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Developing a corporate air travel program.

Article Excerpt
After years of dwindling airfares, the cost of tickets--negotiated or other--are on the rise and expected to continue upward, further pressing buyers set on keeping costs flat. Although travel managers may dread the prospect of continually climbing airfares--as is anticipated throughout 2006--averages to date still fall well below those charged earlier this decade. However, the current domestic market is a confluence of factors that indicate a seller's market, namely high load factors and declining capacity. This trend is likely to accelerate as network carriers exit unprofitable domestic routes and focus on higher-yielding international routes. Consequently, discounts on international routes are becoming more important as they represent a higher percentage of total program savings. Multinational corporations are likely to wield the most bargaining leverage due to the extent of their international travel.

Low-cost carriers have developed programs providing value to corporate clients including reduced or waived change fees, no-fee booking portals and other perks.

As the cost of fuel remains historically high, carriers are looking to raise fares or levy surcharges on long-haul flights.

Another expense airlines want to share with their clients is the cost of distribution. Following deregulation of global distribution systems and ongoing discussions between airlines and GDSs to renew expiring contracts in the new environment, airlines are becoming more selective in how and where they provide content.

Some carriers, embroiled in negotiations with global distribution systems, also said they might pass fees on to corporate clients if buyers elect to use costlier distribution sources.

Despite upheaval in the airline industry and the resulting modifications to corporate preferred agreements, several fundamentals remain in place for many buyers. Airlines value higher-yielding business travelers and will compensate corporate accounts that can demonstrably shift marketshare their way. They also will cancel underperforming or otherwise unprofitable accounts and will continue to emphasize soft-dollar incentives over hard-dollar discounts.

Though market conditions always vary and the very structure of the industry is in question, the following provides a guide to establishing a preferred relationship with an airline.

I. GAUGE THE COMPANY MINDSET

Not all corporations have enough airline traffic--either overall or on particular routes--or can move enough marketshare to attract airlines interested in negotiating, especially in the current environment. Consider annual corporate air spend of at least a few hundred thousand dollars as a minimum and ask your travel agency for benchmarks. Even those may not have a culture that lends itself to airline deals. Assess the true value of your program.

A. Understand how senior management values preferred airline relationships to formulate a dedicated course of action.

1. Determine if the cost of implementing a preferred airline agreement--in terms of human resources, conflicting frequent flyer loyalties and other concerns--is worth the benefit.

2. Communicate the types of cost savings and added services available and the commitment necessary to achieve them.

3. Get feedback on the extent of senior management support for a preferred air program. True senior management buy-in, including mandating use of preferred airlines, can allay difficulties down the road.

B. Understand and communicate the corporation's needs.

1. Establish a cross-functional sourcing team including the CFO, corporate travel manager, purchasing/procurement representatives, meetings management representatives, leaders of divisions with higher than average air spends, a representative from the travel management company and frequent travelers.

Determine if the airline contracting strategy meshes with the corporate view of purchasing and whether it adds to the total cost of ownership of the travel management program and average total trip costs.

2. Although it is nearly impossible, attempt to determine the projected domestic and international air volume for the corporation for the next year based on last year's numbers and important elements of the business plan for the coming year, such as mergers and acquisitions activity, new corporate locations, etc. Also consider air volume for corporate meetings and events and determine how many trips have been internal (training, relocations, etc.) versus external customer visits.

C. Understand traveler air preferences.

1. Ask the most frequent travelers which carriers they use and why. Record specific examples of both good and poor airline service from past...

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