<B>Airline RFPs On The Rise</B>
By David Jonas
The airline negotiating environment is growing increasingly more sophisticated, prompting many more companies to embark on a formalized bid process. Despite inherent complexities in contracting, simple requests for proposals still are recommended by industry consultants and the airlines. However, interfacing with sourcing and/or procurement departments, properly consolidating and preparing data, and sifting through the tricky alliance sands are just a few of the many challenges travel managers must tackle as they go through the RFP process.
"The number of companies going with formalized RFPs has grown quite a bit in the past few years," said John Wenzelman, procurement manager at Deerfield, Ill.-based Ft. James Corp. and former director of industry relations at BTI Americas. "In general, RFPs have come a long way. The airlines were not used to them a few years back, but by now they have become a standard."
While agency and airline sources and consultants all indicated that RFP usage is trending upward, each corporation must decide individually if a formalized strategy is the best bet. "RFPs take a lot of time to develop, respond to, review, etc., and, unless you're a large company with a large travel expenditure, it may not be the best way to go," said Rob Calabro, manager of office service at Educational Testing Services in Princeton, N.J., and chair of the National Business Travel Association Airline Committee. "Conversely, if you're in a large market like New York City, for example, it may be a good idea to do a formal bid since there are so many options and it lets the airlines know that you're aware of those options."
The size and location of a company could dictate the necessity of an airline RFP, but other factors come into play. "We prefer to avoid RFPs because we don't mandate," said Caro Cook, senior transportation officer at the International Monetary Fund. "As a result, we don't promise X amount of the business. If we were to formally send out RFPs, there would be much higher expectations for our side of the table."
That travel managers oftentimes prefer to negotiate one-on-one is understandable, especially as many corporations rely on the relationships their travel managers have built with carrier sales reps to secure the best contract terms. "It is clear that the trend is underway, but the issue is whether the process is for everyone," said Chris Miller, vice president of marketing for Travel Procurement Solutions. "RFPs depersonalize relationships and perhaps you can get the better deal through the informal approach the industry has had thus far."
However, Mark Walton, principal at Consulting Strategies in Rolling Meadows, Ill., said the environment is changing. "There have been very few companies that produce formal RFPs in the past, but the marketplace definitely is maturing," he said. "As agreements are being lengthened, and the process becomes more complex for larger, multinational companies looking for global air relationships, it makes sense to do it all at one time and get all your ducks in a row."
That's especially the case for alliance options, as an RFP can untangle the complicated environment and help corporations determine the best grouping for their global needs. "More and more, companies are recognizing that alliance offerings make sense. We encourage corporations to call the U.S. alliance partner to see who should get the RFP," said John Heilner, a consultant with Management Alternatives/MSIG in Princeton, N.J. "In some cases, the foreign flag carrier may want to receive a copy also."
However, with effective alliance sales integration still in its infancy, corporations should not expect any meaningful response. "The alliance question is definitely something we put into many RFPs, but alliances still are more marketing than meat since they are having a difficult time in getting partners to offer a discount across all borders," said Rob Pacheco, manager of airline strategy for American Express Consulting Services group. "However, if straight codeshares are in the contract, that could be a huge advantage."
Pacheco added that 75 percent of the group's clients that wish to readdress their airline needs opt for formalized RFPs, up from 50 percent a year ago. "Overall, I have seen more global RFP scenarios in the past year than the combined three years prior," he said.
After deciding to proceed, a corporation must determine who will create the RFP. Though travel managers traditionally have been charged with that responsibility, corporations recently have been injecting other parties into the process, including representatives from finance, purchasing and strategic sourcing. Such shared responsibility often can lead to difficulties on both sides of the table, as individuals new to the airline negotiating process try to include out clauses and other contractual items that carriers do not include in their agreements.
"When you have a person from the purchasing department or strategic sourcing come into travel and try to 'buy smarter,' it doesn't always work. It is frustrating for us and for many travel managers," said Phil Stumpf, manager of national and corporate sales at Northwest Airlines. "Sometimes you'll know that the format or details of the RFP weren't the travel manager's choice. It is not like talking to five different auto dealerships and asking for the best deal on 100 Ford Taurus's for example. We all have different fixed strength markets."
However, Stumpf acknowledged that sometimes a third party with a different perspective actually adds value to the process.
The next step--formulating the RFP and compiling appropriate data--probably is the key to the entire process. This is the area where consultants, agencies and third-party software vendors can provide invaluable help, particularly for organizations that haven't properly consolidated their data beforehand.
"The scope of the RFP process, including all the analytical overhead, really will surprise a lot of companies," Miller said, adding that TPS's Air Program Manager can provide such analytical support (BTN, Nov. 1, 1999). "Depending on data consolidation, there is anywhere from one to four weeks of analysis behind that form. Travel managers are recognizing that it is not getting easier."
Such data consolidation, either from agency and/or credit card sources, can be the most time-intensive element, especially for global corporations using different agencies and using a formalized approach for the first time. In fact, it is this step that can turn a corporation off to the idea of RFPs.
