Big European Buyers Air Grievances, Share Experiences

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 Surcharges 

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 rules."

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 Smarter 

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 behavior.

"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 comparison."

Buyers Split Over Pan-European TMC Consolidation 

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."

This report originally appeared in the Dec. 12, 2011, edition of Business Travel News.