What is the future for ... airline corporate sales?

Discounted deals negotiated with airlines have occupied the heart of corporate travel cost-saving strategies for decades. But are both sides losing interest as distribution and revenue management technologies evolve?
Written on 01.03.2015, 00:00
What is the future for ... airline corporate sales?

Like travel management companies, booking tools and other institutions discussed in this “What is the future for ...?” series of articles, airline corporate sales teams have become the subject of much grumbling by travel buyers. They complain the salespeople assigned to them waste time promoting trivial issues like in-flight catering or seat comfort, yet often fail to do the job they should be doing: negotiating corporate agreements.

Buyers are frustrated because they believe airline sales departments no longer have any power to determine pricing. But it’s not just a question of personnel. At the heart of the issue is the implication that the negotiated corporate deal itself has become irrelevant. What are the cases for the prosecution and defence?

Case for the prosecution

Airline sales personnel are not empowered to negotiate or take decisions
Travel managers say salespeople have become little more than messengers between corporate clients and the airline’s revenue management department, which is where the real power lies. Unless a deal’s proposed pricing  follows a rigidly defined structure, the sales manager has to refer all calculations and decision-making “upstairs” to revenue management.

Corporate deals do not correspond to clients’ real booking patterns
Airlines have a fixed, unimaginative conception of what a deal should look like, regardless of whether it works for the client or really brings the carrier itself any business. Airlines often seem to work on an ill-defined assumption that the deal will buy it loyalty from the customer, while at the same time refusing to look at total spend.

In particular, carriers often have a blind spot about tickets in the lowest, least flexible booking classes. Travellers often book these classes if they are cheaper than discounted corporate fares, yet airlines usually refuse to recognise the spend as part of the agreement or even as contributing towards the customer’s overall loyalty to the carrier.

Revenue and corporate sales strategies are misaligned
Taking the last two points together, travel buyers believe airlines have become less interested in corporate client relationships, claiming carriers frequently undermine their own negotiated fares by posting lower fares online. It is hard to compel travellers to use preferred suppliers when they can find cheaper tickets elsewhere.

New distribution methods will weaken corporate sales further
Airlines are planning to target individual travellers much more directly in future. One example, but not the only one, is the International Air Transport Association’s New Distribution Capability. NDC will allow carriers to create sales offers that are customised according to what they know about the traveller. As a result, there could be even more of a swing from one-size-fits-all agreements to unique price quotes for each journey. However, corporate clients will resist this change because they worry about lack of transparency, not only of their costs but also for duty of care traveller tracking reasons.

Case for the defence

Deals remain vital for some clients
The relevance of negotiated deals depends to a large extent on whether the client is a heavy user of flexible tickets. If it has many travellers who book at short notice, frequently change their departure time or fly at peak hours, they are not able to book the cheapest fares available. The higher prices these customers pay are very profitable for airlines, which means they are prepared to negotiate discounts in return.

Airlines are evolving their deals
Some airlines say they do recognise the reality that corporate travellers book heavily discounted fare classes and are re-shaping their deals to reflect this reality.

There is more to the relationship than price
Even if airline deals become less significant in future, airlines and their corporate clients will want to maintain relationships with each other. Issues like arranging soft benefits (such as lounge access), handling VIP passengers and dealing with customer problems remain important. That is why low-cost carriers which normally give small or zero corporate discounts, such as easyJet, Norwegian and even Ryanair, have built corporate sales teams over the past couple of years. Ironically, travel buyers complain that full-service airlines have cut back on this kind of relationship maintenance, leading to gaps in customer care.

The TravelpoolEurope perspective – The jury is undecided ...
There is still enough demand for corporate deals to make negotiated agreements (and airline sales teams) valid for the foreseeable future. But the long-term future is less clear. The way airlines sell seats could look very different by 2020 and the future of the corporate agreement could depend on whether it avoids being out-muscled by personalised distribution.