Managing supplier relationships today can be a more challenging, complex task for many travel buyers than it was earlier in the decade. Pressured to maintain or improve financial performance, airlines, hotels and car rental firms are more closely examining which organizations they deem deserving of special rates, favorable treatment and dedicated account management.
At the same time, many organizations navigating the economic turmoil expect lower volumes with which to negotiate, further affecting the mechanics of supply and demand. But they also want more for their travelers, including productivity enhancements and other conveniences. Taken together, these developments can strain existing buyer-supplier partnerships and impede new ones.
This is especially the case in the hotel category, the one for which the largest number of "State Of The Practice" respondents have deals in place. Entering the 2009 negotiating season, after years of rising corporate hotel rates, buyers sought either reductions or no changes to pricing. Though organizations themselves have been cutting back on travel, many saw weakness in the hotel sector as translating to a buyer's market.
"It is important to develop a long-term relationship where there is flexibility, and [hotel] revenue managers realize they are not going to get the type of rate increases, if any, this year," according to Bonnie Darkey, corporate travel manager for Lazard LLC. ( 1)
Source: Procurement.travelAugust-September 2008 online survey of 473 qualified travel decision-makers
"Since I have over-performed for these hoteliers ... as a partner [they're] going to see that and come to the table and be creative and flexible," added Marcella Olivier, travel manager for Babcock and Brown. "I am very loyal as long as we are getting what we need. It goes beyond our favorable relationship; are our business travelers getting what they need, and is there a cost savings?" ( 2)
For example, buyers sought to include more services as part of negotiated rates, including Internet access, breakfast and parking. A November survey by Morgan Stanley found that nearly three-quarters of 400 corporate travel manager respondents expected Internet access to be included in negotiated 2009 hotel rates, and 56 percent indicated that breakfast would be included. ( 3)
Such ancillary services are a key component to electronic hotel folio feeds--provided by a growing number of hotels to clients via corporate payment systems. In addition to easing the expense reporting process, e-folio data helps buyers understand their total spend with hotel properties and chains by itemizing all charges, not just room rates. That, in turn, helps in negotiating renewals with preferred suppliers.
Source: Procurement.travelAugust-September 2008 online survey of 473 qualified travel decision-makers
Another emerging development for hotel sourcing relates to environmental concerns. Buyers increasingly want to know how hotels measure greenhouse gas emissions, water and electricity consumption, waste management and other sustainability metrics. To help them do that, the National Business Travel Association's hotel committee has included a section on corporate social responsibility efforts in its latest standard request for proposals template.
Meanwhile, hotel supplier relationship management for some organizations has led to integration with meetings sourcing. Deloitte & Touche USA, for example, now negotiates with hotels for both transient and group business. "It's hard to measure in quantitative terms, but there's definitely a process efficiency," said Deloitte chief procurement officer Mike McMahon. "Supplier relationship management is where all the value of strategic procurement is obtained for both buyer and supplier." ( 4)
Airlines Tighten Up
In the airline contracting realm, despite market upheaval and cost-consciousness among traveling companies, the basics of airline contracting remain relatively unchanged: Organizations select airlines based on routes served, services provided to travelers and favorable pricing. Those that can shift share to preferred carriers (and/or provide higher volumes) are rewarded with fare discounts (or fixed fares) on certain routes, within certain regions or systemwide.
However, airlines have become increasingly sophisticated in how they analyze potential accounts and measure contract performance. That has led to a more disciplined approach, whereby carriers withhold favorable discounts from smaller, underperforming or otherwise unprofitable accounts.
While airlines continue to shift their mindset toward performance-based account management and away from relationship-based selling, some buyers also are changing their orientation. Using preferred suppliers still is an important aspect of a managed air travel program, but not at any cost.
"Many businesses in recent years have adopted a policy of buying the lowest fare on the day, especially if most of their flying is short haul," according to a 2008 AirPlus International study. "This is particularly true of smaller companies, which, in any case, find it harder to coax worthwhile deals out of airlines." ( 5)
In the United Kingdom, more than half of the respondents to a March 2008 survey fielded by the Institute of Travel Management said they "sometimes or frequently find cheaper long-haul fares outside preferred channels, further questioning the value of traditional airline corporate channels." ( 6)
Among "State Of The Practice" respondents, 69 percent said their organizations negotiate directly with airlines, fewer than for both hotel and car rental. The percentage of respondents to the AirPlus surveys who say they strike deals with airlines has fallen in each of the past three years. In 2008, it was about half.
Source: Procurement.travelAugust-September 2008 online survey of 473 qualified travel decision-makers
Another new wrinkle is inclusion (or exclusion) of ancillary airline fees and surcharges. Though some buyers would like contracts to cover charges on checked baggage, fuel surcharges and other elements, airlines are reluctant to agree to such provisions.
In terms of car rental, travel management firm Egencia suggested the 2009 negotiating environment would be "slightly favorable to buyers due to factors including expected demand declines because of the overall economy." Egencia added that such "favorability could be offset by capacity reductions and industry consolidation among car rental suppliers." ( 7)
Among the three major travel cost segments--air, car rental and hotel--negotiated car rental rates are most heavily used among "State Of The Practice" respondents. More than six in 10 use such rates for at least 50 percent of their purchases, and 35 percent use them for at least 90 percent of their purchases. That compares with 51 percent and 20 percent, respectively, for airline bookings and 51 percent and 15 percent, respectively, for hotel bookings. For all three categories, larger companies use directly negotiated rates more frequently than smaller companies.
