By David Frangeul, Senior Director, Global Air and Ground Practices
Everyone in the industry is feeling the pressure of rising airline ticket prices and they are only continuing to increase.
One of the unforeseen effects of the return to travel is airfares rising well above pre-pandemic levels. Advito’s 2023 Q2 Air Price Index shows a 10-20% increase versus Q2 of 2022 for business cabin intercontinental fares from Europe, North America, and Asia (bookings made by end of March for travel in Q2 2023). There has also been an increase in economy cabin fares, especially out of Asia and the Southwest Pacific (over +30% vs. 2022 for domestic, regional, and intercontinental markets).
While the corporate travel segment is still recovering, leisure bookings have returned in full force, resulting in high air travel demand. However, airlines are struggling to keep up due to resource constraints. Pilot shortages and ongoing recruitment challenges for airport and airline staff are holding back the seat capacity ramp-up. Beyond these industry challenges, the price increases are being accentuated by general inflation affecting the global economy today.
With airlines taking advantage of this strong demand and constrained supply to boost revenues, you might think your only option is to accept these increases and hope costs come down soon. However, there are several solutions you can leverage right now to mitigate the impact of sky-high fares on your business travel program.
1. Assess if your booking pattern is still relevant
Start by focusing on your current travel booking behavior for key travel sectors and top routes. Compare this with the market trends over the last few weeks. This will help you determine what the optimum booking window would have been to book flights at the lowest price. Then, take a look ahead at how fares are evolving in the weeks to come and adjust your booking window accordingly.
2. Review your travel policy to stay ahead of changing market conditions
Taking a closer look at your travel policy could help identify opportunities to drive cost savings. It’s important to consider two things: First, the air industry looks different today. Second, traveler behavior has changed. Most likely, you haven’t updated your travel policy to meet the needs of this new environment. It’s time to reassess and adapt your policy to the current needs of your travelers, while also taking the effects of inflation on your budget into account.
3. Check if your preferred airlines can still cover your program needs
Airline distribution is rapidly evolving with the removal of some content from the Global Distribution System (GDS). Assess the potential impacts this is having on your air spend and choose the content strategy that meets your program needs combined with the right mix of airlines. This is the best way to make sure your program is still relevant, comprehensive, and up-to-date.
4. Reset your program
It’s time to revamp your air program. Completing a full assessment of your current air program is the easiest way to determine how you should modify your strategy to build a robust air program in 2023. Take a hard look at whether your air program is still meeting your needs. Does your discount coverage support your growing travel activity in an evolving supply environment? RFPs took a pause during the pandemic, but today, due to dramatic changes in demand and offers, it is time to reset your program with an air RFP.
Over the past few years your air volume has likely dropped. This is the most common reason airlines are reducing contracted discounts with corporate clients. However, the airlines are not considering how much average fares have increased overall for the last 12 months (or vs. 2019). Monitoring airfare trends, surcharges (fuel and distribution) and booking class availability is critical prior to negotiating with carriers. This will provide leverage to challenge the airlines’ strategy. Don’t miss the opportunity to negotiate on the highly competitive routes where you bring strong yield to airlines.
In addition, it’s important to keep a focus on sustainability. Consider how sustainable your preferred airlines are. If they don’t stack up, now is a great time to reevaluate which airlines should be part of your program. The sustainability matrix included in the GBTA RFP toolkit can help you to assess airlines in terms of fleet performance, SAF investment or offsetting initiatives.
5. Engage your travelers
Help travelers make smart, economical decisions that benefit the environment, their personal wellbeing, and the company. Drive down costs by shifting supplier share or reducing overall travel demand with innovative marketing tactics. You can use banners and popup messages in your online booking tool to provide relevant information to travelers at the point of sale. This type of messaging in the right place at the right time is a key driver to influence travelers.
With inflation climbing, suppliers do still have pricing power. However, with the right data-backed strategy, you can drive down costs! Want to learn more? Contact us today to see how you can optimize your air spend.