Creative contracting drives savings in tough environment
Travel buyers worldwide are facing an incredibly challenging airline negotiating environment, as increased demand and limited supply offer suppliers a significant advantage. As predicted, airlines have been conservative about increasing capacity even as travel levels increase, enabling them to command higher fares in many markets. Rising fuel prices since the beginning of this year have prompted additional fare hikes in the form of rate increases and fuel surcharges (see “Turbulent 2011 produces higher-than-expected airfares”), in addition to ancillary fees, all of which further increase the total price paid for an airline ticket.
Despite the challenges, CWT client successes prove there are still innovative strategies that can drive incremental savings. Following are a few recent success stories, with additional considerations and recommendations to help readers consider whether similar strategies could work for their programs.
Shifting volume may shift supplier thinking
One French automotive industry client adopted a lowest logical airfare policy to manage against continually downgraded discount levels and inflexible contracting from its preferred airline, which had been enjoying 60% of the client’s total air volume. Before ending the preferred relationship, the client had tried unsuccessfully for several years to convince the carrier to offer all preferred pricing via upfront discounts off of published rates, so the fares looked competitive to travelers and were easier for them to understand and support. The carrier had insisted on maintaining a split between upfront discounts and back-end rebates, which ensured the client met their market share agreements in order to receive some of the contractual benefits.