Take the case of two airlines that fly out of a given airport near a major metropolitan area. Carrier A offers a 10 percent on every fare for flights out of that airport; Carrier B offers 25 percent. At first blush, a company might conclude that Carrier B's offer is more attractive. But if Carrier B offers flights to far fewer of the company's destination cities than Carrier A does, those number could be turned on their head.

First, Know Thyself
"Before settling on a bid, it's essential to have a consistent understanding of each airline's capacity to serve your specific travel needs," says Scott Gillespie, CEO of TravelAnalytics. That's no easy task: Not only do you require a systematic grasp of travel needs across the entire organization, you also must be able to track those needs against frequently changing flight schedules. Comparing the bids of different carriers is further complicated when airlines restrict discounts based on fare class, country of purchase, and other shifting variables.

"You can't just put two airline bids in front a travel manager or CFO and expect that person to eyeball it and determine what the best bid is," maintains Gillespie. "There are just too many variables at work."

Travel procurement providers make this process less grueling. TravelAnalytics' software, for example, takes worldwide flight schedule information, considers each airline's ability to serve any city pair in the world, and matches that information against a company's particular travel patterns. It gives managers an idea of how well different two- and three-carrier combinations cover the company's city pairs, and the extent to which each combination produces overlapping schedules, in order to evaluate cost-effective preferred-carrier combinations. TravelAnalytics then translates each airline's bid into an average discount adjusted for different fare mixes, place of sale, and total spending, so managers can assess bids more consistently during negotiations.

"In the past, we had a very difficult time comparing apples to apples," says Ayers. "We had a very limited ability to compare carriers consistently across routes."

TravelAnalytics, Travel Procurement Solutions, and other providers also allow companies to analyze and compare different "what if" scenarios before they implement a strategy or finalize a deal. Travel managers can plug in different contract discount rates, vendor performance targets, shifts in carrier market share, and other key variables to map out the potential saving under each scenario before signing a contract.

Airlines, which have been caught in their own scramble to cut costs and boost sagging revenues, have imposed more-creative pricing structures. No surprise here: "The airlines are skilled at creating complex pricing," notes Gillespie. They have excluded certain low-yield, economy, advanced-purchase fare classes, for example. Another airline tactic is to apply sliding-scale discounts based on a company's market-share target — the commitment a company makes to an airline in exchange for discounts — or to impose a higher, more rigid target. "When carriers start asking for 80 to 90 percent of your market share," says Bob Brindley, a vice president at Travel Procurement Solutions, "and you have two or three preferred carriers serving a particular market, things can get tricky."

Indeed, now that airlines are enforcing market-share goals more rigorously, the pressure on corporations has increased. While negotiating an agreement, managers need a thorough understanding of their capacity to fulfill commitments to the airlines — or suffer the consequences later. "If you don't move market share and fulfill your commitments, you can lose an agreement very quickly," notes Hanna Murphy of Siemens.

In the end, negotiating power — and the ability to reach more-favorable agreements with suppliers — is directly correlated with a corporation's ability to consolidate, command, and analyze its travel data. "If you can show a supplier that your travel program is consolidated and that you understand your situation at a granular level," says Mitlieder of Pharmacia, "they will be more willing to put a meaningful value proposition in front of you."

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