Roundtable: Airline, Hotel Approaches To Capacity And Rates Surprise Buyers

Airlines are micromanaging capacity and negotiated hotel rates often aren’t available to travelers. And yet, hotel companies showed surprising improvement in loading rates into global distribution systems by the first quarter. Fidelity Investments vice president of global travel services Patty Snodgrass, Willis Americas travel manager Alex Wright, Becton Dickinson global category manager Jodi Woods and NetApp director of global travel services Kathy Rust sat with BTN Group editorial director David Meyer and editors Michael Baker and Julie Sickel to talk about their latest negotiations. An edited transcript follows, beginning with Snodgrass, who completed a global air RFP in the third quarter of 2014 and took the contracts live the next quarter. 

Patty Snodgrass: They were difficult negotiations with consolidation capacity controls. Since the contracts have been up and running for a couple of months, what I am seeing is a little bit of softening of the airlines. They are looking at performance and very, very high commitments. We have to really work with them on a monthly basis. They are showing us the numbers, and they are holding us to it, but they are softening, saying, “How can we be creative to help you meet the contract commitments?” 

Are the contracts marketshare based?

Snodgrass: One contract has gone to both market share as well as revenue share. We will see if that can succeed in this market and how they measure that. The models have changed, so it’s very difficult.

Alex Wright: One thing we’ve found with airlines—especially like Delta, which has just come up with its little bucket economies—is that there is a shift of the availability of what you can negotiate, and those deeper discounts are not usually part of contracts. It is just making things a bit more challenging as airlines are shifting—Delta, in particular—and I wonder if others will follow suit.

Jodi Woods: I am in a unique position right now because [Becton Dickinson] has just acquired CareFusion, and it’s really going to change the landscape of how we are going to negotiate going forward. Traditionally, we’ve kind of taken a look at where our volume was and where our routes were and had individual negotiations with those airlines. This acquisition is going to increase my U.S. air spend probably about another $15 million, and it is completely different routes and everything. This really opens it up. Now that we are in integration mode, we are going to have an opportunity to go the market and approach this a little differently than we have in the past.

Kathy, are you seeing changes?

Kathy Rust: We are. We went out about three years ago with a full-blown RFP. Now, as contracts are expiring, we decided not to do an RFP but to get together with the airlines a little less formally and just have a discussion, because we are finding increasing pressure on marketshare expectations and having so many carriers in these alliances, and everybody wants a piece of it. It is just getting difficult to spread that around. We’ve said, “This is what we believe we can do,” tried to be frank and honest and tried to get a little bit of help with the expectations. It is a very difficult market, so it’s been challenging.

Coming from the procurement part of the organization, Jodi, how do you show your value to your company in an environment in which you have to show year-over-year savings?

Woods: The organization does measure hard, incremental savings as well as the soft-dollar value we bring. Thankfully, my value numbers are high because of that. From a hard-savings perspective, we also look at behaviors and how people are traveling. Through communications and trying to drive behaviorists, we have more of a demand-management strategy now. Having the opportunity to go to market again may help us get some better pricing. In the last couple of years we have been really trying to drive demand-management strategy.

Can you show cost avoidance?

Woods: Some. It’s challenging. It’s difficult to convince people to book in advance. They either tell me there are too many changes they have to make or requirements don’t allow them to book in advance. We’ve been pretty flat there. Our company actually does really well, and we recognize good Samaritans, folks who based on policy are allowed to travel in business class but choose to travel in economy to extend their budgets. We are measuring that.

Is that the primary focus with demand-management strategy?

Woods: It’s one of them. That and advanced purchase probably are the two biggest focuses of demand-management strategy.

Patty, you are also from a procurement organization.

Snodgrass: I am. Fidelity is quite different from most procurement organizations. Our most important thing is not savings. Our most important thing is safety and security, then protecting our brand and then third would be savings. We do bring some hard-dollar savings. We did get some incremental savings in a recent round of negotiations but with very high commitments. They are really pushing me on high commitments, and quite honestly I don’t think I can meet them. The key is to constantly do your analysis on a quarterly and maybe even a monthly basis: what’s happening in the market, what’s the insight in the market, what’s the analysis. You’ve got to keep on top of these for both air and hotel because they’re very dynamic. Supply is changing and can change like that, [whatever] your strategy is. It’s important you keep up with the analytics to see where you’re going—if you’re even going to save, as there are very, very high commitment levels.

