COVER STORY: Effective negotiations
Work your way to better deals
By Wrisney Tan
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Seeking out the best value for money need not always result in a win-lose situation. BTN ASIA-PACIFIC reporters ask the wheelers and dealers how corporate travel managers can make it a win-win for all.
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Want better airline deals? Do your homework thoroughly. This is the advice of experts in travel management, who cannot stress it enough.
They feel poor planning is the most common mistake clients make that prevents them from getting better deals than they should.
American Express (Amex) head of consulting services, Japan, Asia-Pacific and Australia, Mr Robert Tesdesco, said: “Poor planning and preparation are the biggest failings of most corporations.
“This may lead to things such as the failure to collect, clean and consolidate data, failure to incorporate shifts in travel patterns or frequencies, failure to measure the impact of their decision on their organisation or dictated supplier conditions through the absence of negotiation objectives and the inability to measure the difference between competitive supplier offerings.”
TQ3 Travel Solutions senior vice-president, Asia and Middle East, Mr Bicky Carlra, said: “Common mistakes include the lack of proper planning and the lack of concrete and timely analysis.
“The contract negotiation game has become very oriented around numerical analysis.
“A lack of information on the client side is easily detected by the airline and smaller discounts normally result.
“On their own, client groups have attempted to combine their volume in a bid to get better deals. They have had limited success as this is not a method that interests airlines a lot.”
Role of TMCs
Although contracts are signed between airline and client, travel management companies (TMCs) can play a crucial role to help corporations gain better deals by helping them understand the negotiation process.
Mr Tesdesco said: “The most tried-and-tested method of negotiation strategy is to drive fact-based negotiations. This means understanding your BATNA (best alternative to negotiated agreement) and ZOPA (zone of possible agreement) in each negotiation.
“It also means understanding every aspect of your suppliers’ business and how your organisation can impact it, what is the potential effect for each behavioural change you may recommend, your organisational capacity and ability to alter travel behaviour.
“Other considerations include the total cost of ownership of each of your supply options and effectively and efficiently planning out the negotiation process and allotting enough time to gather the information you need to be successful in negotiations...The vast majority fail to do this or scratch the surface by assessing deal benchmarks or reviewing only pricing dimensions.”
Mr Carlra added: “More and more airlines are tying performance to reward. They are becoming less and less willing to grant discounts without receiving increases in their share in return.
“They are more likely to cancel deals if they do not see improvement. In order to create realistic win-win situations, potential scenarios are created by combining the airport pair demand of the client with the route structure offerings of the airlines to formulate preferred airline combinations with a manageable level of competition within the preferred airline group.
“The client plays a crucial role. We can assist in the process by compiling the necessary input, preparing and managing the request for proposal process, completing the analysis and participating in the negotiation meetings, but the client must be seen as buying into the process and showing a willingness to enable the change needed within the company to perform and achieve the stated goals of the final negotiated contracts.”
Contrary to popular belief, TMCs do not agree negotiating with airline alliances will yield better deals.
Volume is key
Arena Travel Management manager corporate sales, Ms May Ng, said: “Negotiating with airline alliances seldom gets you better deals than negotiating with the airlines individually. The reason is because all airlines will want to protect their own interests and through the alliances there is no guarantee they will get the volume even when deals are good because the alliance represents so many other airlines and customers don’t always use all of them.”
Mr Carlra said: “We have found that going directly to an individual airline will at times result in slightly better deals.
“This is because there are normally only a small number of airlines within a given alliance which will be the main benefactors in a given client’s airline programme.
“In certain cases, where there are a number of airlines which offer service in the airport pairs required, an alliance-based contract may be preferred because of the ease of contract management, frequency of schedule offered and consistency of fares.”
The minimum annual volume required before airlines will consider cutting a deal varies, but according to Mr Tesdesco, it is US$50,000 for Singapore Airlines, US$200,000 for British Airways and US$60,000 for Cathay Pacific. He added: “There is no penalty.
“The airlines will just terminate their deals with the clients if they don’t meet the minimum requirement travel volume.”
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