Technology and COVID-19 are conspiring to transform the connection between corporate travel and airlines
By Kathryn B. Creedy
COVID-19 has profoundly changed the relationship between travel management companies and vendors, but it was only part of an evolution already underway wrought by increasing technology and the move to dynamic pricing. In particular, airlines have honed their technology to be more dynamic in scheduling and pegging their pricing to how much one is willing to pay, putting travel programs on defensive.
In response, travel managers and their travel management companies need to automate the sticky issues they face with their airline partners, adopting technologies to dynamically manage contracts outside the RFP cycle. And while TMC adoption is still in its infancy, these technologies signal a very different future.
“Technology plays a big role,” explains Robyn Grassanovits, vice president of travel products and emerging business at Cirium. “Now, more than ever, airlines need technology to help them surface insights that will help them make more informed decisions, help them evolve and react quickly.”
As Dan Pirnat, founder and principal consultant at Data Insights Inc., explains it, “COVID required airlines to become more dynamic, changing networks, swapping out equipment and rerouting to leisure destinations. Buyers are now taking that same approach. They can use 2019 as a starting point but those contractual mechanisms to automatically trigger changes to buyer volume and footprint, airline capacity and route networks will require active management and amendments as necessary.”
Pirnat emphasizes the importance of embedding mechanisms into the contract to adjust for actual volume and capacity over time. He says these mechanisms and active management will help TMCs manage future vendor relations, especially in downturns.
“You can forget the old way of airline contracting,” he continued. “Moving forward you will see contracts being actively managed, optimizing them to ensure they meet the financial and business travel needs as underlying travel footprint and route networks dynamically change. Contract and travel management will be on a week-to-week and month-to-month basis.”
Data Insights Inc. offers a tool to help travel managers automate the process of monitoring the millions of combinations of city pairs over time and alert them to critical issues of pricing, capacity and changing networks.
At Cirium, the next generation of travel management tools builds on the company’s comprehensive aviation database, according to Grassanovits. “Cirium has introduced a suite of corporate travel management tools – in Nexavia – incorporating all required customer data, automate contract activation, and manage contract performance, all in one platform.”
Advito has developed a new tool to accurately forecast volume on specific routes and which airlines are flying those routes. “Managers are very much aware of messy networks, but their goal is still to ensure they have coverage needed,” said vice president of air practices Olivier Benoit. “They are not focusing on total networks but the top markets for their businesses when they ramp up.”
Indeed, the complexities of airline networks have driven much of the technology, according to Patrick Edmond, chief commercial officer at Air Black Box, an interlining solutions provider. “The management of contracts will be dependent upon individual company needs and the inventory available from the airlines,” he explains. “Airlines have significantly trimmed back their route networks and parked fleets. Instead of relying solely on historical data to do their route planning, they are incorporating a hybrid approach which will undoubtedly affect travel contract management.”
Credit Where Credit’s Due Part of the COVID-related change is coming from what many believe to be the airlines’ cavalier treatment of refunds and credits from unused tickets worldwide. The International Air Transport Association did a tally of unused tickets and concluded airlines are holding $35 billion in refunds. In a normal year, only 5 percent of bookings go unused, says Magnatech director of sales and strategic partnerships Scott Millar. However in 2020, Millar says, it was 80 percent to 90 percent.
Magnatech Travel Management Solutions is a technology provider that gives travel managers instant visibility on unused tickets and expiration dates. “Our ability to track unused tickets helped TMCs see their internal inefficiencies and the need to automate,” Millar says.
“Airlines were changing rules which had to be incorporated into reservations. Our business travel clients were able to use that information to apply those credits. They can immediately show the airline the historical data, the annual travel spend, the amount of business and the actual open credit. Airlines don’t like the fact it is trackable, but the nature of this business requires it,” Millar explains.
“We do know that a large number of unused tickets are set to expire this year and into early 2022,” Grassanovits says. “Corporations’ ability to use all unused tickets prior to their expiration is proving to be an issue for many companies, some of which can still hold hundreds of thousands of dollars of unused ticket value, but have yet to return to non-essential travel. Then there is the added pressure of trying to maximize the value of the unused tickets because, for many airlines, any residual amount will be forfeited.”
Grassanovits recounts how one travel manager kept one of her travelers from applying an unused ticket worth $5,000 toward the purchase of a $250 ticket. If the manager hadn’t intervened, her company would have forfeited the remaining $4,750.
“The airlines' tactic aggressively pushes credits/vouchers, not refunds,” warns Business Travel Coalition chair Kevin Mitchell. “Some airlines are endeavoring to tie credits to individual travelers. Travel managers and TMCs, at a minimum, will seek to negotiate no-expiration credits applicable to all company-wide travel. Other travel managers will continue to push for refunds. Likewise, the home countries of US airline alliance partners, like Canada, may successfully force US airlines to refund their citizens' unused ticket purchases.”