American Express, for its part, said it brings together data from all across the globe, even if agencies other than American Express are used in certain regions. "As part of our strategic travel management, we can provide an end-to-end solution for RFPs where we consolidate the data and produce the electronic market share reports that airlines want," Pacheco said. "Typically, that data includes the top 200 domestic markets with passenger volume, for that particular carrier and overall, and expenditure volume, for that carrier and overall."
Walton, however, advised against complete data disclosure to airlines. "The issue, from a corporate standpoint, is maintaining leverage," he said. "It may not be appropriate to give an airline competitive market share information on a segment basis because that is information they may not otherwise have and that you might like to keep in your hip pocket."
In any case, after the data is gathered, either the agency or an outside consultant can be used to analyze it before finalizing the RFP. "Once a company has clean data, it is our role to understand what it means, identify pressure points with the airlines and prepare to help in the negotiations," Heilner said. "But we don't do the data crunching. We prefer the corporation take advantage of the software tools available in the market."
From the airline perspective, complete and correct data is paramount. "Quite often, we will receive a stack of city pairs that may not have accurate data and we need to manually go through an extraction process," Northwest's Stumpf said. "It is time-consuming and labor-intensive, but more importantly, missing data leads to guesswork and you know what happens when people start making assumptions.
"Another major frustration is receiving an RFP that states, 'This is the best data we have. Give us your best offer,' " Stumpf added. "Every airline uses different types of data and some corporations just assume that the data they use is standard in the industry."
That is not to say that simpler RFPs are not as effective. In fact, most sources suggested that the more complex the RFP, the more analytical time necessary to review all returned bids.
Data aside, there are many elements that can be included in an RFP to make it more effective. Such elements include the corporate travel policy--or specific policy points that address class of service, nonrefundable fares and time of day flexibility--and merger and acquisition activity that drastically would alter travel patterns.
It also is advisable for travel managers to indicate a preferred contract configuration within the RFP and state willingness to test newly emerging distribution channels. Otherwise, an RFP asking for commissionable fares, net fares and net-net fares as options, for example, could generate a large and confusing pile of responses from the carriers.
"A good RFP has that included--point-of-sale discount versus a back-end discount," said Steve Scheper director of agency and corporate programs at Delta Air Lines. "We are accustomed to being able to adapt and address each of those on an individual level, but if it is not specified, we take the initiative and proactively ask about those types of things."
Nevertheless, an RFP sent out by a corporation with a clearly defined strategy may tell the carriers a lot about the travel management program and encourage them to work favorably with that particular account.
Meanwhile, some corporations in their RFPs ask for seat pitch and width, location of airport lounges and other traveler conveniences. Such items are not necessary and, in some cases, add little to the selection process, which generally is based on schedule/network coverage and pricing.
Finally, airlines cannot stress enough the importance of sending the RFP and accompanying data in electronic format. A carrier forced to duplicate efforts of inputting and organizing data is not a happy carrier.
Either during or immediately following RFP creation, depending on many variables, corporations must decide which airlines to include in the bidding. Most sources contacted by BTN said the travel manager going into the process should have a good idea of which carriers would be in the running. However, highly dispersed traffic could precipitate a more in-depth determination as many more carriers could play a role in a corporation's travel program.
From the buyer perspective, the length of the entire process--from evaluating the necessity of an RFP to signing off on it and sending it out to the airlines--can vary depending on how completely and effectively the data has been consolidated beforehand.
"The timeframe can really vary, depending on data quality, but it could be as quick as three weeks," Heilner said. "But consolidating data from a number of source into an apples-to-apples-to-apples basis, receiving buy-in from key managers around the world, coordinating, distributing a draft RFP for internal review and finally getting the final green light can take up to three months."
Though corporate travel managers experience first-hand the time and effort needed to analyze data during the RFP process, many lose sight of similar data crunching necessary on the supplier side. As a result, RFPs may ask for a turnaround time that is impossible to meet.
"I would guess that I alone spend a full 40 hours on an average RFP once I receive it, which of course takes time away from other areas," Stumpf said. "Also consider preparations needed to transform the data to an acceptable format, if necessary, and then figure another 20 hours of labor in the system for analysts to do reviews, have their boss do reviews, and have my boss do reviews. Factor in the presentation and/or format that they are looking for in return and you end up with a very costly and time-consuming function."
The airlines will try to abide by the timeframe requested by the corporation, but most sources said three to six weeks is suitable.
Overall, from a corporation's initial discussions about a formal RFP to the time the airlines respond, the process can be lengthy and complicated even if it produces a simple document. As a result, many corporate accounts and their airline partners are opting for longer deals to stretch out the cycle. Even so, the formalized bid process is becoming commonplace in airline negotiating with each side becoming more prepared. Buyers can uncover substantial cost savings while airlines have an opportunity to make their case for more business.
"The use of RFPs is a welcome trend in the industry," Miller said. "It reflects the increasing view of travel as a controllable cost item.