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For Business, Corporate Travel & Meeting Buyers & Arrangers

The art of the airfare deal is changing

Airline negotiations used to be so easy. If old-timers are to be believed, the airline sales rep arrived at the customer’s office for morning coffee, a few headline figures would be glanced over, the customer would be lightly admonished if they hadn’t booked quite as many seats as they promised 12 months earlier, the same level of discount would be shaken hands upon anyway, and then the ecstatic rep and client would link arms and disappear to the nearest watering-hole for a long and refreshing celebratory lunch.

It’s not quite like that any more. Arlines are demanding more of their corporate clients while at the same time giving less. “Air sourcing is becoming more complex and airlines are becoming more restrictive in their negotiations,” says Toni Goth, until late last year head of global travel, meetings, incentives, conferences and exhibitions (MICE), and mobility for Allianz, and now director at group aviation specialist Pro Sky.

Several interlocking reasons explain why negotiating is, in the words of Areka Consulting partner Guillaume Bizet, becoming “more challenging”. On the demand side, buyers are increasingly unwilling or unable to direct travellers towards preferred carriers when both buyer and traveller know a cheaper fare can be found online with another airline.

“The internet has changed the way travellers look for deals, allowing them to comparison shop quickly online,” says Egencia Europe director of consulting services Johann Sparfel. “Because passengers are notoriously price-sensitive, a few euros can make a difference, presenting a challenge for companies in meeting their market share commitment.”

Goth believes this is the main reason for deterioration in airline relationships. “A lot of customers have lost control of what they are buying,” he asserts. “They are not really steering their volumes to specific carriers, and airlines are aware many travel managers don’t have the ability to do that.” Goth blames travel management companies and corporate booking tool providers in part for the problem. “They aren’t as good as the web, where travellers are using excellent search engines and finding themselves deals,” he says.

Shifting loyalties

Since preferred airlines do not always offer the best price, even with a corporate discount thrown in, many companies have shifted their policies in recent years from mandating preferred carriers to buying the best fare on the day.

However, a lowest logical fare policy does not necessarily preclude clients from obtaining airline deals. British Airways’ head of UK and Ireland sales and marketing Richard Tams says his airline has increased, not cut, the number of corporate agreements it maintains, “but there is more realism about what the deal looks like. For example, if a corporate has a cheapest-on-day policy, we may only offer discounting on off-peak flights. It’s a very rational response to corporates showing no loyalty but shopping around for cheapest fares.”

Conversely, says Tams, companies that continue to direct business towards BA also continue to win handsome discounts. Generally, they are companies that cannot take advantage of cheaper fare classes, because their travellers fly at peak times and/or book at short notice. Such clients remain lucrative business for airlines, which is why Tams rejects suggestions that airlines might be losing interest in the corporate market.

“Corporate clients are still extremely important because they buy high volumes,” he says. “I would add, however, that airlines are also looking at opportunities in the SME [small- and medium-sized enterprises] market because of its high yield. It’s a hard market to acquire, but our strategy is to penetrate it more efficiently.”

Capturing corporates

If proof were required that airlines do value corporate customers, one only need look at the efforts that Easyjet and now even Ryanair are making to win them. Easyjet sales director Toby Joseph, for many years a specialist in corporate travel himself, identifies his low-cost carrier as a former disruptor of managed travel programmes because its fares tempted travellers into maverick buying. Joseph wheels out figures that claim Easyjet is a minimum of 30 per cent cheaper on 80 per cent of its top 20 routes, even when compared with legacy carriers’ discounted corporate fares.

In the last three years, Easyjet has changed strategy to develop direct relationships with around 250 corporate clients. In certain cases that even means limited discounting on Easyjet fares – and, unlike complicated deals with legacy carriers, where some fare classes are discounted but others are not, Easyjet’s corporate discounts apply to all bookings across all 684 city pairs, although the scale of the rebates is low.

Equally important to corporate customers, says Joseph, is the effort Easyjet has made to distribute content within customary managed channels, such as via global distribution systems. More fundamentally still, he says, “they want account managers who will listen to their needs”.

Changing relationships

Paradoxically, buyers complain their relationships with legacy carriers are deteriorating because they are not being listened to. Many believe the reason is a shift of responsibility for pricing from airline sales teams to revenue management departments. “It’s not very good for their relationship with clients,” says Peter Brodbeck, head of global travel management for agri-business Syngenta.

