SME sourcing trends are holding steady despite new inflation concerns

Small and midsize enterprises continue to lead the way for business travel’s recovery from the Covid-19 pandemic, even in this inflationary environment. But while prices for air travel, hotel stays and car rental have increased, that doesn’t mean buyers are significantly changing how they source their programmes.

Most travel buyers, travel management companies and consultants that BTN Europe spoke with for this report generally believed it remained too soon to identify new procurement trends as many companies continue to ask for contract rollovers and aren’t confident in using current data for negotiations.

“I don’t have the right information to negotiate,” says a travel buyer for a midsize investment banking firm that has mostly extended prior supplier agreements. “I’m not a large buyer right now. I don’t feel comfortable with the data yet – I would end up losing. 2021 was too shaky. Let’s get through 2022, and by that point, 2022 data will be a more accurate reflection [of our travel].”

The buyer, who asked to remain anonymous, adds that suppliers are unlikely to roll rates over forever: “Past 2022, I don’t think I’ll have that ability anymore.”

Even with general rollovers, one of the buyer’s airline partners reduced its discount percentage. “To be fair, we weren’t meeting our share goals prior to the pandemic,” the buyer says. “I didn’t love it, but I don’t have the data to fight. Should they have left it like the other carrier? I think it was silly to adjust at all, but I don’t have the leverage, and I didn’t want to open the door to the other things they might change.”

Another challenge has been volatile volumes. “We all made good predictions when we thought volume would come back and to what degree,” says EAB VP of business solutions Steven Mandelbaum. “We all got that wrong.”

He explains that there was an expected ramp-up last autumn, which was interrupted by the outbreak of the Covid-19 delta variant. After a late 2021 improvement, the omicron variant emerged, “and travel dropped more than with delta,” says Mandelbaum.

“Predictions went out the window. Volumes are hard to predict. I still source fundamentally the same way. It’s not a great time for making long-term plans. Travel patterns are in flux. Product offerings from suppliers are in flux. Prices are definitely in flux. It’s very volatile. When it’s all put together, it’s hard to optimise something where you only have variables.”

Mandelbaum says that his travel budget was looking good for the first three months of the year, when both travel and prices were down. “Then came April and May, and prices shot up, so all the savings you thought you were getting started to be erased,” he explains. “Across a year it works out because of the peaks and valleys. I don’t know what to make of next year. If prices stay high, it becomes a different situation.”

Still, despite some buyers noting they have again rolled agreements over, GoldSpring Consulting partner Neil Hammond expects there to be a “far more robust traditional hotel sourcing season” for 2023 programmes.

“Hotel pricing has returned,” he says. “We’ve seen a huge amount of inflation, labour shortages, and we’ve seen a certain percentage of hotels that have closed. The hotels have therefore been able to adjust their pricing accordingly. As a result, this is the first year the market will expect some tangible increases in the hotel space. Buyers are going to have to engage in a traditional manner to decide – either we flip them to dynamic and measure in a different way, or we try to mitigate these increases.”

What “traditional” means is changing, though, as more companies moved to dynamic rates during the pandemic, and that trend is continuing, Hammond says. “Buyers realised their usefulness when negotiated rates were higher than market rates,” he adds. “But dynamic rates still have a long way to go.”

A shift to programme value

Hammond also notes that SMEs are more likely to reengage with partners and fill in the gaps in their programmes, looking at supplier loyalty offerings and the value of membership and relationship benefits. Buyers should make sure travellers sign up for supplier loyalty programme membership “so they can have the most frictionless travel experience possible. What’s best for smaller companies is to get what you can out of the relationship components that will ease things for travellers.”

CTM's Maureen Brady says that some SMEs are turning to their travel management companies to assist with enhancing their programmes. “On the air side, it can be various frequent-flyer points or status for top travellers, or they’ll look to us to provide other funds, be it for changes or for refunds,” she says.

Asked how SMEs are handling rising prices, she says it’s a concern, “but an even bigger concern are the airline cancellations and delays,” she says. “I don’t know a single client not talking about what is happening with service delivery.”

Getting creative

Sourcing trends, not surprisingly, vary by organisation. One pharmaceutical company which considers itself an SME launched a global airline RFP having previously had regional contracts.

“We decided to take a different approach and strategy and leverage our global footprint on airline spend,” says Otsuka senior corporate travel and expense manager Danielle Amoroso. “We aggregated all the data and approached the airlines with that negotiating power behind us. We’re in round one, so I can’t speak to the results just yet.”

Amoroso is also getting “more creative” with negotiating. For example, Otsuka is looking at the potential to pay an airline a predetermined amount up front and secure a flat rate on two or three particular routes, with a set period of time to use that pre-paid funding bucket, says Amoroso.

“We had never looked at that pricing model in the past, especially because as an SME you don’t know if you have the buying power, and you don’t necessarily get the funds back if you don’t use them,” she says. “There are no decisions made there, but we are looking at different pricing models and structures.”

In addition, Amoroso happened to have negotiated a flat-fee agreement with her TMC just prior to the pandemic, so Otsuka’s dedicated travel agents have remained intact, resulting in very little service disruptions in her TMC support post-pandemic, unlike what some other companies have reported experiencing.

For hotel sourcing, Amoroso is a “big believer” in dynamic pricing and looks at static rates only in a few key markets, where she might contract just one or two properties. And with dynamic pricing, she wants two-to-three-year agreements. “There is limited bandwidth and resources to conduct an RFP every year,” she says, adding that those resource costs add up. “You need to calculate the savings of not conducting a yearly RFP.”

Where she has a roadblock is with one major hotel supplier and its refusal to offer chainwide agreements. “It’s difficult because of employee preferences,” Amoroso says. “To tell them they can no longer stay [at a particular hotel] or that they have to stay at a property that is not their preference... it doesn’t bode well for recruitment.”

To try to overcome that, her strategy is to focus on specific brands within that hotel company. “I don’t know where we’re getting with that conversation, but the more and more that clients ask for that, [the hotel company] is going to have to listen,” she says.

For ground transport, Amoroso renegotiated her company contract with her preferred supplier when she saw the surge with rental car prices happen much earlier than hotel and airlines. “We took the time to renegotiate the agreement to maintain our corporate rates, our static rates,” she says. “That was super helpful.”