Market consolidation in the airline industry – paired with a steady influx of new partnerships and alliances – has made negotiating deals with airlines harder than ever. This dynamic has hit companies with expansive business travel budgets and travel management companies (TMCs) hard. Unfortunately, 2018 won’t bring much relief: GBTA predicts a 3.5 percent increase in costs for air travel, and a 3.7 percent increase for hotel costs.
On top of the recent consolidation, carriers continue to cut back on bundled services, amenities, routes and discounts, all in order to charge more and protect their bottom line. This has left business travel leaders in a precarious position.
Fortunately, there are a couple of time-tested strategies for building negotiating power with airlines – and they all start with analytics.
Airlines rely on a share-based model that uses aviation data – like service frequency, aircraft and route type – to analyze and predict demand across their routes and schedules. The ‘fair share’ model incorporates this information into a formula known as a Quality of Service Index (QSI). Airlines leverage the findings to determine their expected share of traffic in any given market.
The smartest business travel departments and TMCs take a similar approach internally – and leverage the results to secure better deals.
The first step is to determine a company’s share by first examining traveler needs and patterns. For organizations that have internal travel operations, this data can be collected via company cards, online travel agents (OTAs) and through third-party consolidators. Take a look at the frequency your employees travel on certain routes and which airlines your organization flies most often. On many routes, a corporate client may have a small group of flyers whose frequency of travel is so high (30 times a year) that they make up a significant revenue value. Corporate travel departments should not be afraid to leverage that point in their discussions around access to private fares.
Once a business understands where it makes the biggest impact on capacity, it will be prepared to prove its value and negotiate a fair share with airlines. The key is looking at this both on a macro level (total share) and micro level (individual routes).
Once an organization understands where it has significant capacity power, the next step is to compare internal data to overall frequency and capacity on identified routes. Analytics providers can deliver detailed information on airline frequency and capacity trends, help identify new routes and services, highlight passenger traffic flows and evaluate airline connection performance.
The intersection of these two buckets – an organization’s capacity impact and an airlines capacity needs – creates a powerful negotiation platform for business travel departments and TMCs.
Start by using analytics and scheduling databases to better understand what percentage of total capacity you service on a specific route, and then identify other airlines operating similar services. Understanding the full picture – including route competitiveness, profitability to the airline, alternative carrier options, future growth and consolidation expectations – is critical.
According to aviation analyst John Grant, “Scheduling data can be used to assess competitive options. Many top airlines on major routes have similar schedules. Be prepared to switch carriers and take a small schedule hit to leverage a better fare; it sharpens the negotiating position. Linked to that, keep track of the airline’s punctuality on the route and that of alternate suppliers. If punctuality deteriorates, don’t be afraid to seek a punctuality-based refund clause; after all, the airline is impacting your business performance.”
Once you have all the information, you can see exactly how much market share you are contributing to a specific carrier or route, and negotiate accordingly. Some companies have achieved substantial savings. Given that air travel makes up roughly 34 percent of business travel budgets for the Fortune 500 and 31 percent for large market companies, according to JP Morgan, even a slight decrease in costs can have a far-reaching impact for your organization.
Knowing how much value your organization delivers to an airline – and the strategic and competitive nature of the routes you fly – is critical for securing the best deal.
Equipping yourself with the most credible and up-to-date data will give you a leg up when looking to secure your fair share. Check out OAG’s scheduling services, analytics solutions and QSI tools to learn how access to this data will benefit you.