Contract agreements: 3 things you can do to prepare for supplier negotiations
Are you a travel buyer preparing to negotiate contracts with suppliers? Here are three tips for working with airlines, car rental companies, and hotels:
1. Low air fares and rising ancillary costs mean buyers need data
Negotiating with airlines is a complex challenge for many reasons, including uncertain fuel prices, thin profit margins, and lack of transparency around buyer needs. Each of these challenges is further complicated by new fare types that don’t qualify for discounts and by the fact that airlines are increasingly monetizing perks that were once free.
Today, a lot of airline revenue is generated from ancillary services - anything that isn't airfare. According to research from CarTrawler, airline ancillary revenue grew 22 percent between 2016 and 2017. In many cases, discount airlines generate almost as much revenue from seat assignments, checked bags and online fees than they do from ticket sales. And when fares are low, negotiations can be difficult.
Working with a TMC, travel buyers can negotiate better fares by utilizing relevant data about their own travel program. When properly armed with benchmarking data, buyers can come to the negotiating table with an accurate forecast of their travel volume for upcoming quarters. As such, they may be able to secure better rates from suppliers, assuming travellers regularly comply with the travel policy. If airlines won't budge on already low fares, buyers can look at leveraging the same information to negotiate soft dollar funds that can be put towards the cost of change fees and value added amenities.
2. Vehicle rental negotiations, like all vendor negotiations, require solid relationships
No matter the size of your business, relationship management is the key to car rental negotiations. Suppliers are more likely to offer discounted rates and value-added bonuses to buyers who can guarantee they will direct a large volume of their business to them.
Buyers should consider focusing on the costs that, over the long term, can add up. For example, rather than focusing on individual rental prices, buyers can negotiate for lower airport and ancillary fees, lower one-way drop fees, better points accrual rates for loyalty programs or status match if moving travellers from one supplier to another. Likewise, understanding the pricing structure used by your suppliers will help you identify opportunities for savings. For instance, location surcharges, mileage charges and licensing fees could increase the overall price of each transaction.
Nurturing the relationship with vehicle suppliers is important because it builds trust. Although the modern negotiation process is digital in nature, people skills still play an important role. Travel managers must be able to meet with suppliers halfway, then develop the relationship over time to effectively manage vehicle rental budgets.
3. RFP processes depend on program transparency
Hotel spend can be a large slice of a company's travel budget. High travel costs have created a negotiating environment that is dominated by the request for proposal (RFP) process. The RFP is a common negotiating tactic. It gives stakeholders time to manage the vast amounts of data required of the process.
If your organization utilizes an RFP process, it's important to identify which costs are most important to your travel program. But if you don't have data to back up your requests, suppliers aren't likely to concede. If the organization cannot guarantee a significant volume of travellers, it may be able to take advantage of preferred rates and discount programs through a travel management company.
Buyers often get bogged down in a position they cannot support. It would be pointless, for example, to negotiate for discounts on hotel meals if the company does not know what percentage of their travellers actually eat at the hotel. Buyers must have data to support their demands, or they aren't likely to walk away from the table with much success.
Similarly, buyers with negotiated Last Room Availability rates get to buy rooms at their contracted terms, even when the room is the last available. Those without an LRA agreement do not have that right; the hotel can charge whatever price it deems acceptable.
RFP isn't the only option for negotiating hotel rates, but it is one of the most common. Alternatives, such as long-term service-level agreements, utilize ongoing metric tracking to avoid negotiations when they aren't necessary. Negotiations don't reset to zero just because another year has passed. Instead, buyers instigate negotiations only when business needs change significantly. This metrics-driven approach to negotiations requires a keen eye for market trends and access to sophisticated analytics.
To learn more about how to optimize travel supplier negotiations at your company, schedule a complimentary consultation with Vision Travel today.