Airlines Score Big W/ Buyers
Buoyed, in some cases, by new methods of group revenue management that allow airline sales representatives to offer deeper discounts to meeting attendees on lightly booked flights, the major airlines have compiled significantly higher ratings for their flexibility in negotiating group pricing among travel managers and agents who buy group and meeting travel, according to a recent Business Travel News survey.
BTN's survey of 319 travel managers and 94 travel agents, which was conducted prior to Sept. 11, shows that the average rating of the 14 largest U.S.-based carriers' group negotiating flexibility, on an ascending scale from one to five, was 3.21, much higher than the 2.98 logged one year earlier.
Continental, American and United Airlines led the way, with ratings of 3.55, 3.53 and 3.44, respectively. In fact, the average rating by buyers and agents increased for every single airline included in the survey over the 2000 scores.
Continental attributed its ranking largely to its new automated group pricing tool, introduced internally in September 2000, which allows airline representatives to offer a wider variety of automatic discounts on a specific city pair.
"When we're offered an itinerary, the new system can offer as many as 10 flights with discounts from 5 percent to 30 percent, based on how full the plane is," said Continental manager of group pricing Connie Douglass. Before Continental's system was implemented, Douglass said, agents would have no way to offer upfront discounts deeper than the industry-standard 5 percent, and buyers would have to book and hold those seats to ensure the discount would apply. The system rewards buyers who accept off-peak flights, as there could be a $50-per-ticket difference in price for identical flights only a few hours apart, if one is particularly underbooked.
American has seen similar benefits from its five-year-old, but consistently refined and enhanced, Group Evaluation Model, said group and meeting sales product manager George Coyle. "It helps to steer salespeople to the flights that offer groups the best pricing," Coyle said. "We stress flexibility to accommodate groups, and we want to come up with unique solutions to meet groups' needs. Plus, it also helps us fill distressed flights." GEM allows AA agents to offer a unique group price based on the most up-to-date information to maximize both the discount to the buyer and the yield to the airline.
Corporate meeting buyers and agents, though, felt the upswing in airline flexibility was better attributed to a wide swath of market factors, ranging from the carriers' declining capacity throughout 2001 to a greater acceptance of comprehensive meetings management on the corporate side to additional incentives by agencies to negotiate the best group deals possible.
"We've found a difference as well, though some carriers have been more inclined to negotiate than others," said Mike Doran, director of travel services at Madison, N.J.-based Schering-Plough Corp., who added that most of the movement he's seen has been on actual fares, instead of softer discounts, such as additional complimentary tickets or upgrades.
"There has been more significant movement," Doran said. "They've been willing to negotiate on fares, and we try to focus on the base fare numbers so travelers pay for what they actually use." Doran, who said Continental's top ranking "didn't surprise" him, attributed the newfound flexibility to the airlines' collective economic malaise even before Sept. 11. "I must believe this is a function of capacity," he said. "They make no money if their seats are empty, and they all said capacity was down even prior to Sept. 11."
Not all the changes have occurred on the carriers' side, though: Some believe the increase in airline flexibility regarding group negotiations is an outgrowth of corporate travel managers better controlling their meeting expenditures.
"Over the past few years, there's been an awakening in the corporate market, even in knowing to ask about group and meeting discounts and talking to airlines about this," said Jeff Lang, director of the meetings management division of Carlson Wagonlit Travel. "These numbers may reflect that growth in the corporate travel community."
Lang also said airlines will show more flexibility to those corporations that demonstrate an ability to control meetings expenditures, and as more companies continue to explore meetings consolidation methods, greater flexibility follows. Also, he said, some companies are taking pains to identify group and meetings separately from transient expenditures, smoothing that process.
"Without consolidated programs, buyers will not see that kind of flexibility," Lang said. "The more volume you show you can control, the more flexibility you'll see. Otherwise, I've seen little evidence of great changes in the way carriers are handling corporate meetings and groups."
Still, others point to the rounds of cuts in commissions paid to agencies by airlines during the past few years, and the consequent increase in fees charged by travel management companies to their clients, as a driving factor in aggressive group and meeting fare negotiating.
"The industry has changed regarding the amount of revenue travel management companies can earn because of commission caps," said Scott Graf, president of McCord Travel Services' performance marketing group, which includes group travel services. "They must find new ways to earn that revenue, including charging a fee to the client, so there has to be demonstrated value regarding negotiations."
Those negotiations, Graf said, have grown in their creativity, with some carriers particularly receptive to including more complimentary tickets or upgrades in addition to lower prices.
"Continental has done a 180-degree turn during the past few years and will engage in an open dialogue for value," Graf said. "They are most open to unique types of deals, but, since Sept. 11, they are all more willing to negotiate because their planes are not as full as they were before."