Small and midsize corporate travel programs have proven lucrative for airline sales teams in recent years. Carriers have lowered the air spend thresholds by which SMEs become eligible for participation in the carriers' SME programs. They've also differentiated their offers for various program sizes. These changes, however, have not completely muscled out traditional negotiating tactics.
"Most of the time, we focus our energy and attention on the big guys, but the most dynamic segment, if you look at the airline sales report, is the SME segment," Advito VP and global air practice leader Olivier Benoit said. "SME spend is going to be far less significant in volume, but the market is driving growth and additional yield to airlines."
Airline programs for SMEs, mostly points-based rewards programs and prepaid ticketing program options, have been around for more than a decade. In more recent years, airlines have introduced upfront discounts across more tiers based on the volume a company is able to give to a carrier. This is closer to how airlines contract with larger programs, but the carriers' SME programs come in an evergreen format, sans RFP.
Those programs have been gaining significant traction. American Airlines SVP of global sales and distribution Alison Taylor said the carrier signed 24,000 new small business accounts in 2018. That's in addition to those joining the Business Extra loyalty and AirPass membership programs. Delta SVP of global sales Bob Somers said his carrier has 50,000 companies in its SME programs and is on track to grow that by another 10,000 this year.
United, which last year launched its new tiered Propel program to replace a former program that offered an across-the-board 2 percent discount, has seen "tremendous" year-over-year SME account growth, faster than the carrier's other corporate segments, and "strong growth versus the industry in the managed SME space" with Propel.
Gaining Value
Those numbers are why airlines develop these programs. No airline has large enough sales resources to handle individual negotiations for that number of companies. The SME programs have given airlines a way to connect with SMEs using minimal sales resources, Benoit said. The newer discount programs have served as bridges for airlines, keeping companies that have outgrown the prepaid programs but that don't yet qualify for full-blown contracts.
Airlines also have been lowering the threshold for prepaid programs, opening those up to smaller travel programs. United, for example, in 2017 lowered its threshold for its PassPlus program and, as it migrates the program into its Jetstream tool, likely will lower them further.
Points-based programs executed properly generally save travel buyers between 2 and 4 percent on airline spend, despite some airlines' claims that they can reach as high as 10 percent, Benoit said. A few such programs—those of Southwest Airlines, Finnair and Turkish Airlines, for example—tend to bring even greater savings, he said.
The newer programs, however, generally can bring upfront discounts between 3 percent and 5 percent with little or no commitment, GoldSpring Consulting partner Neil Hammond said. Benoit pegged the average at up to 6 percent. "There are contracts [for larger corporate travel programs] with commitments in there that yield less than those do," Hammond said.
What's more, airlines' SME programs give buyers access to many of the tools and benefits enjoyed by those under corporate contracts. At Delta, for example, SME program participants get access to the Delta Edge reporting tool and the global sales support center, as well as basic level Corporate Priority benefits for travelers, Delta VP of sales operations and development Kristen Shovlin said.
Increasingly, airlines' SME programs are becoming available via travel management companies, as well. "It's not just us going direct to the consumer," American's Taylor said. "We have allocated specialists towards TMCs and many other agents." Benoit said he has seen a shift in airline SME strategy vis-a-vis TMCs, from simply working with TMCs to enroll clients in SME programs to working with the TMCs to support the SME program, which enables the travel managers to incorporate them with policies like lowest logical airfare. "If [a traveler] wants to book a particular flight, then the TMC can look into the offering and others to compare and book the one that is the most attractive," he said. "It depends on what you negotiate with the TMC."
Airlines Reporting Corp. VP of innovation and analytics Scott Gillespie said making direct channel bookings more attractive for buyers could increase the value of carriers' programs for small and midsize enterprises. SME programs "are largely direct channels, but there are limitations: You don't get travel policy, you get very out-of-date authentication that the traveler is employed by that company, and a lot of the SME programs have not done anything remarkable on helping companies to track unused tickets."
But What of the RFP?
Given the savings airlines' SME programs can provide, one might wonder whether the traditional RFP still has relevance to the SME market. Many of the companies using the airline programs never would have gone to RFP in the first place, but the RFP still allows others to be more strategic. "The RFP is most relevant if you have a new program, if you're starting something up and have some volume," Informatica global travel manager Rick Wakida said. "If you're a smaller program and just started growing, you can start with the [carriers' SME loyalty points] programs and when you establish volumes and grow some more, you can get more of an upfront discount."
SME buyers first should take stock of their markets. Many SMEs operate out of one major market and point of sale, which means they will do business primarily with a single main carrier, Benoit said. As such, a company operating out of Germany likely would do best by participating in Lufthansa's SME program, he said.
Even when a travel program doesn't need an RFP for a primary carrier, RFPs are useful to fill in secondary markets, Wakida said. U.S.-based technology SMEs, for example, often travel a fair amount to India, and the company's primary domestic carrier might not cover that destination well. So an RFP to cover routes from the headquarters market to India might make sense, he said. RFPs also are effective in markets where more than one major carrier has a presence, such as Chicago, or if a company has a high percentage of premium class travel, as airlines will compete for those fares, which yield more revenue.
"When I was [a travel manager] at DocuSign, we had one market, San Francisco to Seattle, with a lot of competition, and we had a great contract," Wakida said. "But you couldn't contract with everybody. You have to make it fit into the broader traffic patterns."
Airlines have made it easier to mix and match programs, as well. United, for instance, in 2017 began allowing buyers to use its prepaid program, PassPlus, alongside a corporate contract. Companies no longer had to choose one or the other. Wakida said SMEs should aim to cover 60 percent or more of air volume with one to three carriers.
Airlines' SME programs should provide extra leverage during RFPs when an airline wants a particular company's business, GoldSpring's Hammond said. "In order for an airline to get [the client], they would have to offer even more," he said. If an airline's SME program would offer a 3 to 5 percent discount "for free," he said, it should offer 7 percent or 8 percent to land a contract with a travel program.
Measuring Pros & Cons
The RFP process, however, inevitably comes with a cost, so an SME must evaluate the savings it'd gain under a corporate contract to determine whether an RFP is worthwhile. "You've got to do a cost-benefit analysis, looking at the cost benefits of going through TMC negotiations or going alone," FairFly head of global marketing Chris Ulph said. "Having the data to look at these options gives you the idea of how many resources you need to put into negotiation."
SMEs that do not have the internal resources to do a full-blown RFP also can go the consultancy route, though that also requires a cost-benefit analysis. A company with $500,000 in air spend, for example, might save around $10,000 to $20,000 on the program via a consultant, so the company would weigh the cost of the consultant against that, Benoit said.
Like airlines, consultants also are starting to see value in SME clients. Advito, for example, has developed a straightforward offering for clients that have just one or two routes or points of sale. "Our traditional methodology and tools are too heavy for this segment," Benoit said. "The cost is too high and the return on investment is low, so we simplified the way to address the segment."
Some carriers have been simplifying their RFP processes, too. Shovlin said Delta has been working to make "it much more electronic and efficient." ARC's Gillespie said simplifying RFPs is a task for the airline industry overall, particularly because many SME programs are not managed by full-time travel managers. "It's incumbent on the quasi travel manager to recognize enough options and reasons to go through the cost and time of the RFP," he said. "That's probably more of an educational challenge for the airline industry, to help those travel managers understand that."