Mergers, Joint Ventures Confuse Air Deals
Mergers, Joint Ventures Confuse Air Deals
Tips & Trends

Mergers, Joint Ventures Confuse Air Deals

Airline mergers and joint ventures have complicated air contracts and negotiations. What used to be a fairly straightforward deal that matched increased market share with decreased pricing has gotten messy. Mergers and joint ventures have meant fewer carrier choices for airline programs, noted Advito, the consulting arm of BCD Travel.

That translates into tighter competition, higher published prices, lower corporate discounts and the potential for less service in overlapping markets. The reduced availability of discounted fares makes it more likely that a non-preferred carrier will offer the best price even without negotiated discounts.

Travel managers need to bargain smarter and harder, Advito advised. That starts with measuring the business airlines actually want. If a carrier wants more high-yield business, contract targets should be limited to high-yield travel, not all travel. Take a good look at travel patterns and pick your preferred alliance – Star, Sky Team or Oneworld. Most corporate buyers need only one, perhaps two, alliance partners.

Negotiating Power Tilts to Hotels
Smith Travel Research is projecting annual price increases for U.S. hotels of at least 4% annually through 2014. PKF Hospitality is projecting similar increases of 4% and higher. The increases are being driven by two factors. One is little to no hotel construction and planning during the recession years, which means no significant increase in supply for at least another two to three years. The other is steadily increasing demand from both the business and leisure travel sectors.

Pricing power is moving back to hotels, especially in major business travel destinations such as New York, Chicago and San Francisco. Occupancy levels for major business hotels is climbing from 77% in 2011 to 80% and higher this year, according to Pebblebrook Hotel Trust top executive Jon Bortz.

Car Rental Programs Leaving Money on the Table
Most companies spend between 4% and 5% of their travel dollars on car rental, according to Carlson Wagonlit Travel. That’s not chump change in a multimillion-dollar budget, but it’s probably not a top category either. That means spending patterns and contracts may not get the same scrutiny as air and hotel.

CWT expects car rental pricing to drop this year, but only for companies that push for savings. That requires a full-blown request for proposal (RFP) instead of the usual request for information (RFI) that many companies use to manage lower-spend categories. Travel managers can — and should — demand the same complete spending data from car rentals that they get from air and hotels, rather than the high-level view suppliers offer as standard. Companies should also remember to negotiate on all rates, not just daily rates. Some 30% to 40% of the car spend at most firms is for weekly and monthly rentals, which are significantly cheaper than daily rates. But only for those who remember to push.

Bigger Bins Help Road Warriors
Lack of overhead storage space has emerged as a key complaint among corporate travelers. Carriers are adding more bin space in an attempt to defuse tensions that rise as business fliers compete with leisure travelers for limited space. United and Delta are joining American, US Airways and other carriers in installing larger overhead bins on existing aircraft.

United, for example, is replacing bin doors on all 152 A320s starting in April. The new curved doors boost carryon capacity from 64 roll-aboard bags to 106. American is making similar changes to older B737s. And Boeing is redesigning its standard bin to better fit the typical 9x14x22 inch roll-aboard. The 787 holds about 10% more roll-on bags than the larger 777 because bins are deeper to accommodate wheeled bags.

Social Scores Can Affect Compliance
There is more than travel policy at work when travelers decide which airline or hotel to use. As the reach of social media expands, business travelers, like leisure travelers, are paying more attention to recommendations — and pans — from other travelers. A recent survey of more than 30,000 consumers by Satmetrix looked at a measure called Net Promoter Score (NPS) that measured how likely a person is to recommend that supplier to a colleague or friend. Airline winners were Virgin America (NPS of 66%) and JetBlue (64%). American trailed the pack (-5%). Marriott (56%) and Hilton (55%) led the hotel category.

TMC: Medical Travel Is a Great Niche
“The bigger medical travel gets, the more important we become to the traveler, the employer, and the medical center. Medical travel is a great niche for us.” – Julie Tearny, CTS/American Express

Satellite Wi-Fi Likely to Take Internet to Air Passengers
Airlines are still trying to figure out the most effective and least expensive way to bring Internet connectivity to passengers in the air. Most U.S. carriers are using ground based-systems that suffer from limited bandwidth and patchy service. The next step may be satellite-based systems. Southwest has opted for Row 44, United says it is going with Panasonic Avionics, LiveTV and ViaSat. JetBlue, which already uses satellite service for its onboard LiveTV, is using satellite-based Internet service.

Ground-based service like GoGo, used by Delta, American, US Airways, Alaska, AirTran and Virgin America, is cheaper to install but only works where ground towers are within range. Satellite service is more expensive to install, but is available globally and offers higher bandwidth. The extra capacity will likely become vital as carriers expand streaming video, online shopping, hotel booking, destination information and other Internet-based services designed to generate inflight revenues.

France’s Higher VAT Increases Hotel Prices
Companies with a significant hotel spend in France may be seeing a surprise jump in costs. The French government bumped the value added tax (VAT) on hotels by 1.4 percentage points on January 1. Some hotels absorbed the increase, because taxes are already included in negotiated rates, said Carlson Wagonlit Travel. Other hotels are tacking the increase on to rates negotiated last year before the increase took effect. When companies push back, hotels are resisting, because they see themselves in the drivers seat based on increased demand and no new supply.

Companies that do business in Lithuania have the same problem with larger numbers. The Baltic country sandwiched between Latvia, Russia and Poland boosted its 2011 VAT of 9% on hotels  to 21% this year.

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Travel managers need to bargain smarter and harder. That starts with measuring the business airlines actually want. If a carrier wants more high-yield business, contract targets should be limited to high-yield travel, not all travel. Take a good look at travel patterns and pick your preferred alliance – Star, Sky Team or Oneworld. Most corporate buyers need only one, perhaps two, alliance partners.

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