New low fare classes are tempting, but what’s the value proposition for corporate travelers?
Low cost carriers have driven legacy airlines to offer cut-rate, cut-service bargain basement fares to stay competitive, but its only more recently that these Basic Economy and HBO (hand baggage only) fares have made something of a dent on corporate travel programs.
The main complaint from travel managers about these basic fares is they distort the fares that offer the best value for the business traveler. Not always is the lowest fare really the cheapest fare these days, after you add in amenities like baggage fees, assignable seats, etc. But when business travelers see the fares out there online, they often think they can beat their travel program’s deal by booking direct.
Matthew Patterson, vice president of client relationship management at BCD Travel’s consulting group, Advito, says most of its corporate clients block these fares in their booking tools as corporate travel requires a certain level of flexibility, and these fares create more issues for travelers vs. the savings provided by them. The net result of the trade-off between fare savings and incremental ancillary fees is not clear to most companies.
“It is very difficult to communicate all of the rules associated with these fares (i.e. luggage or seat assignment not included), which then causes extra charges, and added stress and frustration for the corporate traveler,” he says. “Many times these fares do not allow accrual of loyalty points, which is also a key driver for corporate travelers.”
Jeffrey Berk, CEO of Tripkicks, says the rise in popularity of these fares has complicated matters for corporate travel programs – and the complexity will likely continue as the impact of NDC trickles down to more corporate programs.
“Many corporations will actually block the basic economy fares in the online booking tool,” he says. “These baseline fares often have restrictions that don’t fit well with many business travelers. If a traveler selects it, and adds additional elements to that ticket later on, it can actually cost more than the standard fare. As a result, I think many corporations would rather avoid that potential impact, and hide them altogether.”
The downside of that is when travelers do occasionally make it known to their travel managers that they have “found a lower fare” outside of the program, it’s often the basic economy option advertised on a leisure site and not exactly an apples to apples comparison.Unbundle of Joy?
The airlines claim these fares are all about choice and unbundling fees so travelers can pick which services they want to buy. Corporate travel managers argue that since bundling is part and parcel of getting a better deal, when you add in the luggage fees and amenities like lounge access, loyalty status and upgrades, it still makes more sense to shy away from these basic fare programs.
Hank Benedetti, vice president strategic account sales for American Airlines, says it’s the company’s goal to provide fare options for every type of customer – ranging from its lowest-priced options to an exclusive premium experience every step of the way.
“We work closely with our corporate customers and travel managers to determine their needs as well,” he says. “That includes proactive discussions about whether to display basic economy fares for a particular company or group of travelers. We understand that business needs vary, and some companies want and need to offer the most basic fare levels while others may value certain product attributes that could reflect displaying a different set of fares.”
Anders Lindstrom, a spokesperson for Norwegian Air, says there’s a distinct definition between low cost airlines and ultra-low cost airlines, but they are too often lumped into one.
Norwegian, he says is a low-cost airline, similar to JetBlue in the US, which offers highly competitive fares where the customer gets to choose and pay for the service they wish, but with a low fare, high quality approach.
“For business travelers, and travel managers, Norwegian’s offering is a part of the evolution of today’s travel trends, where value-for-money is key, along with flexibility,” Lindstrom says. “Corporate offers are negotiated case-by-case with agencies and available on Norwegian’s corporate website.”
Neil Hammond, a partner with Gold Spring Consulting, says the industry has experienced what he calls the “JetBlue” effect, which has resulted in airlines trying to compete more in the marketplace with lower fares, which has been a major reason behind these kind of fares.
“There used to be a lot of restrictions with legacy airlines – like you must have a Saturday night stay – but those have now been abandoned for the most part as they try to compete with these low-cost carriers,” he says. “You have the really, really low cost carriers like Frontier and Sprint and then the next level with Southwest and JetBlue.”
Many of these basic economy fares, Hammond says, are terrible for the business traveler and most corporate programs will avoid these because they know there are just too many headaches.
“The satisfaction level associated with those type of fares is not high,” he says. “What a corporation can do to get extra value with these type of fares is to make deals for leniency in ticket changes, status matches and corporate recognition for being early boarders.”Defining Lowest Logical Fare
A significant percentage of companies use the LLA (lowest logical airfare) approach in their policies. This states that within certain parameters (i.e. within a certain timeframe of the requested flight time), the traveler is expected to fly on the airline that offers the lowest fare, regardless of the traveler’s preference. There are variances as to how companies define LLA.
