The MacNair Travel Leadership Blog

How to Navigate Complex Supplier Pricing

Posted by Mike MacNair on Apr 5, 2016 12:00:00 PM

How to Navigate Complex Supplier PricingThe corporate travel supplier relationship is an essential piece of your business’ corporate travel management program. Without their expertise and knowledge of travel options and best practices, your travel program would be in chaos, creating increased travel anarchy and wasted productivity from travelling employees working to book travel without proper guidance.

Increases in hotel and airfare rates, combined with additional ancillary fees sometimes “hidden” within the supplier’s overall travel costs, presents a challenge for your organization’s finance department and procurement specialists. The negotiation and management of the corporate supplier relationship is complex; yet taking the time to learn about the options available for your business travelers will decrease travel spend, increase overall travel compliance and provide predictability in managing the ever-changing travel and entertainment (T&E) line item within your business.

Reasons for Complex Supplier Pricing

Within the corporate travel management business, it seems as though there is a constant tug-of-war going on between what your travelers want and expect while travelling, and what travel solutions best meet the needs of your business. Travelers may have a certain comfort level with an airline carrier that isn’t in your business’ top list of vendors; a specific hotel chain provides your business with deep discounts, yet travelers provide feedback stating that a competitor is offering them an even better price. Ultimately, travel vendors want to secure your traveler’s business and ensuing loyalty by offering pricing and perks that best meet their needs, not necessarily the needs of your business.

The largest spend within your overall travel budget is airfare expense. Airlines present a myriad of complexity that leads to challenging and time-consuming negotiations with multiple vendors. Yet navigating through the complexities and developing a solid relationship with vendors will allow you to obtain the absolute best price. What makes airline pricing so complex?

  • Airfare is constantly changing based on actual and forecasted demand, and competition. National and global travel is increasing, and with that the demand for flights. Smaller carriers are taking advantage of increased demand as well. Competition, demand and airline profitability needs result in a constantly changing rate structure that wreaks havoc for your T&E line item.
  • Airlines use multiple tactics to entice travelers to spend even more money with them. Loyalty programs create incentives for travelers to stay with their personally-preferred carrier versus the business-preferred carrier. Extra earned mileage and status upgrades motivate employees to purchase potentially higher-priced tickets.
  • Perceived “comfort” item fees and other ancillary fees are included within airline ticket pricing, preventing full pricing transparency. Priority boarding, preferred seating and security lines, in-flight upgrades and extra frequent flyer miles are positioned as part of the full ticket price, and are not transparent to the SME buyer.

Adding to this complexity is the availability of pricing information across multiple channels such as airline websites, online agencies and tour operators. Accessibility to this information can provide a sense of empowerment to your road warriors, but does not account for hard-earned negotiated discounts with your business’ travel vendors.

Supplier pricing approach and what to look out for

Travel suppliers are earning record profits because of increased corporate travel. Even with relatively flat increases in airfare, the 2016 Global Travel Price Outlook states that “Ancillary fees remain a growing source of revenue, representing 6.7% of global airline revenue in 2014.” Airlines are earning these profits from your travelers, increasing your overall travel spend, yet your travel manager and/or finance department may not even realize this trend because of the complex way airlines price their tickets.

To mitigate the potential for your travelers to ignore your travel policy compliance and in turn, jeopardize supplier negotiations, pay attention to the following:

  • Travelers consistently taking the same airlines and/or flights in markets with significant competition
  • After-the-sale charges from airlines, hotels and rental car agencies
  • Expense reports turned in well after the purchase (an automated travel and expense reporting solution would virtually eliminate this possibility)
  • Purchases from airline web sites

It’s critical that you consistently track and manage your road warriors’ compliance or non-compliance to your business’ travel policy. As you assess policy compliance, gather feedback from your travelers on their travel tendencies and/or reaction to special offers from travel vendors, so you can accurately obtain the critical information needed to navigate the complexities that come with supplier negotiation.

Tips for analyzing and negotiating supplier pricing

The complexities that are inherent with supplier negotiations can be effectively managed to create the most cost-effective and well-rounded option for your business and your road warriors. The following tips will help you successfully navigate this important relationship.

  • Understand your business’ travel needs.

Before your take to the phones, be sure to understand the travel needs of your business and your travelers. It’s important to consider pricing, but additional items like seat or suite upgrades, maximum travel times and class of service requirements, for example, allow some negotiating power while keeping business and traveler needs in mind.

  • Spot check airfares as close to the time of purchase as possible.

Checking airfare options at or around purchase will help you effectively analyze if your SME is getting the best value from airlines, providing pricing comparison data.

  • Use benchmarked data to analyze price.

Information on pricing trends is available through your travel management company (TMC) or online through web sites like Topaz International. Utilizing this data will provide insight into best pricing practices.

  • Ask for documentation on after-sale purchases to include the service purchased.

When analyzing purchase receipts, be sure your travel vendors provide accurate information regarding after-sale purchases. This will provide a more realistic view of the full services purchased. 

  • Ask for documentation on the initial sale that will include an “up-sells.”

To accurately assess price, it’s important to know the possible options that your business and/or travelling employees will have to spend additional dollars. This documentation will add to the full matrix of potential expenses and in turn help with analyzing supplier price.

After you’ve gained a good understanding of what price(s) to expect, you’re ready to begin the negotiation process with your travel suppliers. The following tips will enable more effective negotiation to help you get the absolute best prices.

  • Start with who you know.

If there are vendors that you’ve already worked with somewhat consistently, speak to them first. Their knowledge of your business and established relationship will be advantageous to you in reaching the best price for services.

  • Take advantage of airline SME programs to gain data and benefits.

Programs like American Airlines Business Extras and United Perks Plus cater specifically to SME’s looking to control their travel spend. Research and enroll in the program that best fits your business’ travel needs, paying close attention to the offered travel discounts. Communicate these benefits to your road warriors and then track which “perks” are used most often by your travelers. This collected data can then be used for future negotiation.

  • Identify key markets by travel volume and spend.

Are there areas that your road warriors travel to on a regular basis? Is there a certain time of the year that requires a higher volume of travel? Through accurate data assessment, this information (and much more) can be vetted, analyzed and used to effectively negotiate supplier price. Data collection and utilization regarding travel spend can significantly reduce your T&E budget line item.

  • Learn what can and cannot be negotiated by partnering with a TMC.

A TMC can provide invaluable information and advice regarding the complexities of and best practices regarding supplier pricing. Businesses who work with a TMC realize a 10-20% savings in their overall travel and entertainment expense.

Navigating through the complexities of supplier pricing, while challenging, can create a significant reduction in your T&E expenses. Balancing the needs of your travelling employees with the best budget options for your business will provide travel policy compliance, control over budget and ensure overall travel spend savings.

Do you have advice on how to navigate through the complexities of gaining the best price from your travel suppliers? Please share your comments below.

For additional information on reducing overall travel costs, download Taming Travel Costs with a Fare and Fee Approach or give us a call.

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Topics: T&E, Fare and Fee