Small and
midsize enterprises have strengthened their negotiating position across most
supplier categories over the past year.
More than a third of buyers in Business Travel News'
SME survey said both their air and their car rental agreements have turned more
favorable over the past year. The vast majority of the rest said their
agreements at least were as favorable as the prior year, and only a handful
said pricing had worsened.
Lodging is a different story. While a quarter of buyers said
hotel pricing had improved year over year, 37 percent said it had gotten worse.
Opportunities exist across all categories, however. Even
without the volume of large corporate travel programs, SMEs remain attractive
prospects for travel suppliers, according to Olivier Benoit, senior director
and air practice area leader for BCD Travel consulting unit Advito.
"The SME segment has shown a double-digit growth rate
[in carriers' revenue] for the past 10 years," Benoit said, noting that
growth has ranged from 10 percent to more than 30 percent annually over that
period, while revenue growth across the
broader business travel industry has trended between negative-5 percent and 5
percent. "It is less volatile than a key account or a global account. It's
also more resilient in case of a global crisis because it's less exposed and
[less] concentrated on the global economy."
SMEs' potential growth remains a selling point, as well.
After all, today's startup could be tomorrow's Google, and suppliers know that
trusted partners could be taken along for the ride.
Even so, the desire to win SME business does not always
translate to investment from all categories of suppliers, said Yon Abad, senior
director of Carlson Wagonlit Travel's Solutions Group in the Americas. It's
still not uncommon for some suppliers to have one account manager with 200
clients, making careful strategy all the more important.
Airline Opportunities Remain
On paper, 2016 looks like it would have been a difficult
year for SMEs to find favorable pricing with airlines. American Airlines
completed its switchover of US Airways to American's reservations system last
October, after years of consolidation by U.S. airlines. The mergers continue
this year, pending approval of Alaska Airlines and Virgin America's union.
U.S. airlines are raking in record profits amid better cost
control and low fuel prices. Yet they still are struggling to gain traction
with fares in many markets, thanks to competition from low-cost carriers and
other carriers that are growing their networks.
Nearly half of buyers in BTN's survey negotiated with
airlines directly, and Abad said the general air spend threshold needed for
corporate travel buyers to get a foot in the door has not gone up amid
consolidation. Travel patterns and the company's service requirements—a high
business class volume versus economy class travel, for example—remain more
important than sheer volume for procuring those deals. "SMEs need to
provide something of interest to the airline in terms of yield," Abad
said. "If you are a company based in Houston [where the energy sector has
suffered] or have business on routes where they have seen strong decreases in
volume, chances are they'll be looking for more business."
When travel patterns allow it, low-cost and alternative
carriers still can provide a good value proposition for SMEs. Former DocuSign
global travel and card manager Rick Wakida found Alaska and Virgin America "a
little hungrier" to win SME business in San Francisco and Seattle.
And SME buyers have options outside of contracts, too.
DocuSign's volume was not sufficient to get Wakida even a conversation with
Delta Air Lines for a corporate contract, but he was able to get an agreement
with the Delta-Virgin Australia alliance. Virgin Australia's service matched
DocuSign's travel patterns, and travel buyers' agreements with carrier
alliances and joint ventures generally come with less of a volume requirement, albeit
also with less lucrative discounts, he said. "We had a legacy JV and were
able to contract with a couple of the low-cost carriers to fill the top markets
and some other markets," Wakida said. "For the rest, we had the
lowest published fare at the time of booking, but even the large programs have
a certain amount of that."
More SME buyers in BTN's survey, more than a quarter,
used small-business programs as their primary approach to savings for airlines
than for any other supplier category. In most cases, these programs center
around earning points and rewards for corporations. They draw buyers because
they generally are free, allow for simple online management and require no
changes in booking methods or extensive knowledge of airline pricing, Benoit
said.
Wakida said: "It should be a no-brainer. If you can't
get any type of agreement with a carrier that has an equity program, you should
be enrolled in that program. All the majors have them, and no company can
escape using the majors, so you might as well accrue points on them."
Still, using those points can be a challenge, he cautioned.
Some travelers, for example, might balk at being booked on rewards tickets, as
it prevents them from earning miles for their own frequent-flyer memberships.
As such, many SMEs look at ways to turn such programs into benefits and
incentives for employees: offering lounge access, buying flights for employee
prizes or even offering them as bereavement benefits, Wakida said.
An air supplier's SME program can save companies between 3
percent and 5 percent per year, Benoit said. Advito advises that administration
of such a program becomes worth it once a company reaches $50,000 in spend on
that carrier.
Hotels Raise Price of Entry
While hotels present the biggest pricing challenges for SME
buyers, they also form the supplier category with which buyers work the
closest. More than three-quarters of SME buyers negotiate directly with hotel
suppliers, according to BTN's SME survey. That's more than negotiate
directly with any other kind of supplier. Looking forward, those negotiations
could get even more challenging.
