McKinsey & Co. global airline program manager Prashanth Kuchibhotla submitted the following guest column that lends his vantage point as a travel buyer to a recent McKinsey article on airline sales, discounting practices and corporate relationships.
"You are negotiating with airlines and telling them their discounts may be diluting revenue," a colleague observed after he read a recent McKinsey article, entitled "Trying To Boost Corporate Travel Sales?"
We do not see it that way. The approach to airline corporate dealing should be a partnership and not a win/lose adversarial relationship. Airlines give value through discounts and services to the corporation, and in return get incremental revenue. Unless both sides gain, it's not sustainable in the long term. Corporations are ill-served if there isn't a profitable airline industry that can grow and invest in routes and products corporate travelers find useful.
The five questions we suggested airlines executives ask themselves, with possible solutions, are:
- Do corporate deals dilute value? We argue for a data-driven approach that identifies value in every discount that's given, and then adjust them as needed.
- Are airlines over-relying on discounts? We recommended tailoring discounts and value-added services to each customer depending on need.
- Do your sales representatives spend most of their time creating their own market and customer insight reports? We promote investment in a "single source of truth" to enable salespeople to spend more time with clients and not be mired in data collection and report creation.
- Are star employees looking elsewhere for better growth and career opportunities? Proper hiring practices combined with the right incentives and training are important to attract and retain the best talent.
- Do you coordinate offerings to corporate travelers jointly across all airline departments, such as revenue management, network, customer experience and distribution, etc.? It is important to break down the silos between various departments that all touch the corporate traveler to build a comprehensive and compelling corporate value proposition.
Of these, questions three, four and five are clearly positive for travel buyers: We all want fewer data arguments, responsive sales partners and to have other airline departments focus on how their actions impact the corporate traveler.
How do travel procurement managers address questions one and two?
Be prepared. You need to know your travel patterns, usage, performance and savings value inside-out. It is essential to get timely fine-grain data from your travel management company and invest in doing the analytics, or outsource to the right people. Here are questions to ask yourself and discuss with airline partners.
- How much incremental value are you delivering? Be prepared to show what incremental value the corporate is delivering; the comparison is not share vs. the airline's Quality Service Index (QSI) but also actual share delivered vs. the share the airline would have received in the absence of a deal (less than QSI.)
- Where are you delivering value? This requires analytics by route (especially on competitive ones) and cabin. All incremental share is not created equal. Focus on competitive markets, new routes and even time of year. (Helping fill the back of the plane in winter to Chicago is a big plus.) A high-yield customer with 30 percent share can be more valuable than another customer giving 50 percent share, even if both deliver the same revenue, as the high-yield customer is using fewer seats which the airline can sell to others.
- Why are you not meeting your goals? There are many reasons goals are missed and, in many cases, it is due to things happening at the airline and in a competitive marketplace. Your travelers may be booking away from a particular airline due to schedule and/or unreliability. Or competition is putting fares in the market that the airline is not matching.
Demand full transparency from the airline on what you are delivering: all revenue, not just base fares, but also fees and surcharges that go to the airline, including fuel and other surcharges, global distribution fees, sustainable aviation fuel fees, etc. Any revenue metric must include all these components.
Beyond Discounts, Value-Added Services
If the airline is not offering a discount level you want, look for value in other parts of the offer that make life on the road easier for your travelers. Historically, these were an afterthought in negotiations, with certain numbers of elite cards and lounge passes thrown in to deals.
What services do you want for your travelers and for some specific subsets like executives and road warriors? In negotiations be prepared to understand non-price components your company and travelers value and put them on the table as part of the overall package you are looking for.
Many airlines have corporate priority programs that protect corporate travelers when things inevitably go awry: They prioritize your travelers in case of cancellations, protect against downgrades, provide free seat assignments and even help executives with tight connections.
For specific subsets, your preference should be for a pot of "money" you can use towards a menu of services like elite cards, upgrades, waivers and favors, etc.
Corporate Travel Is Critical
Despite frequent predictions about the death of business travel due to the latest technological evolution and/or the end of globalization, commerce and travel have always been interlinked since the times of the Silk Road.
Personal human interactions have always driven the world and commerce. The evolution to new, fast and cheap travel modes have been instrumental in making these happen.
Air travel is often the most efficient means of travel for business, and events of the past two years have shown its value when it has gone missing.
For a successful airline, corporates have been and will continue to be critical to profitability. They need each other.