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The slowly recovering European business travel market is
burdening travel buyers with renewed challenges, including rising rates and
other, more contentious, revenue-raising strategies employed by suppliers
desperate to find routes back to profitability. That is the picture painted by
the fourth annual Business Travel News
survey of the biggest buyers of travel in Europe along with a discussion with
many of the survey contributors at the NBTA Europe conference in Lisbon in
(Please click here to download the entire report, including all charts and analysis.)
The 28 companies that participated this year booked European
air volume in excess of €15 million—with an average of €47 million—and
represented a wide range of sectors, including pharmaceuticals, manufacturing,
financial services, technology and communications.
The survey results and roundtable discussion suggest there
will be plenty of work for European travel managers during 2011.
To Deal Wanes
In 2009, survey respondents considered every category of
travel supplier and intermediary more willing to negotiate than they were six
months prior. This time, the picture is much more mixed. For agency, car
rental, card and chauffeured transportation, there still are a higher number of
buyers who judge vendors more receptive to negotiating favorable pricing
agreements than those who do not. For air and hotel, however, the opposite is
By far the most striking example is hotels. In 2009, every
buyer surveyed judged hotel suppliers more receptive to negotiation than they
were in the previous six months. Fast-forward one year and that figure has
fallen to 35 percent, while 42 percent have found hotel vendors less receptive.
Similarly, no surveyed travel buyers in 2009 found airlines
less receptive to negotiations. This year, the figure is 38 percent, while only
31 percent have found airlines more receptive, down from 74 percent.
When it comes to intermediaries, the picture is different.
Although down from 70 percent last year, 54 percent of buyers characterized
agencies more receptive in 2010, whereas only 8 percent find them less
It will be highly revealing in next year's report to see
whether the tougher negotiating climate led to an increase in the average
European economy ticket price for 2010. This year's survey reveals that the
average fare in 2009 plummeted to €353.50 from €421.50 the year before. It does
not necessarily follow that the average fare started to rise again in 2010. It
has fallen every year since the first BTN
European report measured 2006 data, when the market was booming, largely
because of the deflationary effect of low-cost carriers.
Two other answers from the survey respondents possibly offer
evidence that budget competition contributed to downward price movement in
2009. The average savings buyers achieved on economy fares as a result of
negotiated corporate discounts was 19 percent, slightly down from the 2008
figure of 20 percent. Furthermore, the percentage of European air tickets for
which respondent companies received a negotiated discount was 47 percent, down
from 53 percent. As such, average fares likely did not fall because companies
were buying more or cheaper negotiated tickets. Instead, they likely were using
more low-cost carriers or buying more best-on-day fares from legacy airlines
whose pricing strategies were heavily influenced by their budget rivals.
Meanwhile, in 2010, 16 percent of buyers have made their
business-class air travel policies less restrictive than the previous year.
Last year, the figure was zero, as was also the case in 2008 and 2007. Only 12
percent have made their business-class policies more restrictive in 2010, well
down from last year's figure of 46 percent.
At the buyers' benchmarking meeting in Lisbon, most concerns
expressed about airline contracting revolved around the issue of transparency.
As the travel manager for one leading European bank put it, "There is
nothing wrong with airlines earning money—all I want is some transparency."
Instead, buyers said carriers are asking for a great deal of
information but are being less than open in return. "They are being more
aggressive in tying in clauses about meeting contracted targets, so we are
trying to put in clauses to make them commit to giving data," said a
technology company travel manager.
Buyers expressed sympathy with the wish of airlines to tie
clients more rigorously to their deal targets. "It is a legacy of
corporates not delivering," said one. "At one company where I used to
work, we promised 300 percent of our real spend." However, buyers objected
to airlines failing to provide a quid pro quo by granting access to corporate
discounts on all fare classes. "Airlines give upfront discounts on
capacity-controlled classes that are often full, so we have to go for
higher-class fares," complained one participant.
