Multinational Buyers Focusing On Supplier Consolidation

A solid majority of corporate travel buyers who manage multinational programs negotiate with their primary air, lodging and car rental suppliers on a global basis, and buyers increasingly are aiming to consolidate those contracts to a smaller pool of vendors, according to BTN's 2015 Global View survey.

Of 124 travel buyers who manage multinational programs and responded to a BTN survey question on the matter, 73 percent said they negotiate air and hotel contracts on a global basis. A slightly smaller share, 69 percent, said they did so with car rental contracts. Such has been the norm for the past several years, said Bob Brindley, vice president and principal with BCD Travel consulting arm Advito, and now buyers are refining those programs through consolidation. One respondent cited as a reason "working with too many vendors," and another wanted to "focus more on regions and travel service providers where we have the most activity and spend."

On the air side, consolidation has become a necessity for many buyers, Brindley said. American Airlines is finalizing its merger with US Airways, and the three largest U.S. carriers each are solidifying alliances and joint ventures. Within the transatlantic market, Delta Air Lines has partnered with both Air France-KLM and Virgin Atlantic, AA with British Airways and United Airlines with Lufthansa. That means using all three carriers is now more difficult.

"With the requirements JVs have in terms of market share and growth, it becomes very complicated to contract with three of them," said Carlson Wagonlit Travel Solutions Group senior director Yon Abad. "Most of the companies are organized to select only two of the three."

At the same time, buyers with multinational programs are struggling to compare multiple sources of data from these vendors, said American Express Global Business Travel director of global business consulting Sebastien Marchon. They need increasingly sophisticated tools to mine that data in a useful fashion—looking at air discounts not only in the context of the discount percentage, for example, but how that stacks up against published fare changes—he said.

As such, multinational travel sourcing has become endless. "You used to have a three-month sourcing period, and then you were finished," Marchon said. "Now, companies negotiate all throughout the year and are checking the performance of each contract."

Competition In The Air  

Of the three major supplier categories, airlines best met the global needs of travel buyers in the survey, garnering from respondents an average satisfaction score of 4.11 on a seven-point scale.

Typically, multinational air programs consist of agreements with two of the three major joint ventures/alliances, supplemented by agreements with local carriers to fill in the gaps, Abad said. Even with industry consolidation, buyers still are benefiting from a competitive market.

"Even though these three JV carrier groups have more pricing power than they have had previously, the groups are still going to fight to make sure they're one of the two in a program if a large client needs to move," Brindley said. "There are certain dominant markets where they don't need to be ultra-aggressive, but we still see a productive and beneficial negotiating environment for clients with high-yield business in competitive markets."

Adding to the competitive environment, low-cost carriers have become more aggressive in courting corporate business, particularly in Europe, said Marchon, who's based in Paris. Ryanair, for example once grabbed headlines for how bare it planned to make basic service but last year introduced a special tier of tickets targeting service-minded business travelers.

"While [Ryanair] used to attack only the leisure segment a few years ago, they've become very aggressive in the corporate segment and do not hesitate to provide discounts," Marchon said.

In addition, the three major Middle Eastern carriers—Emirates, Etihad Airways and Qatar Airways—are fighting strongly to gain corporate market share, Abad said. One respondent to the BTN survey wants to shift share to Emirates and Etihad. With the exception of Qatar, which joined the Oneworld alliance in 2013, these carriers have eschewed alliances in favor of developing their own partners. Their growth has prompted U.S. carriers to ask the U.S. government to revisit Open Skies agreements concerning the three carriers.

Despite the competitive environment, airlines aggressively are enforcing market- and volume-share requirements for corporate discounts, Marchon said. In cases in which those fall below targets, airlines "will not hesitate to remove the discounts," he said.

Managing discounts on a multinational level can be complicated for travel managers, DocuSign global travel and card manager Rick Wakida said, as requirements tend to vary by region.

"It's very common to have marketshare agreements in the United States, but in Europe, you might end up with a revenue requirement," he said. "You'll have to measure those two different types of agreements."

The push for point-of-origin ticketing—using fares based on the country where a flight originates rather than where the ticket was purchased, which provides travel managers better access to the best fares and negotiated discounts—remains a sticking point in multinational air sourcing, according to many survey respondents. While some carriers remain reticent, others are agreeing to point-of-origin ticketing, understanding that corporations aren't engaging in "creative ticketing" to get around tariff rules, Brindley said. "Because some are doing it, we're seeing those walls come down," he said. "For large clients, it makes sense to eliminate that restriction."

Buyers Dissatisfied With Hotels 

Even as large, multibrand hotel companies increase their global footprints, multinational hotel program sourcing remains a challenge for corporate travel buyers.

In BTN's survey, buyers gave hotels the lowest overall satisfaction level among suppliers in terms of meeting global needs: 3.38 on a seven-point scale. This may owe in part to the fact that buyers still need large local components. So while Marriott International, Hilton Worldwide and the other industry giants build up their portfolios in emerging markets, buyers have to grapple with the complexity of their ownership models, Brindley said.

"Those hotels all are owned independently and come across seven or eight brands, so you don't negotiate except for chainwide deals," he said. "You negotiate at the individual property level."

An inverse of the air category, the typical multinational hotel program consists of fixed rates negotiated at hotels in a program's top cities, supplemented by chainwide or brandwide discounts with the large companies for smaller markets. This can make sourcing complicated, but it also affords opportunities for savings even in smaller multinational programs, Wakida said.

"If you don't have the volume, look at independents or individual hotels that might be close," he said. "Two hundred room nights might not interest Marriott, but for a smaller select-service hotel, you could be one of their top clients."

Such a strategy requires local knowledge, however. For instance, although the Global Business Travel Association's English-language modular hotel request-for-proposal form is the standard for global hotel sourcing, buyers need to localize the language to garner a decent response rate from hotels in many countries, Brindley said.

Another bit of news for buyers sourcing hotels internationally: Charges for amenities, particularly Wi-Fi, still are highly negotiable even in a persistent seller's market. In fact, several hotel companies during the past year have made free Wi-Fi a global standard, at least for all loyalty program members, regardless of status. Marriott and Starwood have tied that to booking via direct channels, while Hilton, InterContinental Hotels Group and others have opened it up for all bookings. Wakida said this is another step toward standard free Wi-Fi, at which point any hotel not offering it would be at a competitive disadvantage.

As hotels have gained pricing power in recent years, buyers increasingly want to reduce the number of properties in their programs.

"The fewer preferred suppliers you have, the higher your discounts will be," Marchon said. "We're also seeing more consolidation of meetings and events with the transient program. Clients try to plan in advance the meetings they will have and choose a limited number of cities to negotiate in with a limited number of suppliers."

Car Rental Offers Savings Opportunity 

Multinational buyers rated their satisfaction level with car rental companies at 3.76 on a seven-point scale, according to BTN's survey.

As with the other categories, many buyers are seeking to consolidate their car rental programs, though few suppliers have the capability to service a global program. Buyers who in the past might have had a deal with Hertz in the United States and Avis in Europe now aim for one global deal, Marchon said.

Car rental rates have been fairly stable in recent years, and buyers can save significantly with global car programs when they negotiate not just for discounts but also for ancillary spend, Abad said. For example, even though a corporate program might contain provisions for liability insurance, travelers unknowingly could pay extra for it at the counter. Solid sourcing offers a second layer of protection, he said.

"When you book a rental car, very often you don't pay what you had booked," Abad said. "You could negotiate in the contract that expense be reimbursed whenever it is overpaid."

This report originally appeared in the April 20, 2015, issue of Business Travel News.