Airline Contracting in 2021: Policy, Pricing and Demand

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By Ryan Hohag, Air Practice Director

It’s no surprise that nearly every aspect of managing a business travel program has changed heading into 2021 – and airline contracting is no exception.

Airline policies and pricing trends have dramatically shifted, and it’s very likely that your own organization’s objectives and business travel demand are not the same as they have been in the past. In part one of our blog series on airline contracting in 2021, we’ll cover what to expect on the supply side and how to assess your company’s needs in this new era of business travel.

Airline Policy and Pricing Trends: What to expect

This is a tumultuous time for airlines around the world, and most have changed key policies related to fare rules and restrictions. For the foreseeable future, this means greater flexibility for travelers and travel programs alike. The first major change to make headlines was the removal of change fees on domestic routes by the major US carriers. Just a couple of months later, this was extended to international flights as well, and although it was originally intended to be a temporary measure, change fees have now been eliminated “indefinitely” on many fare types. In light of the COVID-19 testing requirements of many countries around the world, it is something that will likely be here to stay.

Many airlines announced they are extending the expiration date on vouchers received from flight cancelations, not only on existing tickets but for new bookings as well. In addition, airlines are offering more status match incentives and limited-time promotions to gain or retain loyalty. Nearly every airline has extended elite status for a minimum of one additional year, and some have reduced threshold requirements to reach the next status tier. It’s no surprise that a high premium will be placed on loyalty, and new types of incentives are likely to be offered for travel buyers who can commit to significant volumes in 2021.

Extending these flexible policy initiatives and status incentives to the general public means that airlines do lose some of their bargaining chips when negotiating contract terms with corporate customers. This means that the airlines will need to find new, creative ways to add value for corporate travel clients beyond the hard dollar savings – and making sure to address the new or changing priorities in their customers’ travel programs. Particularly because permanent schedule reductions and inevitable consolidation will lead to fare increases as demand begins to rebound throughout 2021.

Understanding your company’s travel needs in this new reality

Before you can think about how to approach your airline contracts this year, first and foremost you’ll need to have a solid understanding of your company’s travel needs. Where will you see a permanent reduction in travel spend? And by how much? For most, business travel will be more selective as corporates decide what is and isn’t “business-critical.” There will likely be fewer trips, but potentially greater ROI per trip and travel requests will be met with greater scrutiny. Collaborate with other stakeholders that have a vested interest in travel – like finance, HR, and security & risk – to understand if you have the right virtual tools and policies in place to help preserve business continuity as the definition of business-critical shifts.

Specific requirements at each destination may influence travel decisions as well. Many countries have been operating under mandatory negative testing policies for months, and the U.S. finally joined this list in mid-January with a requirement for all international passengers to present proof of negative results upon arrival. We may see an escalation of these restrictions as some individual airlines and governments consider moving to a vaccination requirement prior to traveling.

It will be extremely important for travel managers to communicate across internal stakeholders and understand shifting business priorities, as well as the needs and concerns of each traveler segment. Also, take into account what you’re looking for in a preferred supplier. Will the emphasis still be on discount levels and cost reduction? Or will flexibility and health & safety measures take priority?

You’ll need to work across business units to build a recovery path scenario. Keep an eye out for part two of this series that will walk you through best practices to optimize your program with a stronger focus on quality rather than quantity of suppliers and negotiated deals.

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To understand how Advito can help you prepare your air program for the new future of business travel, contact us today.

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