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Paris - Airline fees are making travel managers angry. In
the United States, it's about baggage fees and other ancillary items. In Europe
this year, it's the rash of credit card surcharges. Those card fees and other
airline contracting challenges dominated discussion during the fifth annual Business Travel News European
benchmarking session. Staged at the Association of Corporate Travel Executives
global conference here in October, the session provided a forum to explore
methods companies use to contain travel spending as trips and costs rise, a
theme also evident in BTN's recent
survey of European travel buyers.
[Click here to see
the digital edition of this issue of BTN,
featuring charts and tables of the survey results.]
This year's survey included 42 organizations, 34 of which
spent at least €15 million in 2010 on air travel within Europe, averaging a
projected €69 million this year. That is up from €56 million last year.
Companywide air volume also is projected to rise in 2011, up about 5 percent
year over year to €137 million.
Anger Over Card
New and expanded credit card charges on airline bookings through
agencies won't help travel buyers contain airline costs. KLM in August 2009 was
the first carrier to introduce such a surcharge, since followed by British
Airways, Finnair and others.
However, anytime a group of European travel managers gets
together these days, it's usually the Lufthansa Group that acts as a lightning
rod for their dissent, and this session was no exception. Buyers queued up to
criticize the aviation company for introducing since September card surcharges
in several European markets.
"We did have a Star Alliance agreement, but now we have
canceled the contract completely, purely because of the merchant fee and the
credit card," according to one buyer. "There are significant benefits
[to payment by credit card] for an airline because of the cashflow. The
alternative for the airline is payment after 60 days, but they don't want to
hear that. I'm not going to facilitate any discussion where they change the
When it was noted that surcharges amount to a relatively
small additional cost for corporate clients, the buyer angrily responded: "That's
not the point."
Now that members of all three airline alliances—Star,
Oneworld and SkyTeam—impose card surcharges, one travel manager wondered aloud
whether it is worth taking punitive action against them by moving business.
"As buyers, it's our responsibility to advocate for our
companies, so we pursue all the options," responded one session
participant, epitomizing the prevailing combative mood. "There is evidence
that you can influence the marketplace by taking a stand, and we have a lot of
power to do that. We won't win every battle, but we may win some wars, and if
fee after fee after fee is being introduced without anything being put on the
table, that is unacceptable."
Another global travel manager supported the call to arms. "I
don't philosophically disagree with a pricing strategy that charges people
differently because the cost is different," she said. "Why should I
pay an aggregated cost of everybody's behavior when it comes to dealing with
payments? But let's call a spade a spade. Lufthansa is one of the most
difficult suppliers to deal with. Its arrogant approach makes us very
adversarial because they pretty much say, 'Take it or leave it.' Do I think we
should move market share away to say, 'It's not OK, the way you approach this?'
Absolutely, it's gone that way with many a supplier in many a category. You
have to make it hurt their pocketbooks before you can impact that kind of a
change. It takes more than one company to achieve that."
Buyers discussed alternatives, including contractual
remedies. "You can put it in your contract that every time the airline
adds another cost element, you will have a discussion, so at least you have an
opening to address that," said the buyer whose organization had canceled
its Star Alliance agreement.
Others proposed pressuring their card issuer instead. "I
decided not to have a discussion [with Lufthansa] because I thought I knew
where it would end," said one buyer, "so I went to our card provider and
said, 'You guys are now enforcing a 2.5 percent increase on our program. Why do
I need use you, because the supplier is saying it's your fee [that is causing
the problem]? Can I now negotiate what merchant fee you are charging my
preferred carrier? If that's a cost coming through, I want to be part of the
discussion.' My card supplier said, 'We can't do that, it's the airlines
increasing the fee.' But I tried to draw them into the discussion to make it
their problem as much as the corporate's."
The fee issue feeds a wider disillusionment about
relationships with preferred airlines. "We see the value of a corporate
incentive program shrinking because fewer people are traveling on a corporate
fare," said yet another angry travel manager. "On top of that, you
have extra costs like luggage and now card surcharges. I want airlines to stop
talking to me about more costs to come; I want them to talk about the value
they are going to deliver on the back of the spend I am leveraging with them.
Those extra costs coming in are eroding the total savings. I am telling
airlines I have other things to do than talk to them. The value is not there at
all. I am happy to take the risk of saying, 'No thanks.' "
Benchmarks from the survey support the thesis that corporate
deals are declining in value. The average negotiated discount achieved on
European economy fares in 2010 was 18 percent, down from 19 percent in 2009 and
continuing a gradual reduction from 22 percent in 2006. At the same time, the
average short-haul economy-class fare rose to €374 in 2010 from €324 in 2009,
the first increase charted by BTN
since 2006, when the benchmark was €518.
Helping Travelers Book
Given rising travel prices and mounting challenges in
supplier management, benchmarking session participants discussed how they can
achieve additional savings in a difficult environment. The answer, according to
several buyers, is better demand management. Many agreed that travelers are
much more willing to do the right thing than in the past, but need better
communication to understand what the right thing is when buying airfares.
One travel manager said that since the onset of the economic
crisis, his organization required a 50 percent cut in travel costs.
"A global company cannot stop traveling, so employees
had to become a little smarter and understand the travel market better, but
there is still a lot to do in terms of communication," the travel manager
said. "If you have well-educated travelers, you generate savings. In three
years we have made savings of about 12 percent because of improvement in
"I'll give you a practical example," the travel
manager continued. "We told travelers that if they buy tickets with full
flexibility, they are very expensive. If they go for the cheap ones, they don't
have any flexibility, but of course a lot of fares in the market are in
between, so the tendency was to buy these in-between tickets. However, the
analysis showed these do not work because they only offer flexibility if there
is availability in that fare class. Travelers believe they can jump on any
plane with this kind of ticket, maybe paying a small additional fee, so the
message we communicated was: 'If you need flexibility, go ahead and buy the
expensive one; but if you don't know how much flexibility you need, go for the
cheap ticket. If you do need to fly at a different time after all, buy a
brand-new ticket.' It will cost a fortune, but overall, in the long run, we are
much better off."