“In some cases, sales departments are just the messengers. All revenue management looks at is whether the flight is full and how much money is being made on each seat. Issues like dealing with our VIP travellers are ignored.”

Areka’s Bizet sympathises. “Corporates give their data to their airline reps, who pass it on to revenue management,” he says. “It means corporates are talking to people with less power than in the past, and that frustrates them because there is more going back and forth.”

Tams sees this issue differently – and to be fair to him, Bizet pinpoints BA as an airline less in thrall to its revenue management department than some other big names.
“We have to refer to our revenue management department, which provides a framework for us,” Tams says, “but our corporate sales team does have an enormous amount of latitude and discretion.”

Tams also pleads BA’s innocence of another frequent buyer-complaint about legacy carriers, which is that they force clients to use all the other airline partners of their joint-venture operations. “The feedback when we entered our joint-venture with American Airlines was that buyers didn’t want to be compelled to use them,” says Tams. “Our sales team offers all our joint-venture partners, but it is up to our clients whether to include them. The vast majority do.”

Nevertheless, says Bizet, one inevitable consequence of consolidation has been fewer choices. “On those routes, prices are going up,” he says. “We can see that happening in our data.”

Given these myriad obstacles to effective deal-making, what is a poor travel buyer to do? Needless to say, there is no magic bullet, but interviewees suggested the following options, each more or less applicable to different businesses according to buying patterns, company culture and numerous other factors:

•  Prepare better Airlines possess increasingly detailed data, says Areka’s Bizet, and clients need to match them.

•  Analyse better Bizet also argues that buyers need consultants to help analyse their own data and bids they receive from airlines. “The information is so complex that it is impossible to understand whether you are being offered a good deal,” he says. “Even medium-sized companies may need to analyse pricing on multiple fare classes for 500 city pairs.”

Travel purchasing consortium Travelpool Europe carries out its work in-house, but managing director Soren Schodt supports the general principle that airfare analysis is a specialist task. “Having good tools is what makes the difference,” he says. “When you can show airlines the business case for giving you a discount, you can get really good deals.”

•  Buy away from your dominant carrier This is what Syngenta, headquartered in Switzerland, has done. Dissatisfied with the levels of discounting offered, it rejected a contract all together and instructed travellers to fly long-haul with rival carriers.

One factor helping Syngenta is that Basel, its nearest airport, does not offer long-haul services anyway, but, says Brodbeck, the same policy is also applied in Germany and Singapore. As a result, Syngenta employees usually have to fly indirect on long-haul journeys, which not all companies could persuade their travellers to do. “Do you have the support of senior management?” asks Brodbeck. “You need them to back you up, and we have that all the way up to our CEO.”

  • Control your travellers Even if you can’t hold the policy line as completely as Syngenta, Pro Sky’s Goth believes there is no need to throw in the towel to “open booking” principles. “Why should travel be the only spend category where employees are allowed to do as they like?” he asks. On long-haul, in particular, travellers should be made to follow policy so long as the rules are fair and offer sufficient choice.
  • Be firm with airlines Once you have (re)gained control of your travellers, you can start to move market share or volume between carriers. But don’t be over-dramatic either. “You only have to show small signs of steering for airlines to recognise the opportunity – or threat,” Goth says. “You don’t have to resort to blacklisting.”
  • Add competition to your mix where you can “The Middle Eastern carriers are getting stronger, which is helping competition,” says Brodbeck. “They offer a very good product and service. I think they will become even more important for buyers over the next five years.”
  • Challenge airlines on class availability If your travellers are finding the fare classes you negotiated closed when they try to book a flight, inform your airline in no uncertain terms.
  • Be realistic If you offer a lowest logical fare policy, you can’t expect great discounts on routes where that policy applies.
  • Be patient You won’t open up the airline sweetie-box overnight. Goth finds it takes two to three years of sound data and policy management, and communication, to establish serious intent with carriers.
  • Keep managing “Once a deal is struck, you should continually monitor the performance of a contract over its duration,” says Egencia’s Sparfel. “This will help ensure goals are met and give better leverage for negotiating the next contract.”
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Comments

Very good article explaining the growing challenges of negotiating and managing corporate airline discounts. For large travel buyers, the investment of time and resources is likely still worth it. However, for SMEs that lack dedicated travel departments and have more limited volume, they may find airline "Perks" programs to be a more effective way to gain value from their top airline partners.

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