At one point or another, every travel buyer faces them:
those travelers who are certain they can do better than the procurement
department, those who wander off the pasture into thickets of web deals, online
travel agencies and airline.com sites, those who are eager to graze on better
fares than those laid out by the company.
Volvo Group strategic purchasing manager Stephan Hylander
has spent the past few years herding such travelers with a unique air sourcing
program based on a basic principle: If airlines would discount 100 percent of
their inventories—including low-bucket published fares—then the Swedish vehicle
manufacturer could persuade travelers to book through approved channels with
the promise that they won't find better fares elsewhere.
In addition to returning Volvo travelers to corporate
pastures, such a program would steer greater traffic to preferred carriers and
deliver greater savings.
The idea was simple enough, but getting there required
bargaining and persuasion, senior management support and supplier willingness,
and plenty of internal communication and agency coordination. Despite the
challenges, Hylander in the past two years secured such "full-scheme
discount" programs with eight airlines, primarily multinational European
carriers. Though he cited nondisclosure agreements when declining to identify
those airlines, he said he expected more to follow.
Overall, he said Volvo's preferred carriers and corporate
travelers deem the program a success.
Hylander several years ago began a lofty pursuit of air agreements
that were "so favorable that we minimize or even mitigate the possibility
that travelers deviate from the policy," he said. "We thought that if
we had a full-scheme discount program, not only on the corporate inventory, but
also on the airlines' inventory—which means that whatever the airline proposes
on the market through whatever source or distribution channel they use—that
Volvo travelers would get something that is at least a little more favorable."
The idea was somewhat radical, considering that into even the most stringently
negotiated corporate travel programs, the occasional spot-buy published fare
finds its way in.
Before approaching airlines, Hylander studied Volvo's air
spend and found that about 80 percent of the company's corporate fares were
purchased in mid-tier fare bands or, as he said, "in the upper part of the
lower half and the lower part of the upper half" of fare categories. In
other words, Volvo travelers purchased a relatively small percentage of fares
that fell either in the high-yield, last-minute walkup tiers or the lowest,
most deeply discounted published tiers.
"We knew a majority of our volumes would end up in that
part of the program," Hylander said, so that's where he focused
negotiations, "but we also wanted to have a full-scheme program. So among
the very low, low fares—which, first of all, are more or less impossible to get
because there are only a few seats per flight—we asked for discounts."
Hesitant At First
Not surprisingly, airlines initially met Hylander's idea
with resistance. "The response from the airlines was quite negative,"
he said. "They're all stuck in their own revenue management structures.
Some said, 'good idea,' but once they came back from revenue management—and
revenue management is like God in these companies—they didn't dare jeopardize
their current structures."
Persistence paid off. Hylander ultimately worked his way
within airline organizations to discuss his proposal directly with airline
revenue management departments and "managed to convince a couple of
airlines to agree on these types of programs," he said.
Among the challenges, Hylander said his idea "was an
administratively heavy task" for airlines since "it took an extensive
amount of time for airlines to load the fares." Indeed, in seeking
discounts on 100 percent of inventory, Volvo proposed a program that included
far more discount levels on far more fare types than is typical, he said.
"It took an extensive amount of time for airlines to
load the fares—which are special for Volvo," Hylander said. "But we
did not ask them to make any modifications to the rules and conditions.
Whatever fare we bought we had to stick to the terms and conditions of that
In addition to the administrative burden, airlines also
shared concerns about being made financially whole. That took some bargaining,
Hylander said. While 80 percent of the company's volume was purchased "where
we thought, within a limited number of classes in the middle," he said,
airlines often are loath to discount already deeply discounted fares.
Still, for low-bucket fares, Hylander proposed "discounts
so low that they'll not really impact the airlines' revenues anyway." In
exchange, Volvo could even nudge down
some discount levels for higher-bucket fares.
"We had to make sure we had proper discount levels on
those classes where the majority of our travel was booked," he said.
"Airlines do not enter a corporate program unless they
can see the total revenues increasing," Hylander continued. As it turned
out, airlines participating in the program benefited from increased market
share, he claimed.
Hylander noted that by mid-2010, Volvo secured contracts
with a few airlines to implement his "full-scheme" vision.
Getting Travelers On
Organization: Gothenburg, Sweden-based truck, bus and equipment manufacturer Volvo Group, with sales and production in more than 150 countries and 2011 net sales of $45 billion
Volume: An estimated 2012 global air spend of $150 million
Challenge: Recover lost savings resulting from travelers booking airfares through nonpreferred channels
Approach: Work with airlines on "full-scheme" programs to discount 100 percent of inventory
Solution: Assure travelers that corporate fares can't be beat, reduce average airfare and drive more market share to preferred airlines
No matter how much a company asserts to travelers that it
offers the lowest fares, it takes some persuasion of travelers to get them on
board. So began Hylander's multi-pronged corporate communications campaign, in
which the travel teams took to email and the Volvo Intranet and hosted face-to-face
meetings to pound the message.
"We involved our travel agency heavily in this process
because they have the most frequent interaction with travelers," Hylander
said. "The agency was to help them and guide them through the transaction."
While Hylander called those communication modes the "soft"
approach, the company also tightened controls within preferred booking
channels, for example by making online booking mandatory for flights between
major city pairs and for some simple itineraries. Even if travelers called the
agency to book such itineraries, they'd be turned back to the booking tool. "On
the online tool, no other airlines are visible apart from the preferred unless
they are fully booked or do not operate a route," Hylander said. "Then
others will come up."
As Always, Exceptions
As travelers and carriers grow comfortable with the discount
program, Hylander has continued to optimize and refine the approach, which he
acknowledged still has some gaps. Though it's called a "full-scheme"
program, 100 percent is not always achievable, he noted.
All told, he said roughly 80 percent of the company's volume
now is purchased under discount. For the remaining 20 percent, sometimes the
preferred carrier is sold out or doesn't serve a particular route. Or, even
when a preferred carrier serves a route, sometimes it offers only morning or
evening departure when a traveler needs a midday flight.
Some of the eight airline participants "have not
reached 100 percent yet," Hylander said. "The major ones are on the
100-percent program. These are very important airlines for us based on our
Even short of full participation, Hylander and Volvo have
deemed the program a success, the proof of which lies in steadily declining
average fares across the company's program, particularly in top destinations
operated by preferred carriers.
This report originally
appeared in the November 2012 issue of Travel