Despite concerns of reduced competition due to consolidation and joint-venture relationships, buyers speaking at recent events staged by The BTN Group said they have not seen a negative impact on their airline contracts, at least not from a pricing perspective.
"The amount of players are dwindling, but I haven't seen any differences in negotiations," Reed Elsevier director of global travel services James Sisco said at a BTN Group event in Chicago last month. "We've been able to negotiate in the alliance manner just like we did a couple of years ago with the individual carriers."
While Sisco said prices have risen, he viewed that more as a result of airline capacity controls and supply versus demand, not reduced competition. Indeed, within the United States at least, airlines this year have had only limited success in raising fares.
Through October 2014, U.S. airlines have successfully hiked their fares five times, most recently when Delta Air Lines gave a slight broad-based bump to its roundtrip fare costs on Oct. 16 that was matched by the next day by Southwest Airlines, American Airlines, US Airways and United Airlines, according to airfare comparison shopping site FareCompare. However, they unsuccessfully have tried to push through fare hikes 15 times this year through October, meaning three out of four fare increase attempts have failed.
The hikes' failures can be blamed in part by airlines acknowledging that "even a 1 percent hike in base prices could potentially depress demand," according to FareCompare founder and CEO Rick Seaney, and that American, Delta and United largely remain dependent on Southwest to join an airfare hike in order for it to take hold. He also added that business travel has been behind the successful hikes "thanks in part to corporate managers who have loosened purse strings on travel budgets."
Sanofi Pasteur North American air and hotel program manager Charles Melanson, speaking in September at a BTN Group event in Toronto, said he remains concerned about market compression from joint ventures but said he has seen "many more pros than cons" from the arrangements.
"Although I was very trepidatious with joint ventures, today I feel more comfortable with the concept," he said. "The pro of that sort of an arrangement is that you can look at the relationship with a set of carriers as a whole and use that from a position of strength for both your partners."
Garth Jopling, category manager at IBM, added that joint ventures have been a boon from the traveler service perspective.
"It's a much bigger network, and systems are working together much better than they have with codeshare types of pricing," he said. "You have a greater reach, and they fully agree on pricing."
On the pricing issue, though joint ventures cause compression, they also provide clarity, Jopling explained. Unlike with alliances, in which inventory is segmented and pricing can vary from partner to partner, joint-venture partners have access to full inventories. While pricing differentials still can happen in that context, it's "less of an issue," he said.
Pauline Valiquette, strategic sourcing manager and corporate travel manager for CBC/Radio-Canada, said she appreciated that joint ventures gave her a one-stop shop with a main point of contact, but she said she's also been disappointed that all content within those ventures does not appear to be equally available.
"We saw that just recently during the Olympics, when some of the partners were not as keen as the main body to give us pricing on groups and so forth to go to Sochi," Valiquette said. "We ended up having to go with another JV partner."
The Big Three Squeeze
Even so, increasing consolidation will present some challenges to buyers outside of pricing. In its 2015 forecast issued in September, BCD Travel's Advito consultancy noted that it is becoming difficult for anyone outside of the largest air programs to sustain deals with the "Big Three" of American, Delta and United. As airlines enjoy high load factors, they are managing their corporate agreements more tightly, the agency reported.
Similarly, among the three major alliances, buyers generally still will find themselves limited to working with at most two, said Patrick Hoffmann, a consultant in procurement and analytic solutions with A.T. Kearney. Even squeezing in two can be a challenge now as marketshare requirements are increasing, he said.
"Very rarely can you maintain all three in your programs," Hoffmann said. "Certainly some of the member carriers you can utilize, but you can't fully commit to all three."
This report originally appeared in the November 2014 edition of Travel Procurement.