5 Barriers to Business Travel’s Recovery

It’s worth thinking about what’s going to stand in the way of demand for business trips. Yes, the Covid problem is a huge barrier, but it goes beyond that. I see five related barriers that our industry will have to reckon with. Here’s the short story on my LinkedIn page: https://bit.ly/5_Barriers_to_Business_Travel New connections are welcomed.

The longer, richer read follows. Fair warning – it is a sobering assessment.

1. Virtual Work

The more that work gets done virtually, the more that virtual meetings will eliminate demand for business travel. Pre-Covid, virtual meetings were a known alternative to traveling, but a clear downgrade in terms of interpersonal impact and, frankly for some, status. Many travelers and their managers were quick to decide “It’s better if we do this meeting in person.”

Post-Covid, managers up and down the ranks are forced to use virtual collaboration tools, like ’em or not. Guess what? They work. For a lot of meetings, across a lot of use cases, and for an awful lot of people. Today, managers are building up a comfort level with virtual work, and that means trouble for travel.

If employees don’t have to go to an office to get their work done, why would they need to travel to get their work done?

The Hourly Cost of Air Travel

Road warriors, by definition, do a lot of traveling. All their airline tickets add up to some pretty big expenses, as do the hours they spend inside airplanes.

Why not take those two pieces of data and show what it costs business folks to fly per hour? Let’s face it, talking about price per mile might be great for aviation pros, but it’s not great for briefing management about travel expenses.

ARC’s Definitive Data, Air Clarity’s Innovative Analysis

Air Clarity, my firm’s air spend benchmarking tool, crunched a few million airline tickets from ARC’s corporate ticket database to get the answers. Since ARC stores all travel agency tickets sold in the U.S. on most every airline (excluding Southwest and a few other low cost airlines), this data is as good as it gets.

Here’s what the price per flight hour looks like, based on the average hourly prices paid by roughly 2,100 corporate travel programs:

The quick answer: About $80 an hour for short haul (domestic) flights; about $110 an hour for long haul flights

Doesn’t that make for a much easier conversation about the cost of air travel?

For context, this study by American Express GBT, ARC and my firm found that the average road warrior earned about $80 an hour, assuming 2,000 work hours per year.

Travel managers, try talking to your business stakeholders about the price per hour of air travel, and see if that doesn’t make for more engaged discussions.

Custom Industry Peer Group Benchmarks

If you’re wondering what your company’s price per hour is, and how that compares to other firms in your industry, good news…tClara is organizing industry peer groups to help provide even better value from our Air Clarity benchmark data. Here are the groups we’re starting:

If you’re a travel manager interested in one of our industry peer groups, follow the group by signing up here…no cost, no obligation.

More information about Air Clarity’s benchmark reports for corporate travel managers, TMCs and airlines is here.

Some limitations and definitions around these price per hour  numbers:

GBT’s Non-GDS Charge Makes Sense

Buyers have a new distribution dilemma.

American Express GBT is phasing in a $10 surcharge for handling airline tickets from carriers who don’t use common industry channels for sales and settlement. (More coverage here, here and here.)

Think of this as the opposite of the €16 surcharge that Lufthansa Group is applying to tickets purchased via the traditional GDS/TMC channel. One happens if you buy in the GDS, the other happens if your LCC airline doesn’t play there.

Both of these surcharges annoy buyers. “What – you’re going to charge me more based on where I buy a ticket, or who I buy it from – that’s outrageous!”

In fact, it makes perfect sense.  Lufthansa and GBT make the same point – their costs to

Two Steps Closer to a 2-Channel Future

Travel managers, you’re gonna need a two-channel booking strategy.  Maybe not this year, but fairly soon in the scheme of corporate travel time.

The second shoe dropped last week, when The Company Dime broke the news (paywall, worth it) about airlines making complex trips (roughly anything not a simple one-way or round-trip) more expensive  – sometimes moderately, sometimes drastically more expensive.

