orga- In most cases, a company that has but increasingly airlines are mak- nizations to develop long-term generated even a small increase ing seat upgrades available for relationships and to ensure the in market share for the airline sale at the time of check-in. organization and airline share a probably can get at least a one-year 2. Make sure travelers know if you view of how the agreement is be- renewal. If an organization con- have a deal providing upgrades ing honored. Establish multiple sistently exceeds targets or meets on a space-available basis. contract-performance check- them despite obstacles, it should D. Airport lounge admissions. points throughout the course of a request a larger discount. Regard 1. Some airlines offer complimen- contract. the contract as a living document. tary airport lounge member- 5. Many large companies use third As travel patterns change, amend ships in lieu of discounts or with parties to analyze contract per- goals and discount levels. Keep certain types of tickets, usually in formance and understand how abreast of M&A that could impact premium classes. airline yield management affects your company’s travel patterns. 2. Some provide a limited number preferred corporate deals. Even F. Monitor the competitive dynam- of airport lounge admissions midsize companies can benefit ics of key routes. If a new entrant on request. from a less complex, indepen- challenges your preferred airline on 3. Airlines increasingly offer recip- dent procurement review of a monopoly route, try renegotiat- rocal airport lounge access for results. ing a more favorable deal with your customers of airline partners or 6. Compile data from management preferred airline. Alternatively, if a those within an airline alliance. reports for use in negotiations at carrier exits a route and a remain- 4. Some airlines sell their lounge least one month before the con- ing airline monopolizes it, make memberships, especially in tract is set to expire. Such data sure your discounts cover the North America, in addition to should include: correct booking classes in case the free admission when purchasing a. Average fare per negotiated airline yield-manages its inventory premium classes. Those carriers route. to take advantage of its stronger sometimes offer discounted mem- b. The amount of business di- market position. berships to travelers with their rected to the airline before and contracted corporate clients. currently. VI. MISCELLANEOUS E. Often, corporate deals offer execu- c. If applicable, reasons why A. Though airlines largely are unwill- tives special services. The number the traveler did not use the ing to eliminate baggage fees, they of executives that may be enrolled preferred airline, such as travel often waive them for frequent- generally is based on the company’s agent error, schedule, em- flyers. Major airlines are willing spend. Airlines also may provide ployee refusal, the company’s to negotiate a limited number of separate airport check-in for some lowest-logical-fare policy or instant elite status designations or accounts and other recognition, the unavailability of seats, perhaps status matches, which can help fre- latter on an opt-in basis. due to a carrier decreasing the quent travelers transition to a new F. Some airlines sell bulk-purchase service it provides in a particu- preferred carrier and shield them tickets or flight passes, which lar market. from certain ancillaries. require an upfront payment but can D. Consider hiring a third-party B. “Basic economy” fares are be- provide savings when contracted audit firm to monitor your TMC’s comining increasingly common upfront discounts are difficult to performance in booking your on both domestic and interna- secure. These programs can offer organization’s preferred airlines. tional flights as full-service carriers great value if an organization can This may prove particularly compete with low-cost carriers. manage the internal aspect. Typi- helpful for an organization with Many travel buyers have decided cally, one cost center makes the multiple agencies. that such fares’ onerous restrictions deposit and other cost centers burn 1. Have the auditor examine avail- outweigh any savings. Restrictions off the credit. able data, including the percent- can include no seat selection, no G. Some airlines will consider pre- age of times your agency offered changes or cancellations and, in payment at fixed rates in certain the discount fares when such some cases, no carry-on baggage. city pairs and payment on a cost- discounts were applicable, how Some buyers have opted to block per-mile basis, perhaps with a pay- frequently travelers accepted these fares from their booking tools at-use concept. them and why travelers declined entirely, but at the very least, they H. Investigate an airline’s interna- to accept them. require educating travelers on the tional safety and security proce- 2. Determine whether the airline restrictions. dures and airport facilities. imposed limits on the availability C. Upgrades. I. Ensure the airline will relieve you of discounted fares if those limits 1. Many airlines award upgrades of all airline contract commitments aren’t in the contract. almost exclusively to elite mem- during labor-related work stop- E. Renegotiate the deal, if warranted. bers of their loyalty programs, pages or slowdowns.