The challenging tasks of negotiating with airlines and maintaining effective supplier relationships have become even more complex in the current environment, according to speakers here at this month's Association of Corporate Travel Executives conference. Given changes to travel policies, reduced business travel volumes and travel budget scrutiny that is intense as ever, buyers generally have less to offer than they did in recent years. Airlines cannot be uncompromising when dealing with existing and potential accounts, but they're also hungry for business travel dollars and must do what they can to survive the punishing drop in demand.
"We just had gone through a global air bid and we saw a lot of the challenges the airlines were having, but had to take care of our own challenges as well," said Schering-Ploughdirector of global travel services Chris Allen. Complicated by travel policy changes enacted before the bid, the pharmaceutical company had "to juggle those two priorities," Allen said. "So our data did not reflect exactly what we were going to do in the future."
For example, Schering-Plough increased the threshold at which business class is permitted, to a 10-hour flight from a six-hour flight. "We are based on the East Coast [of the United States], so that pretty much took all of Europe out of business class," Allen explained. "When you look at some of the price differentials, we saw $170 tickets to Frankfurt and the comparable business-class ticket was around $2,000."
Ingersoll-Rand similarly changed its business-class policy to 10 hours, from six. "So the transatlantic is in coach," said Pascal Sturyve, the company's global director of travel and meeting services. "At the end of the day, you can see the amount of money saved once you have made the decision. It will be very difficult to go back to what it was prior to the crisis. Never say, 'Never.' It could go back to eight hours, but I don't see it going back to where it was before we did these changes."
The policy change represented Ingersoll-Rand's inward focus on how to generate cost savings "and not necessarily on negotiating harder," Sturyve said. "It is more [a matter] of creating partnerships in difficult times than trying to do it only on the sourcing side."
Carlson Wagonlit Travel's clients in recent months have used various methods to more actively manage air spend, beyond the "meat cleaver approach" of cutting travel by 50 percent or more in some cases, according to executive vice president of global supplier management Michael Koetting. Reducing business-class ticket purchases can be accomplished "relatively quickly" and is "simple to implement and communicate," Koetting said. A "more nuanced" approach, he noted, establishes differing policies for specific groups and individuals within an organization.
Koetting also has observed that as airlines attempt to maintain higher-yielding demand, "the discount that you get for booking seven and 14 days out is declining a bit. It is not to the point where you would tell your travelers to wait for the last minute, but we have just seen the financial advantage of booking in advance decline a bit."
Allen said Schering-Plough has noticed a similar trend. "We always do those metrics internally for our various business units to show them the advantages of advance purchase--not for getting the seven-day advance purchase fare but really getting access to inventory," he said. "We are seeing the same thing, that it is not as critical."
Other actions noted by panelists have included booking the lowest available airfare even if that causes friction with preferred suppliers (which they said are less willing to look the other way on missed contractual targets), examining how change fees can impact total costsand reducing the number of employees traveling to the same event or location. Regarding ancillary fees, Schering-Plough "explicitly put into policy what fees we'll reimburse and what we won't--we'll reimburse for baggage fees and we'll reimburse for meals, but we won't reimburse for any seating fees," Allen said. "Ingersoll-Rand plans to add such stipulations as part of a mid-year policy review, Sturvye added.
Meanwhile, TRX Travel Analytics vice president and general manager Dan Pirnat has perceived "misaligned expectations" internally at some client organizations. "We are hearing from our clients loud and clear on the procurement side, 'We expect to see incremental savings opportunities year over year, every year,' " he explained. "Travel managers are trying to straddle the airline view at the same time as the procurement view. It is a difficult balancing act, because I fully expect buyers to see decreasing opportunities to generate savings focused outwardly through negotiations."
Noting that delicate balance, as well as the evolution of alliance contractingand the possibility of more complicated airfare classes as more carriers consider premium-economy hybrid products, Pirnat said air sourcing involves "greater complexity" than ever before. "Whereas other categories--with advancing technologies--become a little bit more streamlined, and simplistic to work and negotiate effectively, we are seeing quite the opposite in the airline category," he said. "It is great for job security for the travel managers out there, but it also is bringing on new challenges."