Reliable sources estimate these complex trips to be anywhere from 7% to 16% of a corporate account’s transactions, depending on your definition and travel patterns.  Call it 10%  – that’s a significant chunk of bookings that are now at risk of much higher prices.

The cost-avoiding solution is to book each individual destination within the itinerary as

Hotel RFP Hell: Is the End at Hand?

Let’s agree that all our friends and colleagues who are in the midst of yet another grueling hotel RFP season should have our sympathies.

You’re dealing with big chunks of invisible hotel spend, crappy data on the visible spend, clunky RFP tools, tedious back-and-forth negotiations, last room availability promises that won’t be kept, and disgruntled hoteliers only too happy to poach your travelers with squatter rates that they’ll offer as long as it suits them. Ugh.

Oh, yes – you’re also facing one of the toughest negotiating environments in what, a decade? Ouch.

Speaking of decades, we know you’ve been putting up with this predictably stressful process year after year, for what, two or three decades?  Gag.

Hang in their, friends, for the future is much brighter.  I saw a glimpse of it at the Beat Live conference in D.C. last week.  But fair warning…you’ll need to grit your teeth and open your minds, as it’s not an easy pill to swallow.

Two pills, really.  The first is TRIPBAM; the second is dynamic pricing.  Here’s how they get you out of the hotel RFP desert:

Delta Makes On-time Bet; Leads on Total Cost of Travel

Remember when Delta capped commissions twenty years ago?  It shocked the industry. Transformed corporate travel programs into cost centers.   Re-wrote the buyer-TMC business model. Ushered in professional procurement practices. Overnight.  Wow.

Well, Delta has done it again.  Much less drama here, but with even more long-term  impact on our industry. For airlines, yes, but also hotels, ground transport and TMCs.  We all need to pay attention to this.

Why? Because Delta is forcing the quality question front and center into the travel procurement decision.

This is a big deal.  By guaranteeing that its on-time performance will be better than its two main rivals, Delta is making buyers factor in the quality of its operations as part of Delta’s value proposition.

Delta shows buyers the value of cancelled and delayed flights – and lets buyers set their own values.  The argument is sound and simple.  “Delta saves you this much over our two rivals by completing more flights.  That’s why we should get even more of your business.”

So now buyers also need to factor in the quality of Delta’s rivals.  On a very measurable metric.  That matters a lot to travelers. Which has been “free”, or at least unlinked to price. Or explain to management why this quality stuff  doesn’t matter.

I think this is the first clear and ever-so-practical step taken by a major travel supplier to get buyers to focus on the total cost of travel. Not just the up-front price paid, but a pretty big piece of the whole enchilada.

In effect, Delta is unbundling the price of on-time performance.  In a way that wins them friends, not enemies.  It’s brilliant, and I love it.

Measuring quality in each travel category is possible, but few buyers make much effort.  It’s much easier to assume (or pretend) that “they’re all the same”. That’s a classic procurement play.  It reinforces the commodity nature of the suppliers, leaving them little choice but to compete on price.

Now, the analytics behind any negotiation have to include the value of each airline’s quality.  Today,  the metric is system-wide performance.  Tomorrow, who knows which factors the industry will want to compete on?

Here’s the thing: putting quality into the procurement equation is like bringing a puppy home to your kids.  There is no way you’re ever going to take that puppy back.

That’s why this is such a big deal for the entire corporate travel industry.  Think of the consequences:

United and American now have to compete harder on this dimension of quality, and/or find other important quality factors which favor them.  They too will have to put some money on the line. And then there are Air France/KLM, British Airways and Lufthansa…hmmm.

Hey, what about hotels?  Quality matters there, too, right?  Maybe Marriott puts its average TripAdvisor rating up against Hyatt’s and Hilton’s…you can see how this will unfold.

More money at stake means more buyer bandwidth for linking quality to price.

