Post-COVID, Airlines are Likely to Compete for One Corporate Traveler at a Time
By: Cory Garner
Tags: Business Travel, Covid 19, Thoughts From Journera, Corporate Travel, Airlines

Editor’s Note: Cory Garner is the former head of Global Sales and Distribution Strategy at American Airlines who currently serves as a strategy consultant to airlines and an advisor to travel technology startups, including Journera. The last time he presaged a fundamental shift in airline distribution economics enabled by technology, it later evolved into NDC. We were naturally interested when he approached us with a 5,000 word opus laying out his views of how COVID will affect the next chapter of airline distribution.

Airlines use multiple tools to compete for corporate business, but COVID has rendered some account relationship-level tools moot for an extended period of time. At the same time, new approaches and technology can make competition for the end corporate traveler more efficient and effective.

Airlines which do not have a robust plan to compete for the end corporate traveler before post-COVID travel returns may lag their competitors in corporate recovery and find themselves playing catch up in the long term. The airlines’ shift toward traveler-level competition may pose a threat to TMCs and corporate travel managers, but could also present opportunities to those which lean into the change.

In this piece, I will walk through a primer of how airlines compete in “normal” times, the challenges presented by COVID and how airlines may react, and the implications for TMCs and corporate travel managers. (Note: For the sake of preserving keystrokes, I use the term “TMCs” to refer to any and all types of travel agencies which serve corporate customers of any kind.)

Primer: How Airlines Compete for Corporate Business in “Normal” Times

Airlines use competitive tools everywhere the customer’s choice of airline can be influenced:

At the Time of Transaction

Airlines sometimes offer upfront commissions and/or special discount fare programs which some TMCs mark up and remarket as if they were their own fare programs. Transactional commissions and pricing such as this can result in a preferential display in favor of the TMC’s preferred carrier.

Some airlines also offer standard discounts without market share commitments to smaller corporate customers and/or make on-the-fly private pricing available to any customer (e.g. via NDC-powered “continuous pricing”). These tools can also have the effect of making the airline’s flights float to the top of the display, but are generally outside the influence of the TMC.

Transactional tools such as these are most effective where the corporate traveler has some or complete discretion over the selection of airline and the airline’s network doesn’t make the choice obvious. Conversely, these tools are ineffective where a corporate travel manager’s policy forces the selection of a particular airline, the airline is way too small to win any business, or the airline is way too big to lose any business. In these situations, transactional tools are either duplicative, and therefore wasted money, or not enough to change the selection of airline, and therefore wasted effort.

In the TMC Relationship

Some airlines offer backend incentive programs which reward TMCs for delivering disproportionate market share. “Disproportionate market share” is commonly structured as a gap or index to the airline’s natural seat share of the TMC’s volume. In other cases, the TMC could be given an absolute revenue or passenger target to hit instead, but even these are generally set at levels which ensure that the TMC delivers disproportionate share to the airline.

Depending upon the TMC’s business model, the size of the backend incentives can be substantial. As a result, some TMCs have teams of experts which “revenue manage” their patchwork of backend incentive programs together with all other incentives. The ideal outcome for a TMC would be to earn backend incentives across all of its airline programs. However, to the extent the larger airlines and alliances are indeed setting up their backend incentive programs to pay only for disproportionate share above natural seat share, this is mathematically impossible. TMCs therefore must typically choose between the airlines and alliances they wish to support, often resulting in one or two big winners.

Some airlines also offer soft dollar benefits such as access to waiver and favors, special support desks, and joint marketing funds. Generally speaking, these tools make the airline easier to do business with and, consequently, easier to for the TMC to choose to support over other airlines. Soft dollar benefits can be the deciding factor between airlines if it is a close call for the TMC financially.

TMC relationship tools such as these are useful to airlines which are large enough to promise a significant payday for the TMC’s support, provided that the TMC can influence the airline selection of a substantial number of its clients. They are not as useful for smaller carriers, as supporting a smaller carrier could jeopardize the TMC’s payday from a much larger carrier. They are also not as useful in situations where the TMC has a very high percentage of “managed” corporate business which is already secured by the airline at the corporate account level.

In the Corporate Account Relationship

When you think about competing for corporate business, this is probably the first thing you think about. It is no secret that airlines negotiate directly with mid- to large-sized corporate accounts to secure disproportionate share in exchange for access to discounted fares. As with TMC backend incentives, airlines are interested in setting target share goals which exceed natural seat share at the corporate account level. In theory, the corporate account’s achievement of these goals is linked to continued access to the discounted inventory but you may hear different stories depending upon whom you ask.

