Carriers, with growing confidence in their airline contracting analytical models, are structuring deals and monitoring corporate contracts with an increasing degree of analytical rigor, airlines and analysts said.
Carriers have spent years refining their analytical approaches to corporate pricing and contract management, and in many cases have further aligned corporate sales with revenue management departments to set discounts, structure agreements and monitor accounts. Through that cooperation and the analysis it yields, carriers more than ever can hold clients to a higher degree of accountability.
United Airlines senior vice president of worldwide sales Jeff Foland, during an investor conference last month, said the carrier is moving beyond "a relationship-based selling environment and an environment where you simply sell based on price." The sales approach has grown to become "process-driven, process-oriented and analytically rigorous," he said.
While Foland outlined to investors a revamped approach, including the development of proprietary technology that measures corporate clients on 160 "dimensions," and the windfall it has brought to United's bottom line, other domestic carriers stressed that United is not alone in deploying such contracting and account-monitoring tools.
Although carriers have varying approaches to balancing and measuring revenue- and yield-management concerns, said TRX Travel Analytics senior director Kristie Beck, "we're starting to see more consistency in terms of a cross-functional approach from the airlines' side that has both sales and an analytical component that's not just looking at the corporation but how the corporation fits into the airline network."
Scott Gillespie, TRX vice president of strategic initiatives, attributed the refined approaches to changes in data availability and data sophistication that have evolved within the past decade.
"The shift by the airlines to more analytical rigor in corporate pricing and contract measurements is absolutely due to the better availability of data," said Gillespie. "You can't do good analysis without the data. The airlines are learning how to make good use of that data to their benefit—and there's nothing wrong with that. It makes the buyers and suppliers smarter and more well-informed of their options."
Michael Whitesage, president of Prism Group, which is the dominant source of corporate contract management systems for airlines and has more than 10,000 participating companies worldwide, said the data has fostered a long-term change in how carriers and buyer interact. "The data is a vehicle for accountability," Whitesage said. "What really has transpired is this: Before contracting was an affinity program, it's now an accountability program—accountability at both sides of the table. Accountability for the customer to deliver what they said they would in an agreement, but also for the carrier to deliver a true contracted fare that gives the customer an advantage. The information, the data, allows both parties to take risk and have accountability."
Continental Airlines this year demonstrated a cross-functional approach by establishing a new role in its corporate sales department: vice president of corporate programs.
Jim Stevens, formerly vice president of pricing, brings airline revenue management, sales and marketing experience to the new role, which refreshes the analytical focus within the carrier's corporate sales department, Stevens and Continental senior vice president of sales Dave Hilfman said. He will "watch over all of our corporate agreements and over all corporate pricing around the globe," Hilfman said.
Stevens added, "The people in pricing generally are a little more harsh—they don't look at the human side of it. I'm honestly a little more willing to take a little more risk than the pricers. If someone says they can move traffic, I'm willing to give them an opportunity. On the other hand, when they don't move it, I'll be the first in line to say we either cancel or realign the program."
Stevens noted that his last stint in corporate sales at Continental 20 years ago resulted in a reduction in the number of corporate accounts by two-thirds. However, he doesn't expect similar results this time, noting that the corporate sales force has assured him "that the corporate travel managers have better control over their travelers today than they did 20 years ago. I have to wait and see that. Don't tell me, show me. I have an open mind."
Several carriers have witnessed similar "cross-pollination," as American Airlines vice president of global sales Frank Morogiello called it, between revenue or yield management and corporate sales. Morogiello said analytics have been a part of the carrier's approach for many years, but data can only offer so much, which leaves room for relationships between carriers and buyers.
"All analysis does is tell you the potential that might occur," Morogiello said. "You still need to find out critical aspects of how this company intends on using it and how they follow through, or you're whistling in the dark."
"We look at our network team and our revenue management team as an extension that's very complementary to sales," said Delta Air Lines senior vice president of global sales and distribution Pam Elledge. "Once you look at the data and know where you're going, it's a very collaborative effort."
While data has become the backbone for structuring deals, they also serve as the basis for contract monitoring, and the speed at which carriers can spot under-performing contract has accelerated, carriers noted.
"At the very least, you can see that monthly," Morogiello said. "I color code my deals—red, yellow, green—when I'm looking at performance of accounts. I tell my guys I should never have an account that was green become red within 90 days. We should know what's going on and have those conversations, and sometimes we find out you have legitimate reasons for what happened. Sometimes it's a product flaw or weather issues."
Foland said United adopted a more analytical approach to corporate sales in the United States beginning in 2005, and since has begun to roll it out to other regions.
"We now have tools which allow reps to go in as part of this process, profile the account and understand what segment the account would fall into and do some very deep quantitative analysis that says our network fit relative to your next best alternative—where your people travel, class of travel, etc., here's how many productivity hours you would save on our program versus someone else—and you can monetize that into real-dollar terms."
Foland claimed United has added more than $400 million in new corporate business in the past 24 months, helping to grow the corporate share of United's revenue. "Nearly 20 percent of passenger revenue is under a direct corporate share contract," he said, "and the reason we care is that the yield on that traffic is quite attractive. The yield is nearly double that which you would have outside of this particular portfolio."
TRX's Gillespie said, "What we've heard and seen in the marketplace is that United are probably making much more analytically rigorous decisions and in many cases weakened the relationships, so they've improved their yield at the expense of some of the longer time relationships that they had in place with several large corporations. They've chosen that path very carefully and it seems to be working for them."
"The longer you have the infrastructure in place, the more beneficial it becomes," Delta's Elledge said. "It's not anything new. We've been doing it for quite some time. Today, we're far better at it than we were three years ago. As you ramp up and really understand it, it's a matter of how you build on that foundation."
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