Buyers Right to be Crabby About LH’s Demands

Lufthansa (LH) has drawn a deep line in the corporate contracting sand this year. It is demanding financial clawbacks and access to detailed, perhaps unprecedented, corporate travel data in return for providing corporate discounted fares. More on this here.

Many buyers, big and small, take advantage of airlines by getting discounted airfares before ever delivering the promised volume or market shares. If those volumes are not delivered, the airline is the loser in the deal.  It’s natural for an airline to want to get its money back. A clawback calculates the un-earned savings and demands a post-hoc payback.

But clawbacks are a naive solution to this persistent problem. Why? Accountability and funding.  Accountability means figuring out which parts of a corporation can be shown to have caused the unmet goal, and the reasons.  And when you talk reasons, the availability issue jumps up with no easy resolution.

Then comes the bitter issue of funding. How is a corporate buyer going to allocate the costs of a clawback?  Travel managers don’t control travel budgets.  How are they going to go out and tax the right corporate parties to pay the bill?

These problems could be solved, but not easily.  Is there a better way?

Oh yes.  It’s called a stair-step discount.

The airline and the buyer agree to several levels (steps) of discounts tied to corresponding volumes or market shares.  An easy example might be 10% discount on fares for 50% share, 13% discount for 60% share, and 15% discount for 70% or more share (replace shares with equivalent volumes, as needed).

Review the buyer’s performance and adjust the discounted fares as often as practical, with the spirit of short-interval adjustments.  Perhaps quarterly, or even monthly.  The idea is to get the discounts more closely aligned with the share/volume that was delivered.

This method provides negotiated clarity and reduces contractual uncertainty.  While this route may add more administrative costs for frequent changes to the filed fares and discounts, so be it.

The alternative of forcing clawbacks down the buyers’ throats will leave a long-lasting sour taste in the mouths of the prized corporate customer base.

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