Corporate accounts seek to maximize their contracted savings across the projected footprint of their company’s travel. Generally speaking, most corporate accounts can get the best outcome in the aggregate by consolidating their business with one or two large alliances with limited network overlap, leaving the third in the cold with less-than-natural seat share.

Also, as in TMC relationships, airlines make certain soft dollar benefits available to corporate customers at the account level. These can range from change fee, name change, or seat assignment fee waivers, to frequent flyer status allotments, and other lucrative waivers and favors. The airlines with which it is easiest to do business have an advantage at securing the primary and secondary positions in a corporate program.

As you may imagine, corporate account relationship tools are most useful to large airlines in situations where the corporate account is effective at achieving targeted share goals by influencing the airline selection of their traveler base. They typically do not work as well for smaller airlines, as corporate accounts may find it too difficult to deliver disproportionate share to their primary and secondary airlines if too much volume is given to the smaller players. Also, these tools do not work as well in situations where the corporate account does not have a mandated TMC and/or booking tool. This is a clear signal that corporate travelers have comparatively more discretion over airline selection.

In the Corporate Traveler Relationship

Airlines have of course marketed directly to the end traveler since their inception, with increasing sophistication and personalization over time. However, until recent years, it had been relatively unusual for airlines to market directly to end travelers in their role as corporate travelers. The idea that travelers can be segmented and spoken to according to their reason for travel — as opposed to according to their elite status — was somewhat novel prior to COVID and airlines were merely starting to scratch the surface.

Delta Air Lines has been the frontrunner in this space for several years with their Corporate Priority program. The end corporate traveler receives priority seating, priority boarding, and priority service recovery in the event of a flight disruption. Delta also recognizes corporate travelers as valued corporate customers in marketing communications, customer-facing communication channels, and even onboard in some cases with a flight attendant greeting. All of these give the end corporate traveler themselves a reason to choose Delta over another airline, all else being equal.

Influencing the airline preference of the end corporate traveler is useful to every airline in almost every situation. The ability of corporate travelers to choose an airline falls on wide continuum with lots of gray area. Properly motivated, some corporate travelers can navigate their way around even some of the stricter corporate travel policies which would otherwise dictate the choice of another carrier. The only situations in which influencing the corporate traveler matters less is where the airline’s abundance or lack of network makes the selection of airline obvious, or where the corporate account’s airline preference is mandated without exception.

The Challenges Presented by COVID

While clearly many things have changed during COVID — airline networks, partnerships, the elimination of change fees, traveler expectations and preferences, where and how work occurs, etc. — there are two factors which loom particularly large in the land of airline competition for corporate business:

1. There is nothing “natural” about natural seat share, and there won’t be for a long while.

Airline networks have been stripped down to a shadow of their former selves, and partially rebuilt to opportunistically capture leisure demand as it begins to rebound. The new normal does not yet exist and, ironically, we may need to see corporate travel fully return to its new levels and patterns before airline networks can be reshaped to serve it best. Only then will the balance of capacity between carriers be stable enough to decipher natural seat share at the TMC or corporate account level.

Until that time, the ability for airlines to efficiently and effectively use their primary relationship tools — i.e., TMC backend incentives and negotiated corporate discounts — has been almost completely eviscerated. It is nearly impossible to know, much less agree with TMCs or corporate accounts, what would constitute “fair” share performance and therefore it is also nearly impossible for an airline to know whether it is getting value for the money it invests. This is likely at least part of the reason why airlines are simply extending corporate discount agreements for now, and it is not much of a stretch to guess something similar may be happening with TMC backend incentives. Furthermore, the share targets included in all of these deals are likely outdated and practically unenforceable by the airlines. The discounts and incentives being offered are therefore largely unilateral exchanges of value with few strings attached…for now.

This means that, particularly before corporate travel returns to its new normal, individual corporate travelers may have greater degrees of latitude to fly with their airline of choice. The state of suspended animation in TMC and corporate contracts could create a kind of “Wild West” effect as market share commitments in outdated contracts become considered more and more meaningless, and therefore mostly ignored in practice if not in word, until such time as new contracts can be put in place. We might not see that happen until the industry sorts through a protracted cycle of simultaneous corporate RFPs, which is head-hurting to even think about.

2. The corporate traveler population post-COVID will not be filled with the same individuals traveling in the same pattern at the same frequency for the same reason.

Airlines have famously relaxed change fee and ticket validity rules for corporate tickets during COVID, but even more telling is how the large US-based airlines are also allowing multiple name changes without a fee (American Airlines and Delta Air Lines have published policies, and United Airlines has reportedly been doing the same). This is a clear admission of the obvious — the road warriors of pre-COVID times and the road warriors of post-COVID times may in large part be a totally different individuals.