Indeed the flood of unused tickets is proving to be a flashpoint for consumers and governments alike. Senators Edward J. Markey (D-Mass.) and Richard Blumenthal (D-Conn.) sent letters to the top 10 US airlines demanding they process the $10 billion owed to consumers. More recently, the two criticized the industry’s “inadequate response” to concerns about eliminating expiration dates for all pandemic-related flight credits.
Whether airlines will prevail is unclear given the technology available to track problems travel managers have with vendors. As a result, Pirnat says these funds are already coming into play. “Negotiations will factor in unused tickets into pricing negotiations and seek the maximum values moving forward,” he predicts.
“While it is possible that we could also see further extensions to unused tickets, I would recommend that any corporate travel manager holding a lot of unused tickets create a plan based upon the current expiration dates,” Grassanovits said.
Sky High? As travel buyers plan for tapping into the pool of unused tickets, reports about higher fares are also beginning to emerge. But that begs the question – increasing from what? COVID prices? Pre-pandemic? “Fares do not seem to be rising too high,” says Grassanovits. “While fares have increased since 2020, they are still not back to 2019 levels. That said, our economy needs healthy airlines, so I view the increase in fares as a positive sign that we are starting to turn the corner. I should also note that in terms of capacity, the June and July capacity for domestic US flight schedules is only 12.4 percent lower than it was in 2019.” Airlines are also changing revenue management pricing logic, according to Benoit. “It is playing a major role for suppliers to get back to profitability,” he says. “There is no one global trend so we need to look at it by market, region and routes. Travel managers need to make a deep dive into their top markets before making any assumptions on fares.”
But Mitchell notes, competition may balance what is happening. “All four large US airlines seek to secure their fair share of expected soon-to-be reinstated corporate, university and government travel budgets. Southwest Airlines telegraphed it will be very aggressive going after corporate contracts. So competition for business travelers should secure satisfactory agreements with the assistance of TMCs.”
Change in the Air In all the post-pandemic muddle, Pirnat says he sees further opportunities for travel management companies. “TMCs can become more advisory, rather than transactional, in serving their travelers,” he predicts. “Advisory capacity is where the value is. It shifts the dynamic from administrative to strategic. The industry is more complex so TMCs can help clients navigate that complexity and be more strategic in optimizing their travel spend.”
Most see business travel returning in the fall, and growing more robust through the first quarter of 2022. This certainly reflects industry surveys showing 64 percent planning to travel within 12 months. Given the pent-up demand for domestic travel, that is likely conservative. However some corporations are seeing a risk. “Right now, companies are seeing a return to travel as a liability issue since COVID is still out there,” said Millar.
“Cirium conducted a survey recently in the US which interestingly revealed that of the respondents who expected to travel less following the pandemic, more than half cited concerns about personal safety,” Grassanovits notes. “Other factors also included cost of travel and flexibility moving forward. Meanwhile 15 percent expressed their interest to reduce their environmental footprint. This highlights three key areas for airlines, TMCs and corporate buyers to consider in the ‘new traveler’ – their health and safety; the cost and flexibility of their travel; the environmental impact of their trip.”
The same Cirium study shows only 22 percent expected to travel beyond their borders this year, leaving international travel as the industry’s big IF. No matter how much the travel industry lobbies governments to harmonize testing and vaccination rules, the outcome for global travel is beyond the industry’s control. “Rebounds will be dependent upon the country,” said Edmond. “COVID travel restrictions will continue to play a large part. That is evidenced even within regions of certain countries.”
For Grassanovits, the antidote to the upheaval is a continued willingness to be accommodating – on everyone’s part. “I think flexibility will be entering a lot of negotiations moving forward and is certainly top of mind for every traveler before they hit the ‘purchase’ button,” she says. “A key consideration now is in regard to the health of people and paying attention to symptoms of illness before boarding a plane. The industry will need to be more vigilant moving forward because of COVID-19. This fact requires ongoing willingness of the airlines to waive fare rules, and an airline’s ability to be flexible is a key driver in influencing purchase decisions.”
Travelers have also been forcing change because they want more control. “The key point here is what kind of control and what level,” says Grassanovits. “As we emerge from the pandemic, one thing we are seeing happen is corporate travel managers stating that they are now less likely to be flexible with travelers going direct and booking with unapproved channels due to uncertainty of changing landscapes of borders. In some cases, re-entry restrictions could change mid-trip and subsequently impact travelers’ ability to get home. With all the chaos that occurred at the onset of borders closing, travelers see a lot of value in knowing that someone has their back when things go awry.”
Benoit indicated what travelers are actually pushing is something quite different and pre-dates COVID. “The last five years travelers have been moving away from thousands of rules and the punitive, mandatory, bureaucratic approach, and now corporations favor keeping the travel policy simple.”