THE KNOWLEDGE 3 step-by-step guide
How to...
NEGOTIATE WITH AIRLINE ALLIANCES
Follow this step by step guide to ensure you are well prepared for airline negotiations and realistic over the type of contracts you should consider, and the discounts on offer
I
n the third quarter of 2009, the travel industry shifted from a buyers’ to a sellers’ market. In some markets the economy is showing signs of recovery; however, other
markets continue managing the effects. Within the airline industry, the procurement
negotiation position has adversely been affected by factors such as increased consolidation through mergers, alliances, acquisitions and joint ventures, in addition to reductions in capacity and cutbacks on many low yield routes designed to drive up fares. Prior to the formation of the first alliances in
1997, there were many individual airlines battling for market share. The published airfares offered were highly inflated, which combined to produce very high artificial discounts. With the advent of the alliances – oneworld, Sky Team and Star Alliance, now representing 54 member airlines – the battle for market share became more focused. They promised less complexity, harmonised discounts and targets. In theory, companies
Mark O’Brien
Partner & Director, TCG Consulting
Mark has worked in the European business travel
industry for 24 years and held director level positions at leading TMCs prior to joining TCG
Consulting as a partner in 2010. He has a breadth of
experience across the European, Asia
Pacifi c and North American markets. Mark specialises in corporate travel strategy, global
travel services and assessment, travel payment and
expense integration, and agency, airline and car rental sourcing.
could achieve increased discounts by leveraging the additional spend within a consolidated agreement. The reality is that their competitiveness has decreased, discounts are lower than expected, and there remains a significant amount of inconsistency in discounts and targets. Many of the individual carriers within the alliances lack anti-trust immunity and remain fierce competitors behind the scenes.
be possible. Joint venture airlines enjoy anti- trust immunity and often share costs and revenue on any given route. It can often mean that the airline negotiation may be less painful. JVs are largely an 'all in' proposition where it is no longer possible to negotiate with individual JV airlines in markets where they both operate.
STEP 2
Benchmark your airline programme with peer groups and companies that have a similar footprint in terms of markets, policy and travel patterns. The airline pricing market is fluid, and with continued uncertainty on oil prices and stability in certain markets, it is essential that you establish an appropriate benchmark in order to enter a successful negotiation.
"Many of the individual carriers within the alliances lack anti-trust immunity and remain fi erce competitors behind the scenes"
Related events in other parts of the industry
have begun to have an impact on the alliances. In June 2008, a number of airlines agreed to settlements over cargo price fixing allegations. In 2010, a European Commission investigation resulted in numerous fines. Due to these events, the alliances came under increased scrutiny by the lawyers representing the member airlines. The result is that airlines outside of the
immunised joint ventures cannot harmonise pricing and targets. Airlines are not able to see each other’s pricing and often have to leave the room during presentations. So where does this leave the buyer when it comes to negotiations?
STEP 1
Understand your airline mix as to whether an alliance or joint venture contract offers the greatest benefit to your organisation. An alliance agreement can offer leverage that might not be achievable without it. For example, a spend of £75k out of India would not attract an individual airline; however, by using the alliance as leverage, a discount may
STEP 3
Understand the dynamics of corporate discounting. So many buyers are asked this question by senior management: “Why, given the millions we spend with a particular airline, are we not getting a better discount?” It’s a question that cannot be answered out of context. You will need to know your spend relative to other companies’ spend on the same airline. What is the yield on that business to the airline? How much business is the airline getting relative to expected share? How competitive are the markets? What’s the potential and do you have control? Beware of benchmarking that does not take into account context and the fact that discounts will vary significantly from market to market.
STEP 4
Allow sufficient time for preparation before issuing an airline RFP (up to three months) as this will allow you to meet the airlines and explain your process prior to the RFP. If you are working with an alliance, get the alliance representative on your side, as only they will know the whole picture compared to the individual airlines due to anti-trust concerns. In the future, you may find there will be explicit representation from the alliances in your key negotiations.
12 THE BUSINESS TRAVEL MAGAZINE
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