According to a study by tClara and ARC, two-year road warrior attrition was 17–33 percent pre-COVID. During COVID, road warrior attrition may have accelerated, those that have not attritted may have totally different travel patterns, and new road warriors may arrive on the scene. According to the same study, in a normal year road warriors are only 10 percent of all business travelers but about half of corporate spend. The amount of churn that we may see among this set of travelers could mean a very large proportion of corporate revenue may be up for grabs when it returns.

What will drive returning corporate travelers’ choice of airline is also a bit of a mystery. COVID hit a giant, red reset button on customer preferences. Yes, travelers will value cleanliness but does anyone really know which cleanliness practices or sensory factors really drive customer preferences between carriers? Is it HEPA filters, a signature smell on the airplane, fogging versus comprehensive wipe-downs, brand associations with cleaning products, health panels, the presence of a Chief Health Officer, plexi glass, orderly boarding processes, blocking middle seats, avoiding connecting flights, a snazzy brand for the airline’s cleanliness program, or something else? We probably won’t have a lot of concrete insights into this until corporate travel returns.

Perhaps most interesting is that in many areas of life, customers have been put in a situation to change shopping patterns and product preferences. A McKinsey study found that three quarters of American customers have tried a new shopping behavior and most will continue the new shopping behavior post-COVID. We may be faced with a revamped set of corporate travelers who are ready to try something new, which is a risk to incumbents in markets where they have historically had very high share (e.g., United in Houston, American in Dallas, and Delta in Atlanta) and an opportunity for challengers in markets which have been more competitively balanced (e.g., New York, Boston, Los Angeles, and Chicago) as well as smaller carriers in general.

The airline which captures the individual corporate traveler’s first trip back may become the de facto incumbent in the traveler’s mind provided the airline meets the customer’s cleanliness expectations and delivers an overall product experience that makes them want to come back. Challenger airlines ought to feel invigorated by the opportunity and incumbent airlines ought to be watching their backs carefully.

How Airlines May React

Many airlines, and the larger ones in particular, find themselves in quite a conundrum. The TMC and corporate account relationship tools on which they have historically depended so heavily have been largely rendered moot, creating a “Great Void” until a reliable view of natural seat share returns. That could take quite a long period of time, possibly measured in years. Because nature abhors a vacuum, airlines are likely to adapt to the prolonged absence of these tools.

At a high level, their options are to exit existing corporate discount and TMC backend incentive agreements, continue extending the agreements already in place, or reallocate funds to the other tools which are still functioning. There is reason to believe that many airlines will ultimately do the latter, and I’ll explain the reasons why.

Simply exiting existing corporate discount and TMC backend incentive agreements might have some surface level appeal, particularly in times when cash is king for airlines. Since little corporate traffic has returned, airlines have a rare window to make big moves in an otherwise dicey area of their business to take chances. However, corporate accounts and TMCs have long memories. Big, selfish moves made now may have long term impacts which outweigh the short term cost savings.

Extending agreements as-is was a natural thing for airlines to do when nobody really knew how bad things would get or how long they would stay that way. Now, as travel begins to rebound, we are in a new phase when nobody will know for sure when the new normal has arrived. It builds account-level goodwill to continue providing deep discounts and high backend incentive payments without any contractual expectation for share performance, but when does the free ride end? It ends when the last airline realizes that their competitors have reallocated some of the funds formerly spent on corporate discounts and TMC backend incentives toward other competitive tools, and thus discovers it arrived too late to the new post-COVID competitive landscape.

Competitive pressures therefore dictate that at least some of the funds formerly earmarked for corporate discounts and TMC backend incentives will be redirected to either transactional tools or corporate traveler relationship tools. But which will it be? Likely a bit of both.

TMCs will push for the continued expansion of TMC-marketed private fare programs and upfront commissions across more markets and at higher costs. It’s hard to argue with their effectiveness. After all, the bulk of higher-end corporate travelers book through these channels. However, these programs have become increasingly expensive for airlines over the last few years, costing as much as 20 percent or more of revenue across an increasing number of markets and fare classes. Beyond the significant cost implications themselves, airlines are keenly aware that this acceleration in upfront discounts and commissions has only added fuel to the TMC consolidation fire. Transactional tools will undoubtedly be a piece of the puzzle but there are short and long term consequences that some airlines may wish to avoid.

