Beyond the Discounts – A deeper look into airline relationships

Neil Hammond

By Neil Hammond, Partner & Director of Air and Hotel Sourcing

Many corporate travel programs have seen the value of their airline discounts diminish over the years. It is fair to say that the numerous airline consolidations in both North America and Europe over the past 10 years are partly responsible.

Healthy competition remains in international markets, and airlines are still attracted to corporate spend in premium cabins and full fare tickets, but domestic programs in the U.S. have been reduced to a commodity.

The combination of online booking tools and Lowest Logical Fare (LLF) policies have driven down corporate fare purchases towards the lower fare buckets, where either minimal or no corporate discounts are offered. While it is a smart buying tactic, it has caused consternation when buyers look at the value of the remaining relationship with their airline partners.

For small and medium-sized programs with little international spend, the net discount values are negligible leaving some debating whether the relationship is worth the effort, particularly with offers on the table from secondary carriers.

The buyer needs to look at other areas in the relationship to account for value as there are many components that can and should be negotiated upon and quantified. In some cases this value will be superior to the upfront discounts offered.

Let’s take a look at a few of these key areas:

    1. Ancillary Fees
      Ancillary fees are becoming more of an issue and some airline sources have cited ancillary fees as a principle reason for the return to profitability for the majority of the industry. Frustratingly, most corporate buyers still do have not direct visibility as to what is going on here and in many cases the airlines have difficulty offering direct discounts and fee waivers by ticket. Let’s put this front and center and see how buyers should quantify savings for ancillary fees, be it free baggage fees, free Wi-Fi, lounge access, or other elements.

      • Firstly, check that your travel policy or expense reimbursement policy has been updated to include all of these items.
      • Secondly, check to see if your expense reporting system or corporate card program provides any kind of information with the necessary detail to include your spend in your individual negotiations with the carriers.

      Does the system parse spend by item? By carrier? If not, then you are in the position to ask the carriers to provide you the information that you will use to negotiate against them – not an enviable position to be in. If this is the case, you will have to use some estimated numbers to derive the savings. Using this approach, you should make adjustments for the ancillary fee activity that will be covered by any free membership status offers and status match offers to avoid double dipping. A reasonable assessment of the usage is also recommended. In most cases the airline is not set up to offer direct discounts on these items, but knowing your spend in these areas will provide negotiating leverage for more leeway on membership status levels and a case for more value on the upsell/book down/down bucketing corporate fares structures.

      One final point in the measurement of ancillary fees is the usage factor that you apply to the savings. While it may be true that 75% of your travelers will use on board Wi-Fi if it is free, it may only be that 10% would have actually paid for it. For 65% it was a convenience factor to which you may be wish to assign a small value, but the savings really only apply to the 10% that would have paid – and only if your travel policy would have allowed it.

    2. Waivers
      Most corporate programs will involve some service fund that allows flexibility in ticket changes, such as the use of non-refundable tickets, name changes, itinerary changes, etc. This is something that many airlines like to keep away from the negotiating table and out of the contract language. As a buyer, it is important that you bring this back into the discussion during your sourcing process and push the airline to make the allowance part of the contract. You can look at your previous usage and or refund rates to determine the value of what you are negotiating. A very efficient TMC operation is also needed to ensure that these funds are not only used, but used in the most efficient manner possible to optimize the value. There is nothing worse than seeing contract value that you have successfully acquired not being effectively used. Ensure that both the TMC and the airline report the activity in your quarterly reviews.

    4. Frequent flyer Memberships and Status matches
      New and existing partners should offer a number of frequent flyer memberships and a number of status matches to support the relationship. Not all loyalty programs are equal, but with a bit of research you can align the various levels between your principle carriers and normalize the cost of each level to determine the overall value.The next step is to ensure that you are using the opportunities in the most efficient way possible. Try to assign the status matches first before using up your allotment of “free” memberships. Sometimes the offer will come with strings attached based on the travelers subsequent activity. This can be a negotiating point, but it is also important to make sure that you are assigning the status levels to those who are most likely to retain them. To do this you will need either the assistance of your TMC or the cooperation of your travelers to provide you with the right information.

    6. Upgrades
      One final area of negotiation is upgrades. If you can, get the airline to commit to a number of upgrades. You should have the number defined for short, medium, and long haul flights and also define which fare and cabins are valid. The airline should provide you quarterly reporting on this and the savings should be easy to quantify.

I have seen cases where the value part of the relationship in a heavily domestic program far outweighed the upfront discounts. If you are struggling with your program discounts and you have not looked at this area then you may be in for a nice surprise.

This article originally appeared in the July 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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