Theoretically, hotel companies were supposed to have loaded rates by January. Are they all accessible?

Rust: I think that they are in there, but we are seeing that there are certain criteria. If you come into Silicon Valley, for example, on a Tuesday night for two nights, you probably aren’t going to get our rate. If you come in on a Sunday night for five nights, you will. We’re not sure what’s behind the logic, but we’re struggling to get our rates. Our travelers, of course, think they are doing the right thing staying at the current hotel, but they’re not getting the NetApp rate.

They don’t know what it is because it is different.

Rust: We try to get them to go look at what it is. They need to know what it is, or the agency needs to know what it is. Somebody needs to know and make sure we are getting that, and we’re not.

Snodgrass: I guess it depends on the markets you’re going into. We are in very high-demand markets. It’s hard to get under those high rates in the Boston and San Francisco areas. It just depends on the market.

Wright: I pushed a little more this year on making sure the inventory was there because in the past, we had situations where we weren’t getting our rate. Then all of the sudden it was determined, “Oh, well, we only have 50 percent of the inventory,” because the hotel had cleverly come up with all these corner suites and suite rooms and this and that. Especially in our big markets like New York, Nashville, Chicago, Atlanta and London, we’re making sure we talk to them. I want to see the number of rooms I’m getting. If we need to negotiate the next category, then we’ll talk about it, but ideally, 70 percent should be in what I’m asking for. A few times a month, I’ll go through the pre-trip report to see if we getting our rates in certain markets, and if there is a situation where we are not.

Are you negotiating last-room availability in primary markets?

Wright: Generally, LRA was asked for. If it’s a market that we don’t have any leverage in, certainly we’d take out an LRA. I know there are a few that we have. Because people aren’t going there all the time, they book far enough out that they should be able to get the rate. We also have city caps in our main markets. That’s one way to make sure that you are getting the rate: If you have several hotels that are all at, say, $150, set your cap at $151. If that happened in those markets and it went [over that threshold], it would have to go out for approval.

How do you wind up getting the right rates?

Wright: I haven’t done hotels for a very long time. We were at 95 percent loaded in January, which I’ve never seen before. The hotel chains are definitely figuring it out. I don’t know if it’s the pre-loading they are doing. I have to credit the hotels. Their systems are better. They have to be, because it used to be in the 30s [percent] in January.

Are you all seeing such an improvement? That high, 95 percent?

Rust: I was close to the 90s.

Snodgrass: Ours was much, much higher than you would think.

Woods: Maybe 80s at the very least.

Wright: I was new in February, but they were just as good last year. I definitely went back because I thought it was so high. Pick from chain hotels; that helps. Work with your local people at the local countries to [keep them from] picking every local hotel in a certain market, because it’s just harder to get travelers to comply. It was 95 percent, something like that.

Woods: In the past couple years, we have been doing really well. Then we audit with a third party, American Express Consulting Services, throughout the year to see that we’re still getting the rates.

Wright: With [Lanyon through HRG], I moved the third audit to April or May last year rather than audit 92 percent. I don’t need you to keep hounding the 10 [percent] that are in, but why don’t you wait and do it in April and May to make sure they haven’t fallen out?

Rust: We also have spread out the third-party audits so we’re getting something in the spring.

Snodgrass: We go directly to Lanyon. We spread it out to three audits, but I’m implementing that rate-availability audit next year with our new contract.

It must be harder to get that kind of result outside the United States.

Woods: This is a global audit.

Rust: Ours is too.

And you’re seeing the same numbers globally?

Wright: Flash back to 10 years ago, [hotel availability in] GDSs—Worldspan, Sabre, whatever—was not a well-known topic in places outside the United States. Now, it is. When you say to a hotel, “You need to load in a global distribution system,” it’s not like talking a foreign language anymore. Certainly, they are aware of it; they do it. I do think it is a credit to the hotels. The chains must be doing something differently. I don’t know what that would be, but they are doing something.