While small and midsize enterprises have never been the belle of the ball for airlines, they are finding a lot more dancing partners these days, and some are even willing to teach a few new steps.
Although they do not provide the sheer volume of revenue that the largest accounts provide airlines, SME business remains an attractive target. Corporate business of any size generally includes more premium-class travel and is bought within a smaller booking window than leisure travel, so SMEs can be lucrative partners for airlines. Today’s SME also could be tomorrow’s Fortune 500 company, and airlines would benefit from developing relationships in those formative years.
American Airlines, for example, has been building its corporate business share over the past several quarters, and in the carrier’s most recent earnings call, president Robert Isom noted that SME account acquisitions had accelerated.
The general spend threshold for corporate airline contracts, however, has not really changed. Corporate buyers still need at least a few hundred thousand dollars’ worth of annual business to offer in order to get a foot in the door. That is within the realm of possibility for many companies on the SME spectrum, and some airlines have put special programs in place for them.
Delta, for example, developed a midmarket program for companies that spend at least $300,000 or more each year. The program targets midmarket companies in growth mode. Those companies get upfront discounts that get larger the more employees fly Delta and its partners, and it also gives those companies reporting, sales representative support and Delta’s Operational Performance Commitment, in which the carrier compensates companies should it fall behind both of its primary competitors in terms of delays, cancellations and mishandled baggage for a full calendar year, according to a Delta spokesperson.
Some programs for specific SME corporate travel needs have smaller thresholds. United Airlines has its PassPlus program, a prepaid offering in which companies can get upfront discounts on tickets bought through the prepaid account. And last year, United set the minimum for the program to $50,000 for five travelers, each traveler spending at least $10,000.
Carriers Continue to Add SME Programs
For companies with spending levels below those thresholds, an alternative strategy is required, even in the face of an increasingly complicated fare landscape.
“A spot-buying approach, using best available fares, often augmented by travel management company negotiated rates and corporate mileage programs, can be effective for many midsized clients,” American Express Global Business Travel wrote in its 2018 corporate travel forecast. “Such an approach sees many companies opting for the ‘lowest logical fare.’ This means guiding travelers into the lowest fares based on their choice of carriers, a flexible time window and possibly even alternate airports. The unbundling of services, from meals to baggage to Wi-Fi, creates a challenge for buyers to guide people into the fares that represent the best value.”
That doesn’t mean SMEs that do not have airline contracts cannot have preferred airlines, particularly if they use those corporate mileage and other SME-focused airline programs. These are available from carriers of all sizes, including many that do not engage in much corporate contracted business at all.
Southwest Airlines, for example, told BTN it has been conducting a “more SME-targeted media strategy” for its Swabiz online business tool. In particular, Southwest has been targeting SME customers through social media and is “investing in strategic partnerships in the business travel industry with an emphasis on the SME customer relationship,” according to a Southwest spokesperson. The spokesperson could not elaborate.
These programs tend to incentivize both travelers and travel buyers. JetBlue’s Blue Inc. tool for SMEs, for example, rewards enrolled travelers with six TrueBlue points per dollar spent—the companies themselves earn three points per dollar—to build compliance.
SME program opportunities have expanded around the world in recent years. Singapore Airlines, for example, last summer launched a rewards program in which companies earn five points in its KrisFlyer program per dollar spent on travel booked via the carrier’s corporate booking platform. This summer, SAS is morphing its SAS Credits offering into SAS for Business, in which travel buyers will earn as much as 10 percent of a flight’s cost back in credits toward another flight.
Such programs also offer reporting for buyers and usually have no minimum threshold to join.
Spot-Buying in an Unbundling World
Airlines unbundling amenities from fares is nothing new. This month marks 10 years since Delta became the first U.S. legacy carrier to introduce a fee for the first checked bag. The recent proliferation of basic economy fees, now appearing not just on domestic routes but also on transatlantic routes has added another wrinkle to spot-buying.
