Negotiating airfare rates is getting harder every day. Factors like rising taxes and oil prices, increasing unification of airlines, and the strengthening of the online customer make the travel industry a constantly changing environment. Helping businesses through privileged access to travel suppliers and established partnerships, Travel Management Companies (TMCs) offer comprehensive assistance measuring data, interpreting spend, and diagnosing profiles of travelers. This knowledge enables companies to visualize opportunities to explore when discussing rates with airlines. In this article, we share some tips and advice to guide TMCs or others involved in travel management when negotiating airfare rates, drawing on experts in the industry.
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Challenges for TMCs When Negotiating Airfares
Even for TMCs, negotiations are not as easy as they may have seemed in the past decade. In a webinar by Business Travel iQ on “How to negotiate with airlines”, Ole Mortensen, Senior Partner for more than 10 years at AMM Consulting, points to some challenges that are affecting the negotiation process. Not only do oil prices cause issues, but the increasing competition between airlines is represented by their commodification. Disputed among small, medium and big airlines in some segments across the globe, the market is funneling. In the webinar, Mortensen compares the role of airlines from past decades to now. Airlines used to control the whole flight service, including such services as catering. Today, the fact that airlines typically only control the flight itself “may be focusing,” says Mortensen, “but also [causes airlines to lose] contact with the passengers in different aspects on the way.” This decreases “the power of the individual airline,” Mortensen suggests. These factors increase competition amongst airlines, and airlines tend to give the lowest fares they possibly can in order to compete online; plus, they offer all sorts of ancillary services to maximize profits from each transaction. Many of the services that used to be free in previous years represent a huge portion of airlines’ revenue received from passengers in today’s market, reaching numbers high as 43%. Because airlines are already offering low fares and because it’s often difficult to foresee costs of ancillary services, negotiations are becoming increasingly complex.
Even More Difficulties for SMEs
Negotiating airfares can be particularly challenging for small to mid-sized businesses. Suzanne Wolko, a former Global Business Travel Manager for investment firms and currently a Luxury Travel Advisor and Consultant for Arden Road Travel, says that she used to have contracts with airlines, but instead preferred enrolling in airlines’ small business programs because they ease management and grant a better return on investment. For a small business, she states that negotiating airline contracts can be hard, especially when O&D (Origin and Destination) is not set, clients change, or when cities differ. In case airlines have deals that go under contract rates, she suggest that it’s reasonable to go outside O&D agreements.
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Yet, despite some of the challenges, a survey conducted by Business Travel News (BTN) with SMEs shows that the primary approach (at 54%) for getting discounts is through direct negotiation, which results in a total of 39% better pricing agreements. Therefore, this means that at least for this segment—which has shown a double-digit growth rate in the past decade—negotiation is still really worth trying.
6 Powerful Weapons to Bring to Negotiations
Whether you like it or not, negotiation is always some kind of dispute: there are interests, objectives, motivations, and money in the game. Before going into battle, make sure you have a few powerful weapons:
1. Experienced opinion on partnerships: Talk to C-level executives of the company and get a vision of what they expect from partnerships with airlines. This approach can provide a good initial interpretation on suitable strategies, taking company positioning into account, and a skilled perspective on business relations.
2. Analysis of existing data: Information sheets, registries, extracts, archives, reports—did I mention data? Diagnosing financial and overall behaviour of the company in past travel programs is essential for identifying patterns and opportunities. Also look into negative points from past contracts, such as the following:
- mismatches with your ideal travel policy (when you, for instance, chose economy instead of business class for a specific profile of traveler)
- missing clauses (for example, when you had to establish different dates for some routes due to unexpected reasons and didn’t include a reimbursement clause for this type of eventuality)
- travelers’ complaints regarding a specific route (too many stops? very uncomfortable economy class?)
- superfluous services you thought were a good idea to add
Possessing a robust analysis provides fuel to asking the right questions and preventing risks.
