Emboldened by detailed and timely data on contract performance and driven by economic necessity, the nation's largest airlines are taking a tougher stance in their dealings with corporate clients. In addition to withholding discounts on lower bucket fares and cutting out certain soft-dollar perks, carriers more than ever are being selective about corporate bids, holding down discount levels, modifying contracts midstream and occasionally canceling contracts outright.
These tactics are not new to corporate travel negotiators but nowadays have more teeth behind them. Financially troubled carriers are less likely to give favorable deals based solely on long-term relationships. Under fiscal and competitive duress, they are more likely to practice what they have been preaching for years. Buyers, however, can stand firm, provided they can maintain control over corporate travel purchasing patterns, manage multiple contract terms and carefully use low-cost alternatives.
Using such systems as those furnished by Prism Group for data aggregation and contract modeling for more than one year, four of the six top airlines now have the ammunition to hold clients accountable. Prism said it is processing data on more than 5,200 companies on behalf of the airlines.
"What airlines had been missing, they now have: good data," said Larry Restiano, director of the customer value program and consulting group for American Express supplier relations. "They are willing to act on that data and definitely are squeezing tighter."
"A corporate account no longer can be everything to every airline," added a sales executive at a Big Six airline.
Those buyers who contribute enough volume or can still demonstratively show share shifts continue to be courted by carriers. For most others, pressure is on from the onset.
"The Prism-based airlines are becoming more sophisticated in their approaches to corporate contracting, which is not a bad thing for corporate clients. As an industry, we want strong, stable suppliers," said Travel Analytics CEO Scott Gillespie. "Obviously airlines have to make smart pricing decisions that will be bad news for some corporations that had benefited from relationship-based pricing or lazy pricing. Airlines are able to reward companies that can move marketshare, funding that by taking discounts away from those that can't."
Airline sales executives acknowledged their companies are being more discerning about the accounts they pursue. Though they have sophisticated tools at their disposal, the bidding process still is very resource-intensive and, in some cases, carriers are determining it just is not worthwhile.
Once negotiations begin, more buyers are finding the airlines are stingier than ever. "We recently closed an American Airlines contract, and they proved extremely difficult to deal with," said a sourcing manager at a multinational company. "I am not sure if it was driven by economics or a new business plan or their confidence they'd retain us because of our longstanding relationship."
Though the situation as always is dependent on the carrier in question and the size of the account, sources suggested airline negotiators are being more careful about the parts of their network on which they are willing to offer discounts. "They are trying to slice and dice their network more than previously, excluding discounts in specific markets where they feel they naturally will get marketshare," said John Heilner, Princeton, N.J.-based vice president of Management Alternatives. "That has always been a rule but now you are seeing more of that."
"In markets where there are only one or two dominant carriers, there is a take- no-prisoners approach," said Mike Mary, president and CEO of Portland, Ore.-based consulting firm Changing Planes. "The airlines in those cases are being very dictatorial."
Domestic alliances have taken the concept to a new level since partners now can examine their combined service levels, competitive challenges—or lack thereof—and overall position in given markets. Sales executives at aligned carriers, however, point out that buyers still can and do request individual bids.
In a general sense, buyers should no longer expect much more than a token discount in hub markets or on other routes dominated by the carrier in question, unless they can prove an ability to move share to the airline in more competitive markets.
Even after a deal is signed, airlines continue applying pressure. They are using data tools to scrutinize contract performance and meeting more frequently with some accounts.
"There is more pressure and accountability coming down on airline sales reps," said Kevin Mitchell, chairman of the Business Travel Coalition. "In meetings with accounts, the reps go market by market during what can be marathon sessions."
Of 42 corporations responding to a BTC survey last week, 61 percent indicated a tougher negotiating stance by their contracted carriers.
In many cases, carriers will change contracts midstream for accounts that are underperforming and, sometimes, simply will cancel the deal. Such threats have been heard for years, but sources said carriers are beginning to follow through, at least in some cases.
"Enforcement of the corporate contract and the expected metrics are being looked at as closely as ever in this business," Amex's Restiano said.
On top of all these tough tactics are the fare bucket exclusions that minimize discount applicability
(BTN, Feb. 9). "If the expression 'airline shell game' ever applied to corporate contracting, it certainly applies now," BTC's Mitchell said. "It really is a moving target in terms of what discount levels should be. What applied three months ago may already have been upended."
So, what is a travel buyer to do? Despite the harder stance taken by carriers, the deck is not stacked completely against corporate clients. For starters, the major airlines remain in serious financial jeopardy—some more than others
(see story)—and some argue they need corporate clients more than the reverse.
"We had this as an issue last year, but low-cost carriers moved into our market and we had alternatives to fend off those hard stances taken by the big guys," said a travel manager at a multinational corporation based in the Northeast. "We said, 'If that is how you want to play this game, then we won't play.' "
Moreover, data sophistication on the supplier side can be matched by buyers keen on micro-managing contract requirements. "Once thresholds have been reached, companies are looking to use low-cost carriers," Changing Planes' Mary said.
Another buyer advantage stemming from the low-cost sector is the growing availability of business-to-business Web sites operating separate from traditional processes. Southwest Airlines' Swabiz and America West Airlines' new AWAcorpLink both bypass global distribution systems—thereby keeping booking data out of GDS marketing information sold to airlines, and apart from ARC settlement. The sites provide a means for companies to directly book those carriers without appearing to dilute marketshare provided to major, preferred suppliers. Several other smaller airlines are in the process of developing such corporate booking portals, including JetBlue's CompanyBlue, due out this spring.
Travel Analytics' Gillespie added that some clients "are challenging the airlines to restrict consequences to counter the stiffer pricing decisions" that have played heavily against corporate budgets. "If a company misses any goal in a contract, the airline has the right to reprice the entire contract," he said. "Smart buyers will ask the carriers to reprice on city pairs where goals were missed but not on city pairs on which they are performing."
Travel managers also are looking closely at airline schedules to make sure their companies' performance has not been negatively impacted by changes. "Schedules are first and foremost in my people's minds," said Pete Buchheit, Black & Decker director of travel and meetings services. "Carriers may not be getting their fair share because the schedules may no longer work for the business traveler."
At the same time, some companies are calling their carriers' bluffs. "Some of the threat to pull deals clearly is posturing," Mary said. "I have seen some cases where accounts challenged the airline and ultimately were successful in their negotiations."