By David Frangeul, Senior Director, Global Air & Ground Practices
Recent airline recovery paired with softening demand is bringing a positive shift for travel buyers.
Over the last few years lower discounts and the elimination of fixed fares have become the new standard in corporate air contracting. This was a result of the limited leverage buyers had during a time when strong travel demand outpaced low airline capacity. American Airlines took the lead with an aggressive ‘take it or leave it approach’, weakening the value of corporate contracts and leading to an average 35% drop in savings across client programs. Some other airlines justified the savings reduction (around -10%) by blaming lower client spend. Meanwhile, around half of the contracted airlines decided to maintain a ‘business as usual’ approach, providing corporate clients with the same level of discounts, market share targets, and value-add benefits as before.
Why the struggle for buyers is finally over
Now, airlines are actively seeking more business as yields are dropping. We see the inflation of airfares coming to an end with the complete recovery of worldwide airline networks mixed with a relative softening of demand (economic slowdown in China and Europe.) This has led to intense competition among airlines in top business markets.
This shift provides you with a stronger opportunity to renegotiate certain deals. Airlines, like American Airlines, acknowledge that their recent strategy neglected corporate clients and are now eager to revise their discount proposals. This change in approach from a major carrier is likely to have a snowball effect on other airline deals.
How to take advantage of this volatile corporate contracting market
Your priority should be to conduct an Air Strategy Review (ASR) and identify leverage points to engage in negotiations with airlines. Airline competition has dramatically changed over the last few months due to strong capacity recovery among most carriers, so it’s critical to map out the current level of competition in your key markets.
Check your level of exposure to the most difficult airlines and evaluate if there are any cost avoidance opportunities by shifting towards more competitive airlines. If your travel budget is lower than in previous years, consider if the reduction is consistent across your entire travel footprint or specific to certain regions and/or sectors. If your budget is higher, a downward discount trend may not be justified with some airlines, especially if there is an opportunity for consolidation in your program.
How to navigate New Distribution Capabilities (NDC)
NDC has now taken center stage. At the moment, airline distribution is focusing on the pricing benefits of NDC (low fares available on NDC channels only and roll-out of continuous pricing).
Estimate the value NDC offers to your travelers’ needs. If it can generate additional savings to your program, consider the potential drawbacks including quality of after-sales services, level of surcharges applied by airlines, TMC and OBT providers, availability of products (air re-shopping, refunds of unused tickets, etc.) It’s important to look at the full picture to confirm if implementing NDC is beneficial to your program.
How to align your air program with your sustainability goals
Evaluating the environmental responsibility practices of the airlines in your preferred program can help you align your air strategy with corporate sustainability objectives. At the same time, you can assess the financial and sustainability impacts of your air strategy. To do so, you need to know where your key suppliers stand. Having a comprehensive supplier assessment on sustainability is critical. This assessment should include performance scoring in terms of airline fleet efficiency, investments in sustainable aviation fuel (SAF) and a range of other sustainability initiatives.
The corporate air contracting landscape is evolving rapidly and this can bring lots of added benefits to travel buyers. You need a strategy that allows you to adapt your program to take advantage of new opportunities and align with today’s needs. Contact us to learn more about how you can keep your air program competitive.