<B>Buyers Air Contracts Out</B>
By David Jonas
Whether to lock in an attractive rate, take advantage of the changing commission environment or simply to avoid lengthy and complex contract negotiations, both corporate buyers and airlines are more actively seeking longer agreements. Several years ago, carriers shifted from one-year deals to two-year deals as the standard, but now agreements as long as five years are being considered on both sides of the table, with three-year deals becoming much more prevalent.
Travel managers said if negotiations are going to be so complex and time consuming, then it makes sense to hammer out longer deals so the painful process need not be repeated as often. That process now can include lengthy data crunching and analysis often aided by outside consultants and complex software, a labor-intensive and formalized RFP, buy-in from senior management, approval from the legal department, coordination with human resources and other departments, traveler education and many steps in between.
"It's unbelievable how short some deals are, or at least how short they seem," said Caro Cook, senior transportation officer at the International Monetary Fund. "We are definitely beginning to insist on longer deals, particularly with the bigger carriers."
Longer deals quite often translate to stronger relationships, and the more often a corporation goes through the negotiating process and selects different carriers, the less opportunity to build trust and reap the benefits down the road.
Mark Walton, principal at Consulting Strategies in Rolling Meadows, Ill., has seen the desire to move to longer deals, particularly for those companies looking at globalization. "However, there is a caveat. You can have a three-year deal, for example, but the carriers always have cancellation and renegotiation clauses to deal with nonperformance," he said. "Therefore, I would stipulate that the corporation also has the ability to renegotiate if the business climate has changed."
Indeed, Cindy Heston, manager of corporate travel worldwide at Thomson Consumer Electronics in Indianapolis, said a main issue in working with her preferred carriers--which she said have been moving toward three-year deals--is to ensure contract flexibility. "As long as you choose a carrier that is cognizant of the pressures on pricing and marketplace changes/fluctuations, you should have no problem adding amendments when necessary," Heston said. "To work with an airline that would not be willing to review items on a periodic basis could prove to be detrimental."
Though many carriers are unwilling to divulge the number of contracts they have in place for each particular timeframe, most are prepared to discuss, and even offer, longer deals. Sorting through RFPs and progressing through the negotiating cycle can be just as labor- and resource-intensive for the vendor as it is for the buyer.
United, for one, indicated that willingness to commit to a longer timeframe--up to five years--could factor into its proposals to corporations. "It is nice not to be continuously negotiating," said Dave Hilfman, vice president of multinational sales and revenue programs at Continental Airlines. "We have struck deals as long as three years for some of our top clients, if we have a real solid relationship and there are good economic benefits for both parties."
Phil Stumpf, manager of national and corporate sales at Northwest Airlines, said that longer deals are very prevalent with large accounts based in large hubs, and increasingly so. "If a purchasing manager is interested in locking in a long-term agreement, it leads me to believe that the incentives--discounts, commissions, etc.--may be reaching the top of the market," he said. "The longer they sign on the dotted line, the more likely they feel the value is the highest.