Paul Wait, Virgin Atlantic’s general manager sales, talks to ABTN about corporate route deals, the buyer-TMC-airline dynamic and why the business travel community should stop talking itself down.
Why are business travellers and corporate accounts important to Virgin?
All airlines have very different business models and cultures. In our case, we have a model based on a combination of both business travel and leisure travel segments. All our customers are very important to us. The person that may travel with us in Upper Class because their company is paying may well decide to go with us in the economy or premium economy cabin if they’re paying for themselves on holiday. The reason they make the trip is not the important thing. We’re very keen on building relationships with our customers, so they come back to us, whether it’s for personal or business reasons.
It’s really important in our view to make sure that you’ve got a good mix of business, because if you had an aircraft that was pure economy in long haul, I really doubt that you would make any money. If you have an aircraft that is business class only, as some have attempted to do in the past, that also makes you vulnerable. At least when you’ve got that mix of cabins, you’re able to change your priorities according to the situation in the marketplace at any given time.
Of course, the revenue that we obtain from our corporate customers and from our travel management companies (TMCs) clearly is of a much higher average ticket price than you would see in the majority of cases in the economy cabin. Therefore it enables us to concentrate on profitability and reinvest in our product and service, which is something we’re doing at the moment.
Corporates often have a contract in place with us, which is based on volume. We assign a sales manager to work with that company, to work on the company’s strategy, and to help them manage their business travel accordingly.
What do you think about the relationship between travel managers and buyers, TMCs and airlines? Is it complex? Does it work?
I don’t think there’s one comment to answer that particular question. You have to look at a number of different things. If you say one client, one agency and one airline, then they may all have very similar objectives or they may have very different objectives. Add to that the fact that you naturally have people involved in those, and their characters may be very different. And add to that the fact that the cultures of the companies and what they’re trying to achieve are very different.
I would say if you’re trying to say what makes a successful relationship between all three, then I’d just turn around and say it’s very important that what you have a very honest and open line of communication. I think it’s important that you are realistic about what can be achieved and what may be a little more difficult. And I think it’s really important that you have objectives that are understood and aligned, and that you have appropriate levels and amounts of communication.
Sometimes you can have a very successful relationship whereby you only see the person once or twice a year. On the other hand, there are times when you may need to invest far more time, and that may be to do with the challenges in the marketplace or changes that a company or TMC is going through.
What is your view on corporate route deals?
It’s an interesting one, the corporate route deal, because at times it looks as if it’s going through its death throes. I think it is one type of arrangement that is in place between two companies, between an airline and a corporate customer. For it to be succesful there is an amount of work that needs to be engaged upon by both parties, to make it happen. And I think one of the reasons why the corporate route deals may fail from time to time is because the negotiation to obtain a volume-related discount, based on commitment, has been based on historical data, as opposed to a projection of what is likely to happen in the next 12 months. I think also they can be put in place with a given term, shall we say, of 12 months, during which nobody really looks at them sufficiently to see what’s actually happening, whether they’re performing or not, and challenges and issues there might be.
They can work well for both airlines and corporates, and they can work against those parties as well. For instance, where it really works well for a corporate customer would be when there is a high level of demand in the marketplace. It provides an advantageous price to the customer at times of high demand. Where it works against that customer, potentially, is where demand is soft, and they’ll find that a lot of different types of financial arrangements or rates are in place in the marketplace, which potentially threaten the value of that arrangement.
That’s why I think it is important to make sure you have an ongoing dialogue between a corporate customer, the TMC and the airline, and that all three are working together to make sure whatever has been agreed is actually being committed to, or amended.
Some of the things that we have done recently is, in the case of certain customers, we’ve not had a 12-month route deal, we’ve had a 6-month route deal. And we’ve only taken the months when we know that customer has got high demand. We’ve said there’s no point you committing to a number of sectors that during these particular months you’re hardly going to use.
