CLEARING THE AIR
Securing new corporate airline deals is not as straightforward as perhaps it once was, writes Amon Cohen, who assesses the challenge
The calendar on the wall may tell you this is the year 2022 but in the strange world of corporate airline sourcing it is still 2019. If you have discounted fares with a carrier the chances are, depending on when you struck it, that same agreement is now rolling into a third, fourth or even fifth consecutive year on the same terms and conditions.
Air agreements are fuelled by data – where the corporate client flies, who with, how much for – but since the coronavirus pandemic started, with companies flying little and erratically, there has been no management information of consequence to forge new agreements.
“You should continue to extend your existing contracts,” says Jörg Martin, owner of CTC Corporate Travel Consulting. “Discussions for a brand new deal would be extremely difficult based on previous figures. No one knows how much volume will come back in 2022. On the corporate side you cannot commit to a specific number of tickets or volumes, while airlines don’t have stable timetables or destinations to guarantee the frequency of flights.”
Though imperfect, deals from 2019 or earlier retain relevance, according to Martin. “Most customers’ key routes don’t change, only the volume on them,” he says. “Their route deals still go where their clients and offices are. It’s better to have something than nothing from the corporate side but also from the airlines’ perspective because if a rival carrier prolongs its agreement, they will end up getting nothing. Only a handful are not extending deals.”
That said, at the time of writing business travel volumes are finally showing signs of strong recovery, suggesting the lengthy holding pattern for negotiated agreements may soon be over. “Extend your deals until you have 12 months of good data to reflect seasonal variations and then you can negotiate,” says a travel manager who asks to remain anonymous. “If your demand doesn’t vary much from month to month, you can shorten that maybe to six months.”
Extend your deals until you have 12 months of good data to reflect seasonal variations and then you can negotiate
Many companies have declared they will not fly as much in future as pre-pandemic, for environmental and other reasons. There is also much talk about continuous sourcing and buying the best on the day. All these factors make the case for airline agreements becoming less useful, or indeed attainable, but the travel manager doesn’t see it that way.
“It certainly still makes sense to negotiate because many fares are artificially inflated by airlines knowing full well they are going to be discounted,” the buyer says. “The range of discount depends on the fare, carrier and route, but it can go from low single digits up to 65 per cent.”
Discounts and other benefits of a formal airline relationship (such as lounge access or more flexible amendment rules) are also important for internal goodwill, the same travel manager continues. They give travellers a reason to follow the managed travel programme, especially if travel management company booking fees are deducted from their budgets.
However, FCM head of global account management and consultancy Jo Lloyd warns that the shape of airline deals is changing. “Carriers do still offer corporate discounts, particularly in markets where there is competition, but they are becoming more strategic about which routes they’re prepared to discount,” she says. “We’re seeing the end of those big requests for proposals with every route and possible scenario covered, and moving towards more focused agreements, which I actually don’t think is a bad thing for the industry.”
There are no fixed rules on how much a client must spend to qualify for a deal. Factors will include class of travel, flexibility of ticket requirement and, given what Lloyd says about more focused agreements, the extent to which spend is concentrated on what she refers to as “golden goose routes”.
The contract itself will require the client to meet specified volume or market share targets. Some airlines are forbidden by competition law to set market share requirements. That said, in a marketplace where travel spend is reduced permanently, “if your volumes are down, then market share becomes more important,” says the anonymous travel manager.
For Lloyd, “the size of the pie is important to the airline but the portion of the pie it gets is always the most telling factor. It typically focuses on the amount of share you can shift on a route once you’ve qualified with your volume. You need to understand whether the airline is working to volume or revenue targets but it will always be with a share shift in mind.”
An accompanying consideration for airlines, adds the travel manager, is the robustness of the prospective client’s travel policy. If the company has a record of moving market share, better discounts are likely. The airline can analyse business intelligence to determine whether that is the case. “If I’m the home carrier and I see Corporate A is delivering less than 20 per cent to me, that tells me the company is pretty good at managing its programme,” the travel manager says.
As this example reaffirms, the starting point for good deal making is detailed data backed by expertise to interpret the numbers. If these are unavailable internally, they probably need to be bought in.
However, the disruptions of the pandemic have changed the way spend data is analysed and applied. “We’re looking at benchmarking against the market, other customers or competitive sets to measure the success of a programme because 2019 is referring back to a market that just doesn’t exist any more,” says Lloyd. “I haven’t met a customer yet which has said it’s going to be travelling like it was three years ago.”
Opportunities are emerging to buy Sustainable Aviation Fuel (SAF) from preferred airlines, but this is a complex and contentious issue and usually only viable for high-spending customers. Even then, says one travel buyer, “One reason we haven’t got into SAF is because it’s very complicated around who gets the carbon credit. Is it the producer, the airline or the corporate that’s paying for it? Let’s put that aside. Keep the negotiation clean of stuff you’re not going to use to make a decision on. These are not necessarily negotiation issues.”
But Jörg Martin firmly believes sustainability is poised to become a negotiation issue. Discussions might include how emissions are tracked and compensated and by which party. EasyJet, for example, has launched carbon reporting and offsetting for corporate clients based on actual flight data, fuel burn and load factor.
Even more fundamentally, Martin predicts clients will soon steer deals towards lower-emitting airlines in order to meet carbon budgets. “If you currently fly from Frankfurt to Beijing via the Middle East you may in future take a more balanced view, including taking into account the higher carbon emissions,” he says. “It might be a direct flight is €300 more expensive but ends up a lower total ‘cost’ after lower carbon emissions are accounted for.”
THE IMPACT OF NDC
Could New Distribution Capability transform airlines’ corporate agreements? Theoretically, yes. NDC is touted as the technological standard that will enable airlines to deliver customised fares to corporate clients. In principle customers will select their required level of ticket flexibility plus add-ons such as lounge access and extra baggage allowance. In practice, a decade after the International Air Transport Association unveiled NDC, no one interviewed for this article has yet seen an airline offer any such corporate bundle at scale. However, Jörg Martin is optimistic. He believes NDC-based fare customisations may soon prove more attractive than conventional route deal agreements. “I think we will see the first ones this year as business comes back and the situation stabilises,” he says.
GETTING ON GOOD TERMS WITH LCCs
Some low-cost carriers are much more corporate-friendly than others, providing clients with similar benefits to legacy airlines. EasyJet, for example, which has 500 corporate customers, offers corporate discounts with last-seat availability on its more expensive flexible fares. “When it comes to discount we don’t really set any targets,” says James Marchant, the airline’s senior business development manager for Europe. “We talk about an exchange of commitment.”
Other benefits can include reporting on how much clients spend by route with the airline and a certain amount of influence. Tactically, this could mean the usual “waiver and favour” requests corporate customers make for their travellers. Strategically, it “provides our corporate customers with the opportunity to shape our network and schedule,” says Marchant.
“It’s happened on numerous occasions. Sometimes it could be down to simple timing. If our flight departed 30 minutes earlier, then that could really help a certain organisation. If we can help, then we will.”