Almost every business traveler has had this experience: You strike up a conversation with your neighbor in the next seat; as the conversation progresses, eventually you compare the respective prices you paid for your ticket. What follows can be a range of emotions from amusement to anger, but often results in a call to an executive assistant or travel manager about why you were over (or under!) charged for your ticket.
The reality is that although simple to book, behind the scenes the airfare commodity is a complex product. No matter which part of the aircraft the traveler sits, be it First, Business, Premium Economy or plain Economy cabin, seat prices in those cabins are tightly controlled. The “seat” is related to a unique booking class like an L or Q and has its own price.
Reading airline contracts can often seem like reading the alphabet. One recent airline proposal contained fifteen different booking classes in Economy class alone. Each booking class represents a different fare, and this fare proliferation can apply in every other cabin or class of service.
These fare classes, in turn, likely have their own booking conditions, such as minimum advance purchase, minimum stay requirements, change restrictions, and so on, which the traveler must comply with in order to secure the fare.
Online booking systems present the traveler with the lowest fare dependent on their chosen dates of travel. The booking class aspect is hidden and opaque to all but the most sophisticated of buyers.
Air carriers maximize revenue per aircraft departure by controlling the mix of cheaper and more expensive fares/booking classes they make available. It’s a sophisticated process, which explains why airline revenue managers have become all-powerful instead of the customer-facing representative.
Airlines closely monitor load factors (booked seats as a percentage of the total number available) and then increase or restrict seat availability based on demand. Once the cheaper seats are gone, the traveler is left with the next cheapest booking class. This explains why fares can change rapidly, even within the span of an hour.
With so many simultaneous variables at play at the same time, understanding why one passenger paid more than another for the same seat is nearly impossible.
What happens for corporate buyers with multi-million dollar travel budgets to negotiate?
The general process outlined above applies to corporate contracts too, but with a discount negotiated off the published fare. Discounts range from single digits for the lower priced economy fares (0 percent for the absolute lowest fares), to double-digit figures for inventory in First, Business, and Premium class cabins.
The ability to negotiate higher discounts is dependent on the route flown, cabin class, total volume of business booked, and the competitive landscape on that specific route. Hence, a company with a $250K airfare budget, and generally purchasing the cheapest tickets, is unlikely to be offered the same level of discount as a company with $25M in total airfare spend with a healthy mix of business class traffic to long haul, international destinations. Business class travel represents high margins for carriers and they will offer attractive discounts to secure business.
Corporate travel buyers may be tempted to push their travel management companies, or other third parties consulting to them, to undertake benchmarking to rate the competitiveness of a corporate airfare program, but how reliable is this?
Benchmarking is meaningless unless the benchmark is making an apples-to-apples comparison.
This is nearly impossible though, because finding two organizations with nearly identical travel patterns and travel budgets is difficult, no matter how many customers a travel agent claims to have. Add to this the fact that airline contracts are supposed to be confidential, and it becomes commercially risky to point to a benchmarking comparison as the basis to argue that a fare is not competitive.
Benchmarking airfares can be unreliable, labor intensive, and provides limited value to an organization unless done carefully and with consideration for the above-mentioned variables. It’s far more beneficial to focus on the areas where true savings can be generated.
Based on experience from hundreds of executed projects, we’ve developed a specialized five-step, deep dive process that can deliver results for corporate travel buyers.
Obtain airline and travel agency ticket-level data to get a holistic view of past and present travel patterns.
Assess the market conditions that impact your travel program to gain context prior to entering negotiations, including forecasted future travel patterns.
Use data to establish the current situation for baseline spend and savings.
Have a meaningful conversation with your airline representative—as they are the first point of communication, they’re able to help despite the conflicting views of their revenue management department.
Experiment with non-standard proposals, for example, negotiating for higher discounts on specific routes flown rather than including them in a lower discount network arrangement.