We’re quite happy to be compared in the marketplace if people understand the value that we bring in Upper Class through the limo, the drive seat check-in, the private security wing, etc. and know that in Upper Class we’re not going to be the cheapest, necessarily. Because you wouldn’t expect to buy a BMW for the price of a Toyota Avensis would you? That is a message that does have to be reinforced from time to time, because people do want to try to commodotise business class and some companies do allow themselves to be commodotised.
So you don’t foresee the death of the corporate route deal?
I think you have to manage it effectively. It’s too easy to put a deal in place thinking you’re going to get commitment, when really the experienced sales managers with those airlines will know that signing the deal is the easy bit. Actually delivering on it is where all the hard work starts. This market changes constantly.
I think some airlines are spending more time on making sure that those deals actually deliver. All I would say is it’s not just the client that has to deliver. The airline or the TMCs involved also have to play their part in making the deal a success. And just because you have a low price doesn’t guarantee you a positive experience, or that your travellers will be happy. So you’ve got to make sure that your goals, other than your financial budgets, are met when it comes to business travel.
What are companies focussing on when they’re negotiating with Virgin?
I think there are a whole variety of things that they include within their evaluation now, but there are four boxes you have to try to tick, the order of which will vary depending on the company and its culture.
Box number one is in relation to financial goals, with regard to how much a company can afford to spend on travel. They ask what is the best way of being able to maximise our opportunity to do business within the amount of money at our disposal.
Box number two is from an HR perspective. The culture of an organisation. Does a company expect people to be highly productive, and to think well of an organisation? If their travellers are flying for 6, 12 or 18 hours, and are expected to work when they get there and when they get back, what kind of state do they need to be in? What kind of facilities should a company provide them with? How does a company want to treat an employee during their particular travel experience? Whatever a company’s decision is on those areas will have an impact on what their travel policy should be. I would be an advocate of making sure that travellers are operating in an environment where they feel that when they need to relax they can, because you need the right amount of rest and relaxation to be able to be productive in your work. At the same time, you need an environment where you can work in a secure environment – whereby people can’t just lean over your shoulder to see what’s on your laptop. Our business cabin configuration provides that.
I think also the other element, the third box to look at, is safety and security. There are a number of angles, and we can’t talk too much about security because that would give away our secrets, but companies do think about ensuring that theire travelling with an airline that has a very good safety and security record.
And in the fourth box of things people are having to take a look at is sustainability. Years ago I would say that status was also on that list. Who you were decided which cabin you flew in.
What do you see as the main challenges facing the business travel sector today? What should the business travel community be engaging with or improving on?
I’m going to start by saying did you know I am the most succesful elephant hunter in Birkenhead. There aren’t any elephant hunters in Birkenhead, which actually shows how good I am. Now think about what TMCs spend all their time focussing and concentrating on. In conversations, when times are tough, when trading conditions are tough, when we’re in an economic recession, everyone talks about cutting back on travel, downgrading. Lots of their value propositions to corporates is: “We’ll help you save money, we’ll help you reduce travel, we’ll find ways of doing it.” No matter which business environment you’re in, whether it’s at a conference or meeting, somewhere cost reduction and travel reduction comes up in conversation.
If you take that to the Nth degree, if you continue to reduce travel, what are you going to do? You don’t have a job. If you really think about, what I think the industry has as a challenge is actually promoting how essential travel is to the success of a company, and how in turn travel, and business travel in particular, is so important to the success of UK plc. Far too often, I think, we get on this bandwagon of let’s cut back on travel, when actually travel is the thing that led to success in the first place.
My view is that the challenge for business travel is to take a completely different tone, and not talk about reducing travel. Instead talk about promoting the importance of business travel to the success of companies and the success of UK plc, because it drives employment and therefore pays the taxes. That’s just my view. I think people get sucked into what I think is a restricted, negative conversation. I’m not saying people shouldn’t get value, I’m not saying people shouldn’t manage their programmes effectively. I’m saying I question why people talk about stopping travel when it’s usually travel that keeps the business going.