Airlines as part of corporate negotiations are tightening up on granting loyalty program elite status, a benefit that gained new value in recent years as such status exempted many frequent flyers from some of the carriers' new add-on charges.
Rearden Commerce senior vice president for travel services Tony D'Astolfo last week suggested the new stinginess while moderating a panel discussion here at the Business Travel Media Group's Travel Management 2011conference. He noted that in the past, airlines would "give away" premium status to some number of a corporation's top travelers as a perk of a preferred relationship. Travel buyers with Citi and Lockheed Martin corroborated that this now is apparently harder to come by.
"When we made nominations for frequent flyer status, they were significantly limited" in recent negotiations, said Lockheed Martin Corp. Global Supply Chain Operations travel and meeting services director Richard Wooten. "Of course, that correlates with the money airlines are realizing off the fees."
"All the airlines started with the answer of no, none," said Citi global travel department managing director Mick Lee. "We sort of [laughed], and then at the end, before contract award, we got everything we wanted."
Concur executive vice president for supplier management and advertising Mike Koetting, also a speaker at the conference, said airlines likely "realize there's greater financial impact" of restricting the benefit, but he also suggested consolidation plays a role. "Someday there will be two airlines, and half the traveling public will be a frequent flyer on one of them," he said. "That could be one reason there's been some push-back as the airlines consolidate to try to maintain" the value of elite status.
Loyalty programs for many years were enemies of managed travel programs, since they could lead travelers to seek benefits on carriers that were not preferred by their companies. But travel managers lately have been taking advantage of negotiated status matching to support preferreds.
Citi's Lee paid particular attention to this element of her latest airline talks. "When we were closing our request for proposals globally, before we would provide any contract award, we included the requirement of elite status memberships" for a certain portion of the company's 60,000 frequent travelers, she said. The goal was to mitigate the costs of checked-bag fees and other ancillary charges.
"Close to the time we were awarding the contract, we made it clear: 'Until you say yes to this, we will not award you with the business,' " said Lee. "We purposely did that towards the end when everything else had been agreed upon."
Lee's team then informed travelers of this benefit to using preferred suppliers at the same time they communicated revised policies that took effect Oct. 1, including a ban on first-class tickets, restrictions on business class, tightened eligibility for reimbursable purchases and a new rule that fares for flights on non-preferred carriers would only be reimbursed at 80 percent.
The grants of status "helped us balance out the reception from the travelers to let them know we were keeping not only safety and security and productivity in mind, but also traveler comfort," Lee said.
Ancillary Policies
Finding that ancillary purchases, mostly for bag fees, represented about 1.6 percent of Lockheed's annual U.S. domestic air spend, or about $4.5 million, "was an eye-opener," Wooten told attendees. "I look at it as eating into our discount agreements with airlines." Citi determined that ancillary purchases ranged between 2 percent and 4 percent of its $500 million annual air tally.
As a result of its internal review, Lockheed implemented policies calling for reimbursement of inflight Wi-Fi, onboard meals and checked carry-on--within certain parameters--while entertainment, blankets and alcohol are on the employee's dime. Travelers also are allowed to pay for improved seat comfort but cannot be reimbursed.
Four in 10 travel managers told PhoCusWright in an August survey that their companies had adopted or were adopting policies to guide travelers on what is reimbursable among the airlines' ancillary, fee-based offerings. Three-quarters of the 76 respondents also said it was important to track spending on ancillary services; 56 percent said they had implemented a tracking procedure.
A majority of travel managers surveyed agreed that the value of tracking such spending includes monitoring policy compliance, detecting waste and fraud, and helping with budgeting and supplier negotiations. One in five respondents said their companies reimburse travelers for all ancillary services, while 71 percent said they do so for some.