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3. Future travel volume forecast: For some managers, the future travel volume is not obvious or clear, but the core of this weapon is really pulling a summary of the company projects that involves travelling for upcoming quarters. The value of forecasting the future volume of travel is to get better rates, as it represents a bigger profit for airlines and, consequently, bigger discounts for you.
4. Knowledge of the traveler: Similar to understanding the company’s needs, one factor that contributes a lot to identifying specific demands for your travel program is to recognize who your travelers are. Arrange a discussion between members of different departments, mainly the responsible sector for managing the travel or the account manager of the partner TMC, the operations, or the financial sector and, of course, frequent travelers. Check their preferences such as necessary ancillary services (special meals, preferential queues, VIP lounges, etc.) and favored loyalty programs, evaluating alternatives with the team for everyone to get satisfied with the decisions you’re going to make at the negotiation.
5. Knowledge of the airlines: Do you know who you are talking to? It’s me, a huge airline. Make sure you have a rational understanding of the airline you’re dealing with so you can prepare proper strategies. In short, there are aspects that differ for airlines, not only in relationship to size but other characteristics that you could use to leverage an argument. For example, some airlines don’t have business class; some airlines have higher fees for checked baggage. Further, in order to support sustainability, some routes are more attractive for airlines to trace corporate deals. Big routes like New York – London or Paris – Berlin are likely to express a higher significance level for major airlines (those with annual revenue higher than 1B dollars). Take note if is not more reasonable for you to talk to a regional airline instead. Overall, use your knowledge of the airlines’ strengths and weaknesses to leverage a good deal.
6. Attention to the details: Ancillary services such as Fast Track security, onboard meals, and priority boarding are important elements for you to check on. Asif Bashir, Founder and Director of Axcent Travel Solutions—a startup focused on giving companies insights on travel management through data analysis— affirms in the BTiQ webinar that “the devil is in the detail.” Whether your travelers have special requirements or none at all, review these services to ensure you’re not signing up for any additional costs. From the airport to the flight itself, there is a considerable number of services that can be superfluous for the company.
After obtaining these powerful weapons, you want to set a negotiation plan, as it’s a bundle of all gathered knowledge and, consequently, vital to helping you in the whole process. Recording key points to discuss with airlines will help solve inconsistencies and will transpire the relationship between both parts. Apart from these tools to carry with you during the negotiation, it’s also useful for you to consider the final three aspects we discuss below, which can positively influence the final result of the negotiations.
3 Aspects to Empower Negotiations
When you’ve gathered your information and are in the process of negotiating, there are a few other key tips to keep in mind:
1. A fair comparison: In case you’re talking to other airlines as well, when you’re close to signing the contract, make sure that you’re committing to the option that is helping you achieve the most objectives of your travel program, based on the data you’ve collected from C-level executives, managers, and business travelers. Also, consider the possibility of leveraging existing airline relationships you might have by exposing new company travel objectives.
2. The importance of pragmatism: You won’t always get an ideal contract with all the particular demands from your travelers fulfilled nor your desired rates for some routes, so try to break with idealism, working with what you have. Make small decisions, putting costs and benefits in balance. Being pragmatic is a practice: as your number of negotiations increase, you’ll make smarter and faster choices over time.
3. Keeping it civil: The primary objective of negotiations is to achieve a common agreement between the constituents, so seek a win-win situation. After all, it’s possible that you won’t be talking with an airline just one time. Asif believes that negotiating with airlines should not be seen as an activity that happens only once, but before and after the sourcing event. Also, as these types of conversations involve a lot of responsibilities on both sides, showing a polite and calm demeanor often eases the interaction by reducing the weight of the whole process.
In essence, to get better results when negotiating rates with airlines, it’s fundamental to do your research in the pre-negotiation phase, when you get to know the airline’s strengths and weaknesses and travelers’ preferences. This might sound easy, but it can demand a lot of effort, depending on how business trips impact your company’s budget. The more they take up your budget, the more information you need to gather, as you’ll want to obtain the most complete picture of the company’s context on business travel that you can. Also, never forget to have an effective travel policy and constantly update it as your airline vendors change over time!