The more sophisticated airlines are likely to adopt strategies which strike a balance between investment in account-level and traveler-level competitive tools. The scale of this shift could eventually be quite large, considering that airlines spend as much on commissions as they do on GDSs, sometimes orders of magnitude more…and this excludes the significant amount of investment airlines have historically made in negotiated corporate discounts. Any airline which is looking to emerge post-COVID as leaner and meaner will naturally look at smarter ways to deploy at least some of the funds formerly invested in account relationships. They may find that they can get a better ROI by marketing directly to corporate travelers.

Competing for the end corporate traveler is easier said than done, however. That is why we have seen so few airlines go down this path before, and even fewer do it well. Expect the carriers who go down this path to do so slowly, in incremental steps. These are some outward signs that may provide an indication that an airline has made the strategic leap:

1. They are communicating with customers in their role as corporate travelers.

This signal is more important than it sounds.

The responsibility for communicating with customers is commonly split between multiple departments within the airline and each views the customer through its own lens and with its own priorities. Marketing may be more focused on the market’s general perception of the brand, Loyalty may be more focused on engaging customers according to their present or prospective elite status, the eCommerce team may be more focused on encouraging customers to use the website or app, the Airport team may be more focused on minimizing transaction times at the check-in kiosk, and Sales may be more focused on how to drive airline selection according to the customer’s purpose of travel (e.g., corporate). All of these departments typically think of the “customer” as an individual except the Sales team, which more commonly thinks of the “customer” as an account or group of individuals.

When an airline chooses to message to an individual corporate traveler across multiple channels, it is an indication that some degree of alignment has occurred between all of these departments. Substantial resources — human, technical, and financial — have been allocated to the effort and it sits among the airline’s strategic priorities. It is also a sign that there has been alignment between departments at the most senior level that an individual traveler can be important simply because they are a corporate traveler, regardless of their elite status.

2. They become a participant in Journera.

An airline’s frequent flyer database is a really important source of information about its existing traveler base, which necessarily skews toward markets where the airline’s network is particularly strong. Its frequent flyer database, however, is inadequate at identifying prospective corporate travelers who are either entirely new to corporate travel or who have historically given their business to another airline. This customer visibility gap is especially pronounced in markets like New York, Boston, Los Angeles, Chicago, and many mid-sized “focus cities” like Austin, Nashville, and Raleigh-Durham where airline capacity has been more evenly split between multiple carriers.

Credit card and other loyalty partnerships can be an important avenue to close the customer visibility gap, and airlines will certainly lean on partners for this purpose. However, even these partners have customer visibility gaps as not all customers transact on their credit card network, hotel loyalty program, etc. Some partners are also hesitant to be seen as favoring one airline over another in certain circumstances. Not even Google has sufficiently comprehensive data, particularly as it relates to corporate travel, much of which is booked outside of Google’s view.

Airlines which participate in Journera can cast a wider net to close customer visibility gaps in the markets where there is the greatest competitive opportunity. Journera is an industry platform to which travel suppliers across many verticals securely contribute their itinerary information in real time at an individual customer level in a secure, privacy-compliant manner. What results is a fresh, comprehensive view of traveler activity from home to destination to back home again. Even in its infancy, Journera is already processing data for over 200 million travelers, 400 million itineraries, and billions of travel events along those journeys. As Journera gains steam, its travel dataset will be unmatched.

Journera can help airlines and their marketing partners identify not only which individuals are likely or confirmed corporate travelers but also whether the individual has shown any signals that they’ve begun planning corporate travel again, all in near-real-time. An airline which operates out of New York, for example, could work with a marketing partner via Journera to send a targeted elite status offer to prospective corporate travelers who’ve booked a hotel but not yet a flight to select destinations. Because of its targeted nature, this elite status offer could be a bit richer than any elite status qualification standards which apply to all travelers. Another airline which operates out of New York but does not participate in Journera may find that some of their formerly loyal corporate travelers never resurface, and they may have difficulty figuring out why they are lagging their competitors in corporate recovery.

An airline could work with a marketing partner of any kind so long as they are also a Journera participant. This could range from online marketers, to loyalty program partners, to other large companies both inside and outside of travel, to even the TMCs and corporate accounts themselves if they so choose. Journera makes this kind of targeting possible across any channel which has permission to communicate with the customer.

3. Their targeted corporate traveler offers vary in their value proposition or form.

Often with great precision, airline corporate discount agreements give more generous discounts only where the airline’s network is weaker and lower discounts where the airline’s network is stronger. By comparison, though, frequent flyer programs have taken a more cookie-cutter approach. Travelers in markets where the airline’s network is weaker are given the same elite status qualification standards as travelers in markets where the airline’s network is stronger, for example. Yes, there are targeted frequent flyer offers and status matches/exceptions given around the edges, but in general airline loyalty programs over-invest in their largest hubs and under-invest elsewhere.