Unlike bag fees, which go direct to the bottom line, many of the restrictions that come with basic economy fares impact travelers more: low boarding priority and no seat selection, for example. Some, such as no cancellations or changes and not allowing travelers to use overhead space, can add costs directly to travel programs, too.
SMEs also have to contend with the growth of third-party channel booking fees. All three of the major European carriers now issue surcharges on bookings made through global distribution systems, though certain TMCs have negotiated to bypass that fee.
At the same time, airline adoption of the International Air Transport Association’s New Distribution Capability communication standard is on the rise. As it stands to change the ways airlines are able to present content and offers to corporate travel buyers, some SME buyers already are lining up to see whether it could benefit their travel programs, American Airlines SVP of global sales and distribution Alison Taylor said at the recent Association of Corporate Travel Executive’s conference in New York.
After American, which has said it will not impose a GDS surcharge but instead is offering incentives for those who work with it on NDC, hosted a summit on NDC last summer, 250 customers have expressed interest in working directly with American on NDC, Taylor said. That includes several agencies and TMCs but also some SME corporate travel buyers, she said.
“We haven’t written to them. We haven’t done marketing to them,” Taylor said. “It’s come because they want to move quickly and want to be able to manage with their corporate management they have in place for their program [with] access to everything we have at AA.com.”
She said that interest is coming from clients all around the world, particularly Latin America.
- Most air contracts require a few hundred thousand dollars of business annually.
- For those still below those thresholds, spot-buying, travel management company negotiated rates and corporate mileage programs can be effective.
- And some airlines are incentivizing SME travelers to use corporate booking tools.
- Meanwhile, SMEs may find a friend in NDC once the indus-try assimilates it further.
What is NDC?
New Distribution Capability is an XML-based data transmission standard launched by the International Air Transport Association. It’s designed to improve communication between airlines and both agents and travelers. Unlike pre-XML distribution methods, NDC provides a standard for transmitting rich content, such as pictures and video, for delivering tailored fare offerings based on who is shopping for and distributing ancillary airline products in a more modern way. This “allows airlines to become a retailer in the more traditional sense” and also provides third-party sellers a standard to sell airline content, according to Airlines Reporting Corp. president and CEO Mike Premo.
How does adoption work?
IATA has designated three levels of NDC adoption. Level 1 involves only the sale of ancillaries post-booking. Level 2 involves shopping both fares and ancillaries. Level 3 involves end-to-end management, from shopping to fulfillment.
Is NDC synonymous with direct connect?
No. While it provides a set of standards for those who wish to go that route, travel management companies, global distribution systems and other third parties also are participating.
Who is using NDC?
IATA lists more than 100 companies in its NDC registry. About half are airlines and half are airline sellers, aggregators and technology providers. Considering there are more than 800 airlines in the world, that remains a small percentage.
How does NDC benefit corporate travel buyers?
NDC is a method for airlines to replicate direct channel capabilities on TMC, GDS and other corporate booking channels, American Airlines SVP of global sales and distribution Alison Taylor said. For buyers, it also provides an opportunity to deliver negotiated fare bundles specific to their travelers’ needs. “Right now, travelers are not having the same kind of experience in corporate channels as they are in the consumer world,” Microsoft global travel sourcing manager Diane Lundeen Smith said. “It will be fantastic once it’s evolved for our travelers.”
This is all new to me. Am I hopelessly behind?
Not at all. Premo expects 2018 to be a tipping point for NDC awareness, so you are in good company. In a few years, it could be a different picture. Taylor hopes to have 50 percent of corporate customers using NDC by 2020, though “it is up to them, not to us.” IATA gives its “longer-term vision” for mass adoption as 2025. For now, however, a lot remains to sort out. “We believe it will change everything about the industry and bring a lot of new aspects to the RFP, but not at the moment,” Turkish Airlines regional corporate sales manager Omer Sirka said. So far in the RFP, NDC has not come up, so we are getting the education and need to try to understand more.”