Home | Business News | Browse by Publication | B | Business Travel News

Working with airlines.

Article Excerpt
Preferred airline programs gradually are incorporating the profound changes in the marketplace that already have altered relationships between buyer and seller. The largest carriers have eliminated corporate discounts from low-end fares, while employing sophisticated analytical tools to manage corporate contracts. Middle-tier carriers continue pushing airfare reform, and low-cost carriers are invading more business markets. At the same time, procurement, strategic sourcing and finance personnel increasingly influence travel contracting strategies, while continued economic uncertainty affects the outlook on both sides of the negotiating table.

Yet, the more things change, the more they stay the same, at least for some companies. Those that can convince their airline partners they can deliver policy-compliant travelers, control travel purchasing patterns and move marketshare will be rewarded with relatively favorable contract terms.

To that end--perhaps more than ever--the current airline negotiating environment demands that travel buyers build a value proposition suppliers can recognize and then manage supplier expectations throughout the relationship. In doing so, buyers must tread carefully with low-cost carriers--taking advantage of lower fares and perhaps more convenient airports--without jeopardizing preferred agreements with primary and secondary airlines. The largest carriers today are crunching client data and holding travel buyers accountable for underperformance.

Meanwhile, persistently low airfares have reduced average trip costs for many companies, lowering overall air volumes even as their level of business travel picks up. This may cause complications for certain buyers trying to manage volume-based contract goals and for carriers seeking to maximize business travel revenues.

Other developments to keep in mind this year include changes to inflight products--major carriers are reducing premium class inventory, for example--direct corporate portals offered by rapidly growing low-cost carriers and, of course, the financial health of the industry's biggest players.

On the international front, traffic is rebounding and carriers around the globe are posting decent performance numbers for transoceanic services. As low-cost airlines generally have not penetrated international routes, full-service network carriers still can and do charge higher fares. With carriers hungry for that high-yield international traffic, buyers still have the opportunity to seek aggressive deals.

Meanwhile, airlines are banding together in marketing alliances or, in some cases, seeking to merge operations. These developments have had minimal impact in the corporate market thus far, but airlines will continue to stress the value of alliance contracts.

Though market conditions always vary and the very structure of the industry is in flux, 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. Even those that do have the volume 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 in order 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 operational concerns--is worth the benefit.

2. Communicate the types of cost savings and added services available and, more importantly, the commitment that is necessary to achieve them.

3. Get feedback on the extent of senior management support for a preferred air program. If the highest priority among top executives is their own frequent flyer miles, designating preferred airlines may be fruitless.

However, true senior management buy-in, including mandating use of preferred airlines, can allay both anticipated and unanticipated difficulties down the road, and is becoming more important in building and maintaining an effective airline program.

B. Understand and communicate the corporation's current and future needs.

1. Establish a cross-functional sourcing team comprised of 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, frequent travelers and others.

Determine if the airline contracting strategy meshes with the overall corporate view on purchasing services and whether it adds to or reduces the total cost of ownership of the travel management program.

2. Determine the projected air volume, domestic and international, for the corporation for the next year based on last year's numbers--keeping in mind that the past few years may have been anomalies for your company--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.

C. Understand travelers' air preferences.

1. Identify the most frequent travelers and ask which carriers they use.

2. Ask which carriers your travelers like best and why. Record specific examples of both good and poor airline service from your company's past experiences.

3. Determine frequent flyer program memberships and the importance placed on them.

4. Determine travelers' willingness to go along with a preferred airline program and the potential need for a mandate. For example, travel during off-peak times may generate additional rate concessions from your airline partner but may be difficult to sell internally to travelers. The same goes for connecting flights. Airlines are looking for clients with strong travel policies. Be realistic when evaluating your ability to enforce policy.

D. Ensure that all programs are in keeping with corporate goals by working with airlines that understand your needs and can customize a relationship. Schedules, airport convenience, club memberships, elite status and upgrades all can contribute...