Making sense of the new world of business travel pricing
Something has happened to travel pricing lately. Complexity is being driven in to the system, so that the average traveller or travel manager is finding it increasingly difficult to know whether they are really getting the best deal. So what can you do?
Everyone who has booked with an airline recently knows there is a huge difference between the price of a ticket and the cost of a flight.
We regularly hear from Travel Managers who are increasingly frustrated that their carefully negotiated room rates are more expensive that some of the prices available on standard online dynamic pricing sites.
It’s hard to make sense of the big picture. Hard to compare rates with any sense of clarity or assuredness. And almost impossible to review historical information about the variety of available rates at the time of booking.
The Great Unbundling
One is left asking: in whose best interest is all this obfuscation?
Michael O’Leary, CEO of Ryanair, recently announced that his airline’s average fare fell to just €33 in the third quarter of 2016-17. But what happens to that figure when we take into account all the ancillary costs – the fees for priority boarding, extra legroom, advance seat selection, payment fees, food, drink, and Wi-Fi?
A study by IdeaWorks and Cartrawler in 2015 showed that ancillaries account for 24.6% of Ryanair’s total revenues.
Ryanair isn’t alone in this. Wizz Air’s sales of ancillaries amounts to 33.7% of its total revenues. Globally, ancillary pricing is thought to be worth $60bn per year to the airline industry.
Identifying these ancillary costs and accounting for them properly in order to draw proper comparisons and negotiate the appropriate deals can be a difficult and time-consuming job for travel managers.
These internal costs for the additional time and effort required to process expense claims and collate information need to be added to the equation as well.
Dynamic Pricing Adds Further Complexity
Dynamic pricing models are adding further complexity to the system. As airlines monitor and change their fares in response to sales, conditions, and events, the notion of a “standard” fare becomes a fairytale.
Increasingly, hotels are shifting to this kind of dynamic pricing model too – not only undermining the process of negotiating rates for the large corporates, but making it nigh on impossible to audit the best available rates to ensure that negotiated rates are, in fact, the best deal available. Not only that, but it is unclear whether negotiated rates are being applied correctly.
Recent research by the Global Business Travel Association (GBTA) found that 11% of the paid prices analysed were higher than the negotiated rate that should have been applied. When rate discrepancies are found, companies are paying an average of 14 percent more than negotiated.
The dynamic pricing strategies of suppliers is forcing buyers to take a more ad-hoc approach to travel purchasing. This ad-hoc approach makes forecasting difficult.
And, even on those occasions when dynamic pricing works to the benefit of companies, when the time and effort required to identify the best rates is factored in it is difficult for companies to see they are getting a better deal.
How can Travel Managers Respond?
Earlier GBTA research has highlighted the benefits of working through a Travel Management company that can respond to dynamic pricing more effectively and conduct the necessary audits for their clients.
“Across the board, we found that Travel Managers understand that the benefits of long-term travel savings far outweigh the upfront costs of having a Travel Management Company,” said Joseph Bates, GBTA Foundation’s vice president of research. “By using TMCs, businesses have a partner that brings valuable experience and leverage with suppliers to the table.”
The benefits of a Travel Management company are more pronounced if negotiated rates continue to be undermined and fall from favour. And this seems to be what is happening.
The Institute of Travel Management (ITM) found that only 64% of travel buyers were planning to undertake an RFP process with hotel companies in 2017. The figure was even lower for air travel – just 20% of companies were planning to undertake a full RFP process with airlines in 2017.
A New Way Forward
Travel Counsellors has dedicated business travel experts who are able to assist businesses make sense of this new world of travel pricing.
As well as negotiating our own highly competitive rates with major travel companies, airlines and hoteliers, our Travel Counsellors bring their years of experience to bear to help identify the best routes, rates, and options for any travel requirement.
Our personal service model is unlike other Travel Management companies – enabling our clients to build deep, personal relationships with their own Travel Counsellor and providing a more tailored service built to match the business’s unique needs.
Backed up with innovative technology like our travellers’ app and detailed systems for reporting and auditing, plus 24/7 support to ensure you can respond quickly to travel alerts and changing events to ensure minimum travel disruption and maximum security for your travellers, and there are more reasons for using Travel Counsellors than simple cost management.
But improved cost management is a good place to start.
Give us a call on +44 (0) 161 464 5350 or fill in the form below and let us call you back.