Hotels in the United States have been riding the wave of a
seller's market for several years, particularly in such cities as San
Francisco, where rates are rising quickly amid limited supply growth. At the
same time, mergers are ramping up, including InterContinental Hotels Group's
acquisition of Kimpton, Accor's acquisition of Fairmont and, biggest of all,
Marriott International's acquisition of Starwood. The latter could present a
different landscape for the formerly fragmented industry; in some major
markets, more than half the corporate-quality hotel supply could consolidate under
the united company's control, Abad said.
Even though those deals are not closed, many major hotel
brands are increasing the volume buyers need to spend to get pricing
agreements, he added. "The seller's market is here to stay, and rates are
going to increase, as they have in the past two years. Some destinations have a
very high threshold, and even though many companies do business in the region,
very few have access to corporate rates."
Wakida, whose results with hotels in the past negotiating
season ranged from "neutral to less favorable" than the year before,
has seen suppliers demand more spend in Paris and Dublin, in particular. Some
of the larger chains no longer were interested in negotiating for a room-night
volume as they had in previous years or would offer rates only without
last-room availability, he said. Boutique and independent hotels offer a way
around those obstacles, according to Wakida. "If you're a Sheraton, you
expect X amount of business to provide a negotiated rate, but for a boutique or
independent, hotel, the same amount of volume might make you one of their top
10 clients," he said. "That gives you more negotiating power."
Advito principal and vice president Bob Brindley said SMEs
should negotiate fixed rates at individual hotels where they have at least 100
room nights per year. Chainwide discounts can help SME buyers fill in
elsewhere. However, major global chains typically require $500,000 to more than
$1.5 million in annual spend for chainwide-deals, putting them out of reach for
many SME buyers. "In these cases, booking best-available rates through the
preferred travel management company is the best bet to obtain the best pricing
and receive a rebate of commissions that will partially offset the TMC expense,"
Brindley said.
Only 7 percent of buyers in the BTN survey said small-business
programs form their primary approach with hotels. Those programs are not as
prevalent within the hotel sector as they are on the air side, as hotels target
travelers through loyalty rewards programs and, more recently, by offering
benefits or discounts to loyalty program members who book direct, Brindley
said. Those discounts generally are less or equal to commissions available by
booking best available rates through TMC partners, he added.
There is one silver lining for SMEs in this persistent
seller's market, Abad said. Even buyers at the mercy of published hotel rates
can mitigate them via last-minute hotel deals from such apps as Hotel Tonight,
rate-shopping technology like tripBAM and, should policy permit, Airbnb. "There's
so much technology available at little to no cost, so from a management
perspective, we've never been in a better place to find savings," he said.
Car Rental Pricing Stagnant
At the end of 2015, car rental chief executives singled out
SMEs as an area where they thought they could push up pricing. Since, though,
they haven't gotten traction in rate hikes at all.
Despite industry consolidation over the past several years,
each of the three major car rental companies has kept its brands distinct, so
the industry remains competitive. The industry also still is trying to balance inventory
with demand, and until suppliers do, fleet saturation will continue to stifle
pricing growth.
And while car rental executives see ridesharing services
like Uber and Lyft more as competitors to taxis than to the car rental
industry, those services have eaten away some of car rentals' share, as well,
Abad said.
Seventy percent of SME buyers surveyed engage in direct
negotiations with car rental suppliers, and Abad said they face a conducive
environment for favorable negotiations: "It's a very difficult environment
for [the car rental industry], and we can say, because of all the threats and
mutation going on, it's a buyer's market. There's an opportunity for SMEs if
they manage this category."
For some smaller companies, car rental is such a small piece
of the program that management is not a high priority. Wakida said ground
transportation accounted for about $2 million in spending in his program, and
car rental made up only about $100,000 of that, insufficient volume for a
contract. Trip-planning technology, now more accessible, also helps companies
evaluate when other options, including public transportation, would be more
feasible than car rental, Abad said.
Payment
Almost three-quarters of the SMEs BTN surveyed negotiate
directly with suppliers for corporate card programs, which have a low barrier
to entry for companies that want to use them.
In general, there is no spending minimum for setting up a
corporate card program, so setting them up can make sense even for companies
with as little as $25,000 in spending per year or as few as five travelers,
said Mario Kriebel, vice president of commercial payment solutions for BCD
Travel. Implementation still presents challenges, however, including employee
credit checks and ensuring that fees don't outweigh benefits, he said.
Some bank issuers market directly to smaller business with
specialized programs that include such benefits as longer payment terms and
travel-related insurance packages, Kriebel said. Only 9 percent of SME buyers
in BTN's survey said such programs were their primary approach to their
card programs.
Use of personal credit cards is still a
prevalent approach among SMEs, and that presents its own set of challenges,
Kriebel said. "Travelers generally like that setup, because they earn a
lot of miles or points using their private credit cards," he said. "One
drawback is that it provides the company no management information system data
to control expenses. Another is that the reimbursement process can be heavy,
especially if a company has international travelers."