Impacting the bond between corporate travel buyers and
airlines, the last seven years brought a series of mega mergers, a surge in
ancillary retailing and the expansion of international joint ventures. More of
the same is in store for the next seven years.
Among respondents and interviewees for this project, there
nearly was a consensus that joint-venture contracts will expand, bringing
together more carriers into unified corporate agreements; that a concentrated
supplier base will give a market edge to airlines; and that ancillary fees and
product bundling will beget new negotiating opportunities.
Among respondents to BTN's
survey, 39 percent predicted that negotiated
airfare discounts would be more relevant in seven years than they are
today, while 20 percent suggested
relevance would decline.
Even so, the value and relevance of contracts are called
into question today—and will be tomorrow—and many agreed that the absolute
number of contracts by 2020 would decline partly due to a more consolidated
supplier base.
"Larger players have merged and started alliances, and
they're doing one contract with a bunch of airlines," said Deltek travel
buyer Karoline Mayr. That sentiment was shared by a number of survey
respondents and industry sources.
"If there will be fewer airlines, then I think there
will be fewer contracts," said Orbitz vice president of strategy and
account management Mark Walton. "Consolidation would support more
leverage."
The idea of greater airline leverage by 2020 was a dominant
theme in predictions by respondents and experts.
"As the supply of any product dries up, the willingness
of sellers to discount it diminishes," said former American Airlines CEO
Bob Crandall. "Very large companies will continue to get deals of one kind
or another because they control so much business traffic, but smaller and
medium-size companies are very unlikely to see the benefits of that. To the
extent that the carriers maintain inventory control and a shortage of capacity,
if they don't get back into the business of growing domestic capacity, then it
becomes sort of a market segmentation game."
Advito's Bob Brindley was more blunt in his outlook: "Buyers
will have less choices and higher fares" in 2020.
"I'm still a firm believer in the value of preferred
supplier agreements" for both buyers and airlines, Brindley added, and "the
way buyers will drive additional savings will be toward demand management."
That means companies increasingly would control air spending through management
practices, and not entirely through procurement processes.
Former American Airlines sales executive Frank Morogiello
envisioned declining value for airlines. "Everybody is racing to lower
costs," he said. "Corporate travel 10 years ago versus today versus
seven years from now: it's less and less valuable [to airlines]. Not that you
don't need it, not that it's not the highest-yielding, but [buyers'] goal is to
lower their yield every year." He noted that all corporate business is not
created equal, and airlines will continue to court high-yield,
front-of-the-plane business.
Such a view of the future for buyers appears more dystopian
than utopian, but not all predictions were pessimistic.
One survey respondent expected that airlines would "make
it easier to extend deals" and "less cumbersome" to contract,
given reduced paperwork and streamlined processes.
And, while many view ongoing consolidation as the enabler of
higher prices, Crandall offered a silver lining: expectations of improved
service. "If you assume that US Airways and American [complete their
proposed merger], then you are going to have three very large multinational
mega carriers competing against one another, and the only thing that is going
to drive is a greater focus on service levels. I think that carriers rather
than focusing maniacally as they have in the past on growth will focus on
hanging on to their share of the business traffic, and that's going mean more
attention to better service." Especially, he said, for first- and
business-class flyers.
Meanwhile, some buyers see negotiating opportunities in 2020
extending well beyond the base fare. Seventy-eight percent of respondents view
negotiated ancillary airline services as being more relevant in 2020 than
today, with 69 percent seeing increasing relevance for personalized airfare
selling. One respondent envisions corporate contracts providing "not just
discounts on fares, but on ancillaries, bundled fares and services."
Some airlines, notably including AA, already contemplate
corporate-specific bundles, in which a client could include such services as
Wi-Fi or extra-legroom seats. "Dynamic pricing and bundling will resolve
most of the value pursuit that negotiations today are all about,"
according to one respondent.
According to a vision of the future attributed to United
Airlines sales executives Dave Hilfman, John Slater and Anthony Toth, "We're
coming into the age of 'experience matters,' and for many of our corporate
customers we are already finding the discussion of a negotiated discount is
only one aspect of the airline relationship. We've started experimenting with
more tailored offerings that include multiple experience attributes as part of
our total value offering. We see those attributes or experience differentials
becoming even a bigger part of our B-to-B product offering."
Sidebar: Four Predictions For The Rental Car Industry
Abrams Consulting Group president Neil Abrams, a 35-year
veteran of the rental car industry, shared a few predictions for the year 2020.
Virtual Car Rental
Avis Budget Group this year made waves with the acquisition of car-sharing leader Zipcar, Hertz in 2009 picked up a French company
called Eileo and Enterprise also has made moves in the car-sharing
space, but Abrams views the car-sharing market as somewhat limited. The real
opportunity is to use technology that has enabled car-sharing and apply it to
rental fleets, he said, transforming the experience for customers and the
business models of operators. "By 2020, virtual car rental will have a
very significant impact," said Abrams. The associated technology includes
keyless vehicle entry, making "every vehicle a rental location." The
technology not only expands the footprint of fleets thereby bringing cars
closer to customers, but also accommodates hourly, one-way and "more
flexible" rentals. Emerging in-vehicle technology also can monitor car
location—when and where vehicles are picked up and dropped off—and measure fuel
consumption. For the rental car provider, the technology "reduces costs
and puts your inventory where you customers are," Abrams said. For
customers, "This makes the rental experience much more dynamic."
Collaborative
Consumption
Little did hotels know that competition would emerge from
individuals renting their homes to strangers via channels like Airbnb.
Collaborative consumption—the sharing economy, peer-to-peer or whatever it's
called—also is set to make a splash in the rental car industry, Abrams
predicted. To illustrate this "compelling model," he cited a startup
company called Hubber, which operates at Los Angeles International Airport. "You've
got people coming into LAX, parking their cars and they disappear for a week,"
Abrams explained. "You have that car sitting there, but accruing parking
expenses. Now, you've got inbound passengers coming off of planes who need
cars." He expects Hubber and other companies like it to facilitate the
peer-to-peer transactions.
Even if collaborative consumption doesn't take off in
managed travel, Abrams said it "will become a competitive factor" for
rental providers. "Right now, it's fledgling, much like car-share was in
the late '90s." But the concept of the sharing economy today is gaining
traction with tomorrow's consumer. "That demographic—young, professional,
environmentally minded, tech-savvy—is the market, and they get it."
Green Fleets
"Green cars, which are hybrid, flex-fuel or plug-in
electric, really haven't made a dent," said Abrams, noting such vehicles
represent only a tiny fraction of overall rental fleets. At this point, "customers
don't want to pay the premium." However, "as the price comes down, as
technology improves and as the product becomes more broad-based, you'll have a
lot more representation and a lot more interest." Considering that renters
are responsible for their fuel consumption "one way or another,"
demand will rise and "fleeting and fleet management will go toward
generally more fuel-efficient cars."
Consolidation, With A
Twist
"How much more consolidation can there be in the rental
industry?" asked Abrams. "There are three companies that have 95 percent
of all rental transactions domestically." While Abrams still sees room for
cross-border mergers and acquisitions, he also envisions the coming—or second
coming—of the multi-vertical travel supplier holding company. In the 1980s,
Allegis Corp. was a holding company that included United Airlines, Westin and
Hertz. Abrams called it a "beautiful business model that made perfect
sense on paper, but simply didn't work—not because it was a flawed business
model, but because of flawed management and oversight." Noting that "companies
are still hungry to consolidate," Abrams said cross-sector travel
consolidation is the model of the future.
This report
originally appeared in the Nov. 11, 2013, edition of Business Travel News.