Lufthansa in recent months has been a particular target for
buyer criticism for issuing new contracts that make clients repay discounts if
they miss targets, yet it often does not give last-seat availability on
negotiated fares. "Lufthansa is one of the worst in terms of what it is
asking for in its contracting," said one manager with Europe-wide travel
buying responsibilities. "If you don't provide [booking] data or meet its
other demands, it is willing to walk away." Another said: "All the
airlines will be watching to see what happens with Lufthansa, which has taken
contracting to an extreme."
As a result of these increasing complexities, the buyers
agreed that they are in need of more help from third parties, such as travel
management companies, to analyze airline data and assess contract options.
Taking a slightly different tack, another buyer said, "We need to
challenge suppliers for a high level of standardization of data," adding
that the Swedish Business Travel Association is working on a project to create such standards.
Yet another issue frustrating buyers is ancillary pricing. "It's
nickels and dimes, but it does add up," said one. "Our problem is the
level of data. Card data doesn't help because it doesn't break out ancillary
costs. It is also hard for TMCs to capture." Another said her company's
accounts payable team is attempting to track ancillary fees, "but it is a
big ask of them." The buyers agreed airlines are capturing more data about
such charges as baggage fees than they are willing to share with clients.
Hotel Compliance Up,
Compliance with corporate hotel programs is improving for
travel managers from the biggest European buyers of travel services. The
proportion of European room nights booked with a negotiated front-end discount
by their travelers hit 71 percent in 2009, up from 66 percent the previous year
and 64 percent the year before that. Along with an excellent negotiating
environment, it helped push the average European hotel rate down from €149.40
the previous year to €139.60.
A main concern at the Lisbon session, however, was what will
happen to rates in 2011, considering only 35 percent of respondents viewed
hotels as more receptive to favorable pricing agreements, while 42 percent
believed them less receptive.
"Hotels have certainly been trying to up their rates,
and they have been given aggressive revenue per available room targets by their
owners," said one participant. "Some markets are going to see very
large increases, such as Asia/Pacific, but in some markets, hotels are asking
for too much too soon."
A second travel manager warned that London and New York face
particularly steep rate rises, and others expressed relief that they had
negotiated two-year hotel deals in late 2009 and early 2010 to protect against
the current upward market.
Another risk that the buyers flagged was the slow creep of
new ancillary fees into the hotel sector. One related how a hotel charged a
traveler from her company $15 for accepting a package delivery. However,
another travel manager, albeit from a very large technology company, was able
to report success in negotiating complimentary extras. "We achieved 100
percent Internet-inclusive rates this year in EMEA and the U.S.," she
Meanwhile, certain hotel chains continue to urge corporate
clients to switch some or all of their hotel programs to dynamic pricing, whereby the customer accepts a fixed discount off the best rate on the
day. The proposition proved unpopular with several travel managers in the
group. "They are trying to encourage us to move to dynamic pricing for
nonpreferred hotels," said one travel manager. "I am very resistant.
You don't know how much you are going to pay, which makes budgeting very
However, more were willing to consider the idea than had
been in the past. "We are trying dynamic pricing in Sweden, such as
nonpreferred hotels in smaller cities," said one Scandinavian travel
manager. "So far, it has been very successful for us. We have tied it to a
rate cap, so if the rate goes above the cap, it won't show up in our
Another travel manager warned that some hotels are causing
confusion through best available rates. She said one hotel group is "offering
dynamic pricing in the same cities as where we also have contracted hotels with
the same group, but the dynamic rates are showing up in the system as
contracted rates. Travelers could end up booking a hotel on the other side of
On a related problem, a banking group travel manager
complained of "rife" rate-squatting, especially on self-booking
tools. He blamed GDSs for showing a lack of responsibility for clearing out the
unwanted rates. Another buyer said her company had found a solution to the
rate-squatting challenge. "We commission external audits," she said. "If
the rate is still there in a second audit, we impose a penalty."
This report appears in
the Dec. 20, 2010, issue of Business Travel News.