Successful Airline Contract Negotiation
While the sheer size of the clients’ airline spends is important, many other factors play into a successful airline negotiation. Unlike other spend categories within an organization, buying leverage doesn’t come from how much money is spent with a particular vendor alone.
Given the limited number of choices a traveler has between any two cities, time, route connections, and personal loyalty programs, airlines take into account both spend profile and market penetration when considering how it engages a client.
For example, a company that spends 90% of its total $5 million in air spend on Delta Airlines originating in Atlanta should expect Delta’s negotiating position to be very strong. The simple reasoning is that given Delta’s footprint in the Atlanta market as its primary hub means that the vast majority of these travelers will fly Delta despite any incentive or discount.
Spend Profile and Market Penetration in Airline Partnerships
However, if the other 10% of this client’s spend profile is in a city where Delta doesn’t possess a stronghold, then Delta will not only be very interested to negotiate on that 10% if the client will contractually obligate itself to using Delta for at least a portion of that spend and will “bend” on some of that air travel originating in Atlanta as an additional incentive.
Preferred airline negotiations are dependent on:
- Spend profile
- City pairs flown
- Client’s ability to move market share from one carrier to another
What Is The Best Way to Manage Airline Travel Negotiations?
With this basic understanding in mind, managing through airline negotiations can become more complex. The industry’s newest booking standard called NDC (New Distribution Capability) provides travelers better visibility into fare class and amenity options than through standard corporate online booking resources.
Utilizing this standard today requires the traveler to conduct more shopping including directly on a supplier website but it does help put negotiating power in the hands of the travel program because by using this booking option, the airline partner gets to bypass costly fees incurred by travel agencies and third-party intermediaries. The result may be cost savings. A prudent client will want to understand the relative value of any proposed discount found through traditional sources versus buying directly on a supplier website.
In support of this KesselRun utilizes best in class benchmarking resources to help our clients make prudent buying decisions. Finally, with recent changes to airline distribution and the way airlines are thinking about how to better engage directly the traveler, airlines are considering creative ways to add value to their corporate relationships. More creative incentive and discount programs can be negotiated by supporting airline sustainable airline fuel programs, for example. Booking some airline reservations directly with the airline and committing travelers to airline loyalty programs also provide leverage when considering how best to optimize a company’s overall preferred program.
Kesselrun Can Help with Airline Negotiation
KesselRun has been working with corporate clients, travel agencies, and airlines for 20 years across companies of virtually every size from every industry. If you’d like more information, we are here to help. If you have questions or need help with your business travel program, contact us online.
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