Bank of America decided against sending out a formal request for proposals at the end of 2006 when its airline contracts technically expired. Instead, by using metrics and analytical tools to identify changing travel patterns, the company sought to maintain ongoing dialogue with individual preferred airlines, identify incremental opportunities, make contract modifications and streamline the process for both sides.
Given the size and complexity of some corporate airline RFPs, targeted negotiations with individual carriers can save time and resources, and help solidify vendor relationships.
[PROFILE_1]"One of the first questions a buyer should ask is, 'Why am I going out to tender?' If the answer is that it is standard procedure to tender on a regular basis, this is not necessarily a good enough reason," according to a study published last year by the U.K.'s Institute of Travel Management and online business travel bidding services provider ETABid. "If the incumbent is performing well, it may not be worth spending time and money on a full RFP. Try a benchmarking exercise instead to confirm that the incumbent's performance is to a quantifiably high standard."
Such an approach can set the framework for more detailed quarterly reviews, leading to periodic adjustments to share goals and discounts. Enabled by improved data reporting tools, this concept of continuous negotiations has gained interest. One airline executive called it "the new wave" in corporate airline sourcing.
At Bank of America, "we try to right size our program all the time," said vice president and sourcing manager Beth Sullivan. "Our discounts do not stay stagnant. We are constantly looking at our new citypairs and where we have new opportunities for business, and are constantly giving airlines the opportunity to come to the table with new deals. It helps us analyze new fares that carriers want to introduce and it allows us the ability to see how we can move market share."
As part of the most recent contract renewal cycle, Bank of America anticipated neither material changes to its air supplier roster nor significantly higher savings generated by a traditional RFP process. Airlines had been raising fares to cope with fuel costs, and were either struggling to regain profitability or progressing through bankruptcies. "We decided to work with carriers, respectively, on areas of opportunity," Sullivan explained.
To accomplish that, Bank of America uses in-depth analysis to evaluate contract performance and savings, and scorecards to communicate observations with airline suppliers. The analysis includes such measurements as net effective savings and weighted average discount, as well as the returns on investments expected by airlines on particular routes.
"If we think they want to earn a 3x or 4x return on investment and only are currently earning 1x, that is a reason why discounts may go down," Sullivan explained. "If a carrier is not making money on your account, you will see that by looking at the net effective discount related to their ROI."
[PULL_1]By constantly auditing its fares and carefully watching published pricing, Bank of America also can identify discrepancies between the fare types that airlines say are available in the market and the ones that are actually there. "The airlines may say that a certain inventory bucket is going away and we found that it is not going away," Sullivan explained. "So we essentially lost our discount and needed to get it back."
Published airfares can change several times a day and privately negotiated fares often are calculated using multiple rules and formulae. This complexity can cause errors, so many companies monitor fares to verify that negotiated pricing is being applied appropriately.
Bank of America uses scorecards as a standard supply chain measurement tool. For airlines, the company tracks pricing and such customer service metrics as account manager responsiveness and on-time performance.
Scorecards have become more prominent in travel management reporting, especially as travel management companies build such tools as part of their growing focus on consultative services. Helping both buyer and supplier more quickly identify new opportunities or areas of underperformance, scorecards also can illustrate the value of the program to senior management.
Travel buyers and managers often "cannot look through reams and reams of reports," said Cornerstone Information Systems president and CEO Mat Orrego at last year's National Business Travel Association convention. "They need a graphical interface that can be refreshed to reflect what is happening in the environment. Instantaneous spend analysis through Web-based dashboards ... these are the kinds of things that drive real-time" decision-making.
Bank of America's travel is largely on domestic U.S. routes. The company's point-of-sale strategy directs travelers on its top 200 citypairs to preferred suppliers, either through an online booking system or via travel agents. Such preferencing-reinforced through traveler education and program marketing tools like upgrade vouchers-fosters overall travel policy compliance and positions Bank of America to deliver market share to preferred airlines. That helps maximize savings and provides leverage during quarterly meetings with airline account managers.
The company's approach to air sourcing coincides with increasing sophistication within airline sales teams, notably through the use of third-party data aggregation and decision-support systems. Those tools enable airline managers to scrutinize granular detail on an account's performance. In addition to traditional analyses of market share and volume growth, airlines also may calculate the margins they achieve on a given account's business, oftentimes driven by the types of fares purchased.
Though a few other third parties sell data handling services and software to airlines, travel technology firm Prism Group of Albuquerque, N.M., since 2000 has signed five of the six largest U.S. passenger carriers as clients, as well as some foreign airlines.
Given substantial innovation on both sides of the table, well-managed corporate travel programs likely to stick with existing suppliers can streamline the contract renewal process. By favoring incumbent airlines, buyers minimize the need for change management but sacrifice a potentially more competitive set of price options extracted from open, formal bidding.
At Bank of America, airline contract renewal reviews were staggered starting last April. "This definitely makes it easier to evaluate each proposal or each renewal as it comes up, versus getting all the data together, sending it out, evaluating the responses and doing it all at the same time," Sullivan explained. "It wasn't that big bang, with a crunch before the deadline."
Despite the process change, Sullivan said the company still was "very thorough" by discussing all aspects of the preferred supplier programs, including such traveler perks as upgrades.
Bank of America also maintained what Sullivan described as "best in class" airline discounts; left unchanged its "core" group of preferred airlines; and made the entire air sourcing process more efficient.