“Some require the traveler to connect even when there are non-stops available, if the savings are above a certain amount and the added travel time is below a certain time,” Patterson says. “Others use only the departure time window as the parameter (i.e. all flights within x hours of the requested flight schedule, but the same service type (non-stop or single connect). Furthermore, most companies have an allowable dollar amount which allows the traveler to choose whatever airline they want as long as the chosen itinerary is within x dollars of the true LLA.”
Lowest logical airfare has positives and negatives. Patterson notes the positive side is that companies are trying to drive the best possible buying behavior from their travelers. Also, LLA in its purest form should drive the most aggressive pricing from the carriers – the best discounts should drive traveler buying behavior.
“The downside to this is that inventory availability is never equal among carriers, so an aggressive discount on one carrier could still drive a higher price than the competitor, if the competitor has more inventory available,” he says. “Furthermore, the thresholds/ allowances that many companies have put in place allow the traveler to choose higher-priced airfare because it still falls within the acceptable price range.”
Many business travelers value their time more than any other attribute, and the lowest logical fare concept emphasizes comparing fares by similar en-route times, ultimately prioritizing shortest travel time with lowest cost to travel.
“With the large size of American’s network, we can provide a vast number of seats and routing options at the lowest possible price,” Benedetti says. “Of course, price is just one element of the equation, and we will always work to understand the specific needs in each case to provide the best solution for each customer.”
Berk believes the industry will see changes in how companies think about the LLA, particularly as airlines and NDC bundle the price of a trip much more than the ticket itself.
“While it’s better to have a lowest logical fare than not have one, the challenge is that each traveler and each trip is different,” he says. “Sometimes there is flexibility and sometimes there isn’t. Many companies track compliance to the LLA, but lack the proper follow-through on violators, making it less valuable as a compliance driver.”
Still, as Hammond says, the reason a company has a managed travel program is to manage the costs, so it must define the lowest logical airfare and set a level that you wish to impose or avoid for your travelers.Finding Value
Ultimately, the traveler wants to arrive at their destination on-time, without any service interruptions, and feel safe along the way. Airlines that present a professional product with attentive, happy employees and timely arrivals and departures should succeed in this space.
“While the concept of basic economy has simply introduced a new level of choice for customers, it remains a choice,” Benedetti says. “We want to work with each corporate buyer to create a program that fits with their individual culture and organizational needs. Once we understand the goals our clients are trying to achieve, we work to construct a program that fits their goals.”
At Norwegian, negotiated corporate fares can include priority boarding, fast track security, seat reservation, checked-in luggage and meals on long-haul flights, all bundled together at a competitive rate.
“Our fare bundles are customizable and can include perks that are typically not offered to the general consumer,” Lindstrom says. “Each corporate package is tailored to the needs of the company, which empowers the travel manager to get the best value for the money.”
The best corporate air programs have the ability to drive share to their preferred suppliers, while at the same time providing an efficient and enjoyable process for travelers starting at time of booking and ending when the trip actually ends.
It’s important that a corporate air program be positioned to make the value proposition clear, both for travelers and for the company management. “Companies are now using marketing and retailing strategies to guide their travelers in making the best buying behaviors,” Patterson says. “Concepts like price anchoring, social proof, product placement and merchandising are proving extremely valuable for corporate travel managers as they communicate out to their user base and drive compliance to policy and preferred suppliers – and of course savings.”
Berk says if a company program allows basic economy fares or no frills tickets from low cost carriers, they need to make sure they are clearly communicating the differences to their travelers.
“If a traveler were to book one of these fares without being aware of the restrictions, it can lead to a negative experience, and can be a detriment to the corporate program, OBT, or even the airline itself,” he says.
Many travel managers will try to negotiate the ancillary charges as part of their corporate programs. At a minimum, they’ll often have “soft dollar programs,” where they earn points or credit with the airlines that can be used to offset some of those purchases.
“Ancillaries will play an even bigger role in the ‘post-NDC’ environment as airlines and OBTs (as distribution channels) bring about even more options to consider when purchasing a ticket,” Berk says. “While smaller organizations tend to enroll in the standard airline programs and will continue to do so, larger organizations will see a rise in the complexity of airline negotiations, due to increased options and permutations of what can be included in a ticket.”