Be on the lookout for this to change gradually as airlines get smarter at segmenting customers. Just as two companies which both have a location in New York might get different corporate discount levels depending upon which routes they fly both in-and-out of New York and elsewhere, so might two different corporate travelers in New York get two different targeted offers in the future based upon their anticipated travel patterns. This would be a natural side effect of the type of close, inter-departmental coordination described earlier as two selling strategies merge.

Targeted corporate traveler offers may also change over time or seemingly randomly. This could be a sign that the airline is experimenting with different motivators, means, or styles of communication to see which is most effective. And, as targeted airline offers produce higher ROIs, you may find that airlines eventually make the cookie-cutter qualification standards relatively more difficult over time.

Implications for TMCs and Corporate Travel Managers

“Opportunity is missed by most people because it comes dressed in overalls and looks like work.” — Anonymous

As an unrepentant airline distribution hack, I am well aware that on the surface this sounds like an airline ploy to disintermediate both the TMC and corporate travel manager…perhaps even more so given the messenger. It really doesn’t have to be if everyone is willing to think about their roles a little differently.

Adapting to the new normal starts with these two admissions: (1) there is no such thing as natural seat share until such time post-COVID airline capacity stabilizes, which could take a while and (2) it is unreasonable to think that an airline is going to continue living up to its side of a performance-based agreement if its counterparty’s performance is undelivered or indecipherable. It is unlikely to be to your benefit to fight this change. At least part of the money formerly allocated to account relationship tools is therefore likely to be reallocated and it makes sense that it would be invested in competing for the corporate traveler, especially since most people believe that corporate recovery will be uneven and difficult to predict.

This doesn’t have to mean all bad news for TMCs and corporate travel managers.

If there are any universal truths in travel, one of them is that TMCs will always find a way to get paid. This case is no different. TMCs are clearly one of the biggest holders of relationships with individual corporate travelers and therefore likely among the most important channels to deliver timely, relevant offers. TMCs need to step up their electronic marketing game to help airline partners deliver targeted offers to returning corporate travelers, which obviously includes participating in Journera. They need to determine what their rate card should be, and ask the airline to pay for these offers out of their beneficial services funds. To the extent an airline wishes to eliminate or reduce its investment in the TMC’s backend incentive, the TMC can fight for as many of those dollars as it can to be reallocated to beneficial services, upfront commissions, and/or private fare programs.

For most corporate travel managers, the path of least resistance will be to ask TMCs for a cut of these marketing funds in exchange for granting them permission or other assistance to make these offers to travelers. Some corporate travel managers might be just crazy enough to want to take a crack at becoming a marketing channel for airlines. The more, the merrier! They will need to determine their rate card, set up their marketing channels, and sign up for Journera. The upside is that they would get to pocket all of the marketing funds (or, if they prefer, increased waivers and favors) for themselves, which would serve as a nice offset to potentially diminished discounts.

Finally, I will offer one more thing for TMCs and corporate travel managers to think about. The same Journera technology which can provide customer-level insights for marketing purposes can also be used to make the day of travel experience more seamless for travelers. To use an extreme example, a traveler which experiences a flight cancellation mid-journey which causes an unplanned overnight at a connecting hub could be prioritized for automatic booking by a preferred hotel and automatic rebooking by the airline — all instantaneously and without worry. Simpler examples might be automatically offering early check-in or late check-out depending upon a flight’s schedule or status, or automatically issuing mobile room keys to large groups of people upon confirmation of boarding their inbound flight. The technology has evolved to a point where TMCs and corporate travel managers can start inquiring about minimum service levels for operational cooperation between preferred suppliers, particularly if the preferred suppliers are asking for the TMC or corporate travel manager’s cooperation via Journera.

Conclusion

The COVID era has taken off the table the option for airlines to continue using pre-COVID competitive tools to compete for post-COVID corporate business. The good news for airlines is that technology has moved on over the last two years, data has become more comprehensive and granular, the channels for reaching individual corporate travelers have diversified, and customers’ minds are more open to trying new things. Competing for the end corporate traveler is now more possible than it was before and is becoming a competitive imperative for airlines.

Some may say that the role of TMCs and corporate travel managers will be challenged, but it doesn’t have to be that way if they lean into the change. They can participate in new flows of money and capitalize upon new technologies to drive material benefits for their travelers.