Corp. Sourcing Matches Airlines' Approach

Just as domestic legacy carriers have spent years refining their use of analytical tools to drive client negotiations and contract management, corporate travel buyers have responded with their own heightened analytical rigor and data-driven contracting practices. Like the airlines that have further aligned corporate sales forces with revenue management departments, travel buyers have undergone their own transformation as companies integrate procurement practices and sourcing departments into travel programs.

"The analytical appetite that travel managers and procurement managers have today versus what they had 10 years ago has clearly changed," said Scott Gillespie, TRX vice president of strategic initiatives. "Ten years ago, any number of travel managers didn't like to use Excel for anything other than keeping lists. That's very different today."

Deloitte Services LP chief procurement officer and director of national services Michael McMahon said when airlines early this decade began embracing third-party data aggregator Prism Group, their dominant source of analytics, it created a gap between the data buyers and suppliers brought to the table. He and other company travel procurement specialists said data parity has grown in recent years.

"That gap's been narrowing quite a bit," Deloitte's McMahon said. "We measure marketshare the same way our carriers are, and it makes conversations a lot more effective. If they say you're not hitting your targets, but your reports show you are, you've got quite a different conversation."

Prism Group president Michael Whitesage said the proliferation of data-analysis tools—including Prism's Avion and others offered by third-party aggregators—and travel management companies' adoption of more analytically consultative roles have helped to level the data equation. "Agencies are now forming consulting groups to assist travel managers with analytics, so you have Travel Analytics, Carlson, Amex—all those groups," Whitesage said. "Both sides of the table are becoming more analytical and better at the art of contracting."

Whitesage said that although airlines and buyers have grown more sophisticated in applying data to contract negotiation and management, in many cases with access to the same data, they also have information the other party does not.

"The airline has its share requirements and separates costs and profitability," he said. "The company, on the other hand, has its spend and has proposals from competitors. So, both parties have a unique advantage and confidential information that the other party doesn't have. They really are very much at parity in negotiations—they have the same data but different information."

Procurement professionals from Deloitte, KPMG, Pfizer and UTC agreed that third-party data aggregators and agencies have grown critical to their analytical needs. Though procurement hasn't introduced analytical rigor to corporate travel departments, it has in some cases refined it.

"Even in the past when procurement might have played less of a role, the travel group within Pfizer in the past five to seven years applied a data-driven approach to all of our negotiating and contracting with the airlines," said Pfizer vice president of worldwide procurement Tom Donatelli. "Our third party that helps us collect that data has enabled a lot of that. That's only been getting more intense, and we've been developing more capabilities to make that as effective as possible. That's driven by the increasing costs in the airline industry and our desire to drive down those costs."

While airlines said that the rise of data in contract monitoring has brought a greater degree of accountability to client contracts, several corporate travel buyers said that holds true for carriers as well.

"I look back now at some of the meetings with airlines and they were laughable on both sides," said Deloitte's McMahon. "You'd make commitments and you weren't sure—other than measuring gross dollars at the end of the month—no one was really sure what was going on."

Though data and accountability govern contracts, airlines and corporate travel buyers said there remains room for relationships on both sides of the table.

Prism's Whitesage characterized the rise of data-driven contracting and accountability as a "renaissance" in corporate travel management, establishing "true financial relationships between airline and customer."

American Airlines vice president of global sales Frank Morogiello said, "The relationship part is very, very real and it always will be. It doesn't mean you go golfing and hang out and have a beer. It means when something goes wrong, you know who you can call." Though Morogiello noted that some airlines "might look at this and say it has nothing to do with relationship management," he said those expanding their presence in the corporate market are focusing first on relationship-builders. "There are some guys that never had a sales force who are hiring a bunch of people," he said. "You look at the low-cost guys, Southwest as an example, getting into the corporate business—they're hiring salespeople and trying to get people who can create relationships."

Though such low-cost carriers as Southwest are bulking up sales forces to establish what TRX's Gillespie called "relationship capital," he said many legacy airlines shrank sales forces in the past decade, though not entirely at the expense of relationships.

"Relationships are at risk in this day in age," Gillespie said, and buyers "probably need to work that much harder at building those relationships with the airlines. Airlines are going to be more selective about where they put relationship capital, but for the right buyers—those with the right attitude and personality to help the airline succeed—there's still plenty of equity."

Though Pfizer's Donatelli said airline purchasing to some degree has become commoditized, relationships that purchasing managers forge are valuable. "Is there room for relationships? Absolutely," he said. "Travel is different from other categories. In some respects, it is viewed as a commodity, but in others we expect some sort of partnership or relationship with airlines in order to meet our needs and work with us—not only on price, but also on capacity, capabilities and other service levels. Having access to more data helps us to have a more balanced approach and eliminates some of the confusion that we had in the past."