Supplier Negotiations: Easing the Pain of Air Spending

by Fred Gebhart August 25, 2014

With air prices climbing. travel managers who hope to hold the line on air spending face tough decisions around concentrating their travel volume and shifting their travelers’ loyalty.

As demand for air seats in both the business and leisure markets continues to grow, and airlines continue to hold the line on capacity increases, it won’t necessarily be easy.

“You have to concentrate your volume. You can’t work with all three [airline] alliances and expect to make a dent in your spending,” said Bob Brindley, vice president and principal of Advito, the research arm of BCD Travel.

“Shifting the majority of your spend to one carrier or one alliance is best, but most companies will have to work with two alliances to meet their travel needs,” he noted.

Willing to deal
Airlines and alliances are still willing to partner with companies that can move market share in their direction, said Joel Wartgow, senior director, CWT Solutions Group in the Americas.

But they will expect clear results that meet or exceed contract minimums.

The problem is that consolidating travel on one, or even two alliances can pose compliance issues for travelers. Travelers who are loyal to a non-preferred carrier probably won’t change their flying habits without a fight.

At the very least, moving market share will add confusion for fliers who are used to dealing with a specific carrier and now have to shift to a less-familiar competitor.

The problem loyalty
Customer loyalty is already an issue for travel managers. CWT has found that road warriors in the highest airline reward categories typically spend 15% to 20% more per trip than employees with similar travel patterns who are at lower reward levels.

“The more loyal travelers become to a supplier, the less price-sensitive they become,” Wartgow said. “They are willing to pay more to stay with their preferred vendor.”

That’s likely to become more of a problem under new rewards structures being introduced by most frequent flyer programs, Wartgow said. Starting next year, most programs will base rewards on ticket prices rather than on miles flown.

Brindley cautioned travel managers looking to shift air volume to negotiate a deal that allows their travelers to transfer their status level in airline loyalty programs.

“You absolutely must do the right thing for your travelers in terms of status matching. Status match is a must-have in any air deal,” Brindley said.

Low-cost carriers not a solution
Meanwhile, don’t count on low-cost carriers to save your travel budget. Mainline carriers and low-cost carriers are both trending toward the middle of the market in terms of pricing.

One-time low-cost leader Southwest now meets, but seldom beats, domestic fares from American, Delta and United, noted Brindley.

“You see low-cost carriers like Jet Blue going after the business market,” Brindley said. “At the same time, you see the growth of three- and even four-cabin aircraft from the mainline carriers as they segment the market.”

The picture changes for companies with significant travel in Asia Pacific or Latin America. The air market is more competitive in both regions, and low-cost carriers continues to have a moderating influence on fare hikes by mainline carriers.

Flying on non-preferred carriers
For the inevitable trips that require a non-preferred carrier, travel managers can, and must, emphasize advance-purchase fares, Brindley said.

The lowest advance-purchase fares are likely similar to corporate discounts, so using an advance-purchase fare on a non-preferred carrier won’t do much harm to overall spend.

The real problem is last-minute travel. Last-minute bookings on a preferred carrier get preferred pricing. Last-minute bookings on a non-preferred carrier get expensive in a hurry.

Brindley said that for many BCD clients, 30% of tickets account for up to 70% of the total air spend.

“When travelers must buy last-minute, the value of the corporate discount is very high,” Brindley said. “Likewise for international travel, where corporate discounts can make a meaningful difference in your spend.

“When you must buy those more expensive tickets, and every company must, you will see a very high value return on corporate air deals.”

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