What you need to know now about airline contracts
By Neil Hammond, Partner
This we know: airline pricing is complicated, TMC processes are layered, and procurement demands savings. I’ve done my best analyzing, negotiating and deploying my airline agreement. So, why is my airline contract yielding less than I planned? Let’s look at some of the more common reasons using recent client engagements:
- Book downs.
Ah yes, the dreaded book down. How to accurately compare straight class-to-class discounts versus book down discounts, considering different base fares? One must adjust for the natural book down or you’ll be buying the glitter, not the gold.
- Different fare class structures.
Carriers do not have standardized booking class codes (why do you suppose that is?) and the inventory usage varies for each carrier. To determine which carrier offers the best overall discount for your buying profile, the different discount terms must be weighted according to the inventory usage. Further, these usage factors vary over time, impacting your overall contract savings. You must evaluate the whole picture when deciding and you must regularly track the contract yield over time.
- Merger considerations.
As carriers continue to work their way through the post-merger synergies, watch out for the impact of geography changes and fare realignment issues impacting your contract. Hub changes can have positive or negative effects on your contract – so agreements must be regularly reviewed to anticipate the impact.
- Escape clauses.
Contractual language often allows the airlines to reduce the net benefit of the contract to the client – regularly citing underperformance. It is imperative to model contracts accurately and regularly review results against your detailed spend data.
- Taxes, fees, surcharges.
There is a plethora of fees, taxes and surcharges that can range from 20%-30% of the total ticket price. Your negotiated discounts will not apply to this portion of the cost. Ignoring this will inflate your savings numbers.
At GoldSpring Consulting we have developed SpringBoard Air Manager™, our own suite of technology tools which effectively support the sourcing and ongoing program management of key travel management categories. In air sourcing all of the above challenges, and many more, are addressed and simplified using current technology and benchmark data. This enables our consultants to source the best program for you and then ensure that it stays that way.
This article originally appeared in the May 2015 edition of GoldSpring Insights, the official email newsletter of GoldSpring Consulting. To sign up for our mailing list, please click here.
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