I spoke about this very concept last week at GBTA’s Advanced Airline Sourcing session.  (NB: I had no advance knowledge about Delta’s on-time guarantee.)  In that session, I showed why buyers need to evaluate trip quality along with price, and how this could be done with the airline category.

Here’s the slide that shows how easy it is to link an airline’s price to quality:

The point is that we can readily link price and quality, and we should.  Only by rewarding suppliers who deliver higher value can we expect both buyers and suppliers to win in the long run.

For more information on linking price to quality, see this deck, slides 7-23. You’ll see why the total cost of travel is the key to true travel program optimization, and why these airline  prices are per hour, not per mile or kilometer. (Oh come on, let’s all admit it –  price per hour is a way better metric for non-airline folks.)

Delta, thank you for putting quality squarely into the procurement decision. That’s the kind of innovation we can all appreciate.

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Why Lufthansa Will Change Our Industry for the Better

Lufthansa Group announced a bold move to charge 16 euros for each ticket issued through a GDS.  Like any other unilateral cost increase,  it’s unwelcome. Travel managers are fuming; many of you seem really angry.

It reminds me of the withering challenges Continental took on back in the day when they forced corporate accounts to accept Prism’s contract monitoring as a condition for getting corporate discounts.

Today, contract monitoring is widely used because it benefits those buyers who meet their market share commitments.

So, deep breaths everyone.  Let’s consider the longer-term implications of Lufthansa’s unbundling the distribution value of the GDS channel.

First, this is another form of ancillary revenue for the airlines.  It just happens to be aimed at the travel manager, rather than the travelers.  Like travelers facing choices about fare families and other forms of bundled benefits, you travel managers have to decide if the GDS-bundled price is worth the value.

No doubt, there is real value in booking via the GDS/TMC channel.  Easy comparison shopping, immediate itinerary support from your TMC partner, and full data integration come right to mind.  The good news is that you still  have this well-oiled, high-value channel available to you.

Whether the GDS channel is worth 16 euros is your call. What used to be “free” is now out in the sunshine, where free markets can more easily decide its true value.  The debate needs to be about the price, and not Lufthansa’s right to charge it.

Now let’s imagine what may happen if other airlines adopt this same unbundling strategy, enough so that most travelers – leisure and business – have the same choice every time they want to buy a ticket on most any airline.

Will the leisure traveler place the same value on easy comparison shopping, TMC support, and data integration?  Of course not.  So all those leisure transactions will move to the lower cost, lower value channel of airline-direct booking, which is where most of them are anyway.

Guess what?  A big chunk of business travelers book just like leisure travelers.  They are price sensitive.  They book in advance.  They don’t change their travel plans.  And they don’t worry about needing a dedicated agent if something goes wrong.

Call these the commodity travelers of the business world.  They will naturally gravitate to the cheaper booking channel, removing a not-insignificant volume of transactions from the GDS engines.

All you travel managers in low-cost cultures will feel pressure to help them do this.  You’ll shift some of that pressure to the airlines, your TMC partners and other parties to bring you back the data you need from all those airline-direct bookings.

Those pipes will grow.  Maybe not great pipes, but good enough for the essential job of providing duty of care data and some purchase/policy information.  You’ll get by, and you’ll save some money by swimming in this cheaper distribution channel.

But with the GDSs losing notable volumes of their bread-and-butter transactions – the basic trips, no itinerary changes, no refunds or exchanges – their profit margins will take a hit.

The GDSs are left to handle the complex ticketing jobs on smaller volumes, and so will raise their fees to the airlines.  The airlines will respond by adjusting their GDS channel surcharge, until the market stabilizes in favor of the airlines.

Why will the airlines win?  Because GDSs set their prices to airlines in multi-year contracts, while the airlines can change their channel surcharge prices overnight.

But here’s the magic of free markets.  When all the airlines are charging GDS surcharges and reducing their distribution costs, they have to decide what to do with their new profits.

