Negotiating with Airlines – Do’s And Don’ts

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Booking the lowest or best value fare is only the tip of the iceberg when it comes to managing your spend with airlines. Short-term savings must be balanced against long-term value, especially when dealing with high volumes of bookings. Often, the best long-term strategy is to set up preferred partner arrangements with airlines, where you offer a guaranteed share of your air spend to a particular supplier in return for preferential prices.

To make that partnership a success on both sides, you need to understand how the airline industry fundamentally works, what challenges you may encounter and how to deliver what your airline partner needs most on terms that suit you best.

These do’s and don’ts, gathered from years of experience in the airline sector, provide an introduction to successful airline partnerships. We hope you find them useful.

Airline revenue management

Just like food, theater tickets and cut flowers, airline seats are a perishable commodity. If seats aren’t sold when the airplane takes off, their value vanishes. So to get the best possible yield from each flight, airlines use a process of revenue management where seats are assigned codes or classes that maximise their highest potential yield.

The lower classes might be advance-booked seats with little flexibility, while higher classes may give the traveler more options, or be sold in peak travel seasons. The actual fares will vary from day to day or hour to hour as the departure date approaches. To sell as many higher value seats as possible, airlines use complex algorithms and cumulative data to plan and update their prices from first sale date right up to take-off time.

When going into partnership with airlines, it’s essential to understand the basics of how they price so you can get the most out of your travel budget and negotiate most effectively with your supplier. Your travel management company (TMC) has in-depth understanding of revenue management processes and can really help you and your procurement department to gain insight here.

Understanding airline fare classes

Airline revenue management is complex. So, for those not familiar with how it all works, fare or booking classes are entirely different from cabin classes (which are the level of service you will receive on the airline).

Airline classes differ by carrier, but the breakdown of fare classes for a large European carrier looks something like the table to the right – you can see that each cabin class has its own list of fare classes. For example:

Class of service                   Booking class


First                                      F A P


Business                              J C D Z I R


Premium Economy           W E


Economy                              Y B M U H Q V W S T L K O N


Each fare has different rules attached to it that include what days (and sometimes times or months) you’re allowed to travel, how it can be combined with other fares on a multi-leg journey, and a deadline for purchasing it, e.g. three weeks in advance.

Airline negotiation do’s…

Think local before you go global If you have a large air travel budget, you might think greater savings can be achieved by spending your budget with one partner to get one great rate. But in practice, it makes more sense to think bottom-up.

There may be local-level suppliers in very competitive markets who can offer you better deals dollar-for-dollar, even though your spend with them is a small proportion of your whole budget. When choosing who to do business with, consider local markets first, then move up to regional, pan-regional and global levels. Your smaller deals could add up to bigger overall savings.

Sell in the soft benefits If there’s not much wiggle-room on the fare discounting side of things, remember that negotiating on soft benefits like loyalty perks, upgrades, waivers and favors can all help to swing a deal.

Build strong relationships Once you’ve established the airline partnerships that work best for you, you’ll need to put continued effort into keeping those relationships strong. Remember that a partnership must go both ways – if things are going well for you right now, don’t be tempted to capitalise on that at your partner’s expense. When the tables are turned further down the road, you may find them doing the same to you.

Be transparent and flexible No matter how big the figures, negotiation always comes down to dealing with people. Being authentic and honest in your negotiations fosters trust, and if you’re willing to be open about what you can and can’t do, you’re more likely to find that your airline partner will return the favour, and help you out where they can. Credibility, supported by data and firm travel policies carries an intrinsic value.

Airline negotiation don’ts…

Put all your eggs in one basket It’s advice that has stood the test of time, and it definitely applies to your airline partnerships. Be pragmatic, be flexible, and be willing to spread your spend across secondary and tertiary suppliers if it gives you the best outcome and the best coverage overall. Remember – everyone wants your business, but some may be more willing to demonstrate it than others.

Overcommit or undersell If you’ve promised to commit a percentage of business you can’t fulfill, it’s better to be honest about it. Similarly, it’s unwise to miss out on opportunities by being over-cautious in your commitments. Keep on top of the data to make sure you have an accurate picture of what you have to offer your partners. Your account manager can help you gather the data and collate it so that you have the vital figures at your fingertips when it’s time to seal that all-important deal.

Browbeat or be browbeaten Remember, best-in-class discounts are earned by demonstrating that you can deliver on volume. If you have been unable to meet your volume commitments, don’t be tempted to use withholding your business as a bargaining chip – all it does is weaken the partnership and jeopardize the chance of good business in the future. Instead, adopt a collaborative, open approach to solving the problem together as partners.

Let paperwork slow you down In the airline business, things change fast. Legal processes on the other hand tend to be slow. Waiting for contracts to be drawn up or updated can mean costly delays and restrictions to business. As a result, many companies are moving towards ‘evergreen’ contracts, which set out the fundamental basis of the partnership while allowing you the flexibility to change terms based on mutual needs and opportunities in the shorter term. This frees you up to get the best value out of your partnership.

The value of your TMC

Travel management companies know the airline business inside out, and have industry connections that can help open doors that would otherwise be closed to you.

Many airlines lack the resources to make direct connections with all but the biggest businesses, but with your TMC acting as intermediary, you can reach out to airlines and make beneficial business relationships. Your TMC is your connection to an untapped world of potential airline partners

Monique Janmaat
http://www.atpi.com

Monique is Head of Group Supplier Relations for ATPI and based in the Schiphol-Rijk office in The Netherlands. She has a wealth of knowledge and industry experience, built up via a track record of over 25 years in the Travel Management business, where she has worked in various role from Account Management to Operations. The last 13 years within ATPI Monique has held responsibility for Group Supplier Relations.



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