Three Reasons Why the Air RFP Process is Obsolete
Author: Olivier Benoit, Vice President and Global Air Practice Leader, Advito
Whether you’re a travel manager at a small business or a large corporation, air spend is the largest component of your business travel budget. It’s one reason why you need an air program – so you can focus on getting leverage on the routes where you travel or spend the most.
Traditionally, travel buyers negotiate their programs via an Air RFP process. Since the deregulation of air fares in 1978, that’s been the way to build an effective air travel program. But does this 40-year old process still make sense in the current climate?
The short answer is no. With the new technology available and the fast pace of change in the airline industry, the traditional Air RFP is obsolete.
Here are three reasons why, and what you can do instead to build a better travel program.
1. It’s a painful process
One of the major issues with the Air RFP process is that it’s long and resource-intensive. Typically, the airline sourcing process lasts anywhere from 6 to 12 months, and the travel managers who lead sourcing initiatives are in fire drill mode the whole time.
Then there are the issues of comparing and analyzing the proposals. It’s not easy to compare the data submitted by airlines; every airline has its own way of preparing a proposal. The GBTA Air RFP toolkit helps but is not enough because pricing structures and policies are airline-specific, meaning there’s no industry standard. Plus, it’s in the airlines’ interest to promote their whole network. That means you have to sift through, consolidate, normalize, and clean a bunch of data to achieve a meaningful comparison and find the information you actually need to meet your savings goals.
In addition, throughout the process, you need to get approval from multiple stakeholders, and sourcing can easily be derailed if an airline submits information late, if a data source is corrupted, or if an internal approval is withheld. Overall, the Air RFP is painful and complicated.
2. Savings are virtual, limited and diminishing
The pain of Air RFP might be worth it if you managed to achieve major savings for your travel program. But that no longer happens. In fact, the savings achieved via Air RFP are low, and decreasing all the time. Sure, beyond discounts, you can save something on additional services like flex funds, upgrades, lounge access, priority boarding, and frequent flyer status upgrade, but that’s more about cost avoidance than achieving significant savings.
In terms of actual savings, the average incremental save rate gain is around 1% with a traditional RFP process. That’s down by one percentage point from just two years ago. And if you have a mature travel program, the potential savings are even lower. Plus, the part of the ticket price that’s up for negotiation for corporate travel programs is shrinking. In fact, your discount could apply to less than 20% of the total ticket price on domestic and regional routes. Promotional fares, aggressive travel agency special fare programs, dynamic price insurance rebooking technology, compete against your corporate negotiated fares.
More concerning is that your negotiated savings are out of date the day the program starts. All kinds of things change for both corporate travel programs and airlines between the start of the negotiating period and the implementation of the new travel program, making any savings virtual, rather than actual.
In a dynamic, ever-evolving airline industry, an airline may close or merge, or stop a particular route, taking your negotiated rate away. Plus, many technical airline changes, like fuel surcharges, changes in inventory availability, and public fare increases, aren’t part of the negotiation process. You may negotiate a great discount via an Air RFP, but if it’s not available when your travelers need it, and it doesn’t deliver the savings you expect, what’s the point?
3. It is not future-ready
With a travel program based on negotiating via an Air RFP, you’re always working with outdated information. If the final round of negotiation happens six months after the kick off, then you’re working with data that’s 18 months old.
The new air retailing model (NDC and ONE Order IATA standards) is based on a dynamic and personalized offer management system from airlines, not on a static discounted fare basis model. And other technologies currently in development – like smart contracting powered by Blockchain – don’t fit into the current Air RFP process
So, what’s next?
Over time, workarounds have been developed, like the turbo RFP process. It may reduce the pain, but you still leave half of the money on the table. Post-sourcing carrier review meetings are designed to ask for more compliance or new revenue opportunities for airlines, not to adjust the program to your needs.
Unless you need to completely reset your airline program following a dramatic change in your travel footprint, like in a merger or divestiture situation, get rid of the Air RFP process.
Elevate your program and transition to Dynamic Performance Management. Constantly and pro-actively adjust your program to your needs and the market fluctuation. Gain back control, use fresh and predictive data technology, increase your leverage. Engage with your suppliers and your travelers. Communicating with travelers and influencing their behavior can deliver savings that are on par with your carrier negotiated deals.
With a dynamic model, you can achieve double the savings, while also increasing your traveler satisfaction. Be agile, and don’t settle for a process that is all pain, and very limited gain.