Well, we’re seeing this movie play out with traditional ancillary revenues.  Airlines are using those profits to fund new terminals, buy new planes, invest in the traveler experience…all good things for an industry criticized for treating passengers as an afterthought.

On an even more optimistic note, assume that the airline industry gets its fill of new terminals, new planes and happy travelers.  What then?  Will they be able to keep their fatter profit margins, or will the typical airline revenue management models takeover, and seek more volume by reducing fares?

I think that’s what will happen.  In the long run, these GDS surcharge revenues will get competed away in the form of lower airfares, until the airline profit margins are back to where they are now.

And don’t think this is all bad news for the GDSs.  This surcharge shock will give them every incentive to prove  – and improve – the value of their channel.  Look for significant upgrades in the way they commercialize their shopping assets, and  sell and service travel bookings. Amadeus’s new Exchange Relief product is a good example of this type of value-creating innovation.

On an even more optimistic note, what if this surcharge shock transformed the daisy chain of money being passed around this industry?  Wouldn’t it be great if everyone knew the costs of each step in the channel?  Even better, if they had choices about which steps to pay for?

Silver linings, folks…this will eventually be good for our industry.

GDS Surcharges: What’s A Fair Price?

Now that Lufthansa Group has announced its €16 surcharge for bookings made in the GDS channel, let’s tackle the fundamental issue it raises.

If the GDS channel offers a better value to corporate buyers, then what is  a fair price for using that channel?

Asked the other way, if booking directly on an airline’s website offers less value than the GDS channel, how much of a price incentive does the airline need to offer its customers?

Lufthansa has set that price at €16.  If the price were €1, the corporate travel industry would still be having a tizzy fit, but only on principle.  You couldn’t credibly claim that the benefits of booking in the GDS-TMC channel are not worth such a small amount.

Just to make this more debatable, assume that instead of setting a surcharge for bookings made in the GDS channel, an airline offered its corporate customers a €100 discount on all tickets booked directly via its website.

Of course the airline would see a huge take-up on that offer, because at that price, the disadvantages of the direct booking have been more than offset by the direct-channel incentive.

The point is that there must be a price at which the benefits of booking via the GDS channel matches the value received.

It is unfair to both the GDSs and the airlines to pretend otherwise.

So why shouldn’t an airline set a price and see what happens?  How else will the market really know what the true value is?

More coverage on this issue here, here, here and here.

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Air Sourcing Moves Out of the Slow Lane

The big bottleneck in airline sourcing projects is the time and cost of entering detailed airline contract terms.  That will soon change for the better.

Fayrnet, a product of Volaro, automates the loading of airline contracts into GDSs.

In speaking today with Patrick Healy, Volaro’s Director of Sales and Distribution, I discovered that this tool could  – and should – be easily adapted to handling corporate contracts and proposals from airlines.

Healy says it handles Category 25 and 35 fares (discounts off published fares, and fixed, aka flat, lane or zone fares, respectively).  The demo I saw quickly converted a typical Excel-based airline contract for dozens of fixed fares

Airline Sourcing One-Day Workshops

Any travel buyer interested in learning the most powerful and innovative methods for sourcing airlines should attend one of my workshops:

Airline Sourcing, Nov. 14th in Chicago

Airline Sourcing, Dec. 10th in Dallas

I’ll cover the basics, but then quickly head into deeper water – where buyers will learn how to maximize their leverage, regardless of their air spend. Key topics include:

• Scenario modeling
• Risk-reward mapping
• Why discount benchmarking is useless, and what’s better
• Discovering the gap between the offered and maximum rational discount
• Finding the 20% of your markets that will drive 80% of your savings
• Optimizing between trip cost and trip friction
• Predicting the impact of the AA-US merger on your 2014 air budget
• Procurement’s best and worst roles

These workshops are open to anyone, including airline sales managers.  Register via the GBTA website.

Everyone benefits from having a sophisticated, fact-based discussion about optimizing airline discounts. I look forward to seeing many of you there.