Another buyer shared a similar sentiment. "Employees
are making the right decisions," he said. "We did the same average
ticket price exercise on restricted tickets, and we showed that in 76 percent
of cases you will make a saving. We communicated that at a much higher level.
There is an understanding that cost is a problem, so I would really advocate
providing more information. The days of flexible travel and five-star hotels
are disappearing quite fast."
Despite improved behavior, several participants insisted
their organizations still need to mandate heavily—backed by senior
management—to get results. One Swiss travel buyer explained how his board is
helping his company avoid national carrier Swiss and its sister airline
Lufthansa. "Short-haul, they have a monopoly situation, but we hardly use
them on long-haul any more," he explained. "It is easy for us; we are
based in Basel, so if we change aircraft in Zurich, London or Paris, we don't
care. Our travelers have to accept connection times of up to four hours, but we
strictly enforce travel policy with a lot of name-and-shame reporting. We have
seen lost savings decline in the two years since we started doing this. If
someone books out of policy, they receive a nasty email, and weekly the names
go off to the board, and there is a senior executive who calls the travelers
and says, 'You rebook, otherwise you've got a problem.' "
One barrier preventing some travelers from making the right
choices is the lack of low-fare availability in their online booking tools.
Some benchmarking participants said they believe some tools provide wider
access to web fares than others. There also were concerns about whether travel
management companies are sourcing the lowest prices. One travel manager said
her company recently changed its TMC to achieve better access to content, with
the new provider offering a lowest-fare guarantee.
Obtaining access to full content, however, should take a
back seat to ensuring business travelers can be tracked in an emergency. "The
basic security of your travelers is first and foremost," said one global
travel manager. "When you cut through the white noise, 99 percent of the
content you want is in the GDS and the distressed content is one percent."
Organizations are better off working with airlines that are willing to
distribute all their fares through GDSs, the manager added.
Another buyer suggested another solution: "I use a
third party to do an audit. That helps a lot to raise credibility, and it also
helps me to understand if our TMC is fulfilling its duty to provide the lowest
fare. The majority of the time we had that issue [of travelers finding a lower
fare than what the TMC offered] was because the client was doing a search but
asking the TMC for something different, so it was not an apples-to-apples
Buyers Split Over Pan-European
Another debate in European travel management circles is on
the wisdom or otherwise of deploying a single TMC across the region.
Benchmarking session participants complained that multinational TMCs—often a
tough sell to many travelers accustomed to local agencies—provide inconsistent
service from country to country. Organizations represented by survey
respondents were almost evenly split between using a consolidated TMC across
Europe and using multiple agencies.
A typical perspective offered by session participants whose
companies have not consolidated across the region was that doing so jeopardizes
best-in-class service; a single TMC per country may be a preferable solution.
One travel manager explained that he is reversing his previous
consolidation strategy. "Five years ago I embarked on a journey of TMC
consolidation, and by last year we were close to having one TMC worldwide, but
right now I am doing the opposite," he said. "I am de-implementing
the solution. You need to ask yourself what the value is of being global. In my
company, at the very beginning, the value was in having total transparency of
travel costs. Now we have achieved this by introducing a worldwide solution for
credit cards. The information about how much we spend is coming through the
credit card at a global level."
Others see the value in consolidating. One participant
outlined how his company not only consolidated to a single TMC, but also is
routing the overwhelming majority of bookings through a couple of regional
service centers. "We have just completed a 37-country consolidation to HRG
for Europe and Africa and we have a multinational service center in Glasgow
looking after the majority of countries," said the London-based buyer. "We
also have a service center in Prague. There are some countries where in-market
service works better, and HRG is servicing them there, but 85 percent of our
calls go through one of these multinational centers. We did the consolidation
in six months. The speed of implementation was improved because so much is
handled through a small number of service centers.
"It does have its disadvantages," he continued. "There
are some aspects of local knowledge and services that are lost, but what you
gain is a team that gets to know your business and your policy and can enforce
it. It's not going to suit every company, and we have just consolidated in Asia
as well, where we have implemented in-country service in each market, so even
in the same company different regions work in different ways."
The travel manager cited an exceptional need for local
knowledge as the prime factor for allowing in-country service in certain cases.
"In Greece, for example, it is because of the huge amount of boat travel
they have around the islands," he said. "For an HRG consultant in
Glasgow to have a knowledge of the local ferries would be difficult."
Other benchmarking session participants wanted to know how
efficiently regional service centers are able to book local content.
"That is the biggest thing to be taken into account,"
said the travel manager. "HRG emulates the local International Air
Transport Association number and pseudo-city code to get the point-of-sale
fares for that market, otherwise we wouldn't have done it. We would have lost
credibility with the local countries if we hadn't been able to offer fares from
their own point of sale." He added that to optimize access to local
content, HRG's Glasgow center uses Amadeus and Travelport's Galileo to handle
bookings for different markets.
In spite of a successful start, the company has had to
overcome traveler resistance to consolidation in some countries, a familiar
problem for several others in the room.
"We had a very immature program," he said. "Countries
were booking through the Internet without even having a local TMC service, so
some countries love the new program because there is control, and travelers
have someone they can phone without having to do the research themselves.
However, others don't like it because there is control, and they also have to
pay a fee for it now."
originally appeared in the Dec. 12, 2011, edition of Business Travel News.
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