Source: Procurement.travelAugust-September 2008 online survey of 473 qualified travel decision-makers
Satisfaction
Senior finance executives from around the world surveyed in July 2008 by CFO Europe Research Services and Amadeus indicated they wanted their organizations to improve supplier negotiations. More than one-third said increasing leverage with travel suppliers is "very important," but only 6 percent said their companies are "very effective" at doing it. ( 8)
Based in the United States, travel manager respondents to a 2008 NBTA survey seemed more satisfied: Fifty-six percent said they were "comfortable and confident that all or most [supplier] agreements are working well." Another 36 percent said they "have some agreements that are working well, some that are not." Fewer than 7 percent said, "We are likely to miss our targets on a majority of our agreements." ( 9)
Source: Procurement.travelAugust-September 2008 online survey of 473 qualified travel decision-makers
According to a more recent NBTA survey, 27 percent of 90 U.S. travel buyers said they expected to cut back on contractual hotel commitments in 2008, more than those doing so for airline commitments (23 percent) and car rental commitments (15 percent). At the same time, fewer respondents (11 percent) had "significant concern" about fulfilling hotel agreements, compared with 33 percent for airline deals. ( 10)
Regarding overall perceptions of suppliers' problem-solving capabilities and account management, "State Of The Practice" respondents expressed the highest level of satisfaction with their hotel suppliers, followed by car rental firms and corporate payment providers. When rating airlines, car rental firms and corporate payment providers, respondents from larger companies gave higher scores than those from smaller companies, perhaps reflecting the more favorable contractual terms they secure. There were no such discernible trends for ratings of hotels, rail operators and meeting venues, and the disparity in scores between the largest and smallest spenders were smaller than for other categories.
Travel Management Companies
Relationships with travel management companies can be more complex than those with other types of travel suppliers, given the variety of pricing and service options available and the central role TMCs play in a managed travel program.
For example, financial penalties and incentives based on service quality metrics help define travel agency relationships. More than half of "State Of The Practice" respondents apply such metrics as part of their TMC contracts--a higher percentage than for any other supplier category. Ninety percent of large organizations--those with annual T&E costs of more than $60 million--contract for agency services; 27 percent of those with annual T&E of less than $1 million do so.
TMC service quality metrics typically include telephone response times, abandon rates (how often travelers hang up before an agent answers) and results of audits determining how often agencies provide the lowest available prices. But they can encompass many more measurements and key performance indicators, ranging from traveler satisfaction and ticketing accuracy to timeliness of data and technology "up time."
Meanwhile, many companies rely on TMCs to provide discounted rates obtained from other travel suppliers. According to Procurement.travelresearch, hotel rates most often fall into that category (perhaps not surprising, given the preponderance of "consortia" rates available and the sheer number of hotel properties that exist).
Interestingly, organization size does not appear to be a factor for several categories of rates provided by TMCs to clients: Just as many respondents (or more) from the largest companies use their TMCs' rates for lodging, meeting venues, limo/ground, rail and corporate payment as those from the smallest companies. The most notable exception is the airline category, in which 63 percent of respondents from organizations with less than $1 million in annual T&E spend rely on TMCs for favorable fares versus 39 percent from organizations with more than $60 million in annual T&E spend.
Big Buyers Benefit
Unsurprisingly, Procurement.travelfound that larger companies with more travelers and higher T&E expenditures--and therefore greater clout--are more likely to negotiate pricing. But when considering the largest spend categories in a typical managed travel program--air transportation, lodging and car rental--even the smallest companies secure favorable rates. For example, 70 percent of surveyed companies with less than $1 million in annual T&E costs directly negotiate hotel rates. Nearly half of companies of that size also work to obtain discount deals from car rental firms (48 percent) and airlines (47 percent).
One of the largest observed disparities was for corporate payment. More than eight in 10 respondents from organizations with T&E expenditures greater than $60 million said they negotiate directly with card companies (generally in an effort to obtain spending rebates), whereas only 15 percent of organizations with less than $1 million in annual T&E do so. Other wide variances between the largest and smallest T&E spenders were for negotiating with online booking and expense system providers (76 percent versus 22 percent), limo/ground transportation operators (72 percent versus 21 percent) and global distribution system firms (46 percent versus 10 percent).
In addition to spending volume, "larger companies may also have more available resources for identifying opportunities and securing these relationships," according to a 2007 CFO Research Services/American Express report. ( 11)
Often armed with analytical tools, consultants, agency expertise and in-house staffers--and their volume--big spenders should and do extract large discounts from suppliers. More than four in 10 surveyed by Procurement.travelsaid they save at least 16 percent, well above their smaller-volume counterparts. Just 9 percent of the largest-volume respondents reported savings of 5 percent or less, or no savings at all.
The Amex/CFO study noted that "service benefits are often as important as price, if not more so." The executives interviewed by researchers used "a combination of negotiation tactics to get the combination of price and service from vendors that serves their companies best. These tactics include consolidating spending to increase volume; analyzing spending data to find trends; benchmarking against prices paid by other companies; fielding calls from sales representatives; and, as more than one of our sources put it, 'Just plain asking.' " ( 12)