Best fare of the Day...the route to real savings

There isn't a product anywhere in the known world which has a cost which varies depending on whether you use it in on a Tuesday at 8 am, Friday at 11 pm, or more amazingly, if you pay for it a month ahead or the day before..... yes the travel business is entirely unique.

Lets face it, the airline product today is pretty straightforward, it is a seat in a plane from one place to another, how complex can that be? Well, ask any airline executive and you'll spend a riveting few hours being educated on mix, yield, available seat kilometers, fuel, air navigation and landing fees, and a host of other elements which make up any typical flight today. And did I mention Fuel?

Airlines in particular have made complexity in price an art form followed closely by hotels and rental car companies. It is no wonder that consumers and especially corporate procurement managers have difficulty in grasping the concepts. But in the end complexities introduced by travel suppliers are also an opportunity to save some real money.

If you take a look at the pricing offered by airlines for example for the Sydney/ Melbourne trunk route, you will note that for Tuesday 22 August you can pay $85, $99, $163, $219, $249, $280, $305 or $400 one way economy class....depending on your airline preference. The variables are: time you leave, whether you might want to change your mind later, and partially, when you actually book. That's a big price difference for the same product same time, same destination.

Airlines offer discounts to companies for travel on their services in exchange for a larger slice of that customers' business. There is one common denominator across all offers: the fare upon which the discount applies is always the fully flexible fare (or the highest one or two classes of service).

The primary assumption made by airlines is that customers value the flexibility of changing flights almost to the exclusion of the actual fare paid.

In the view of The Association of Travel Management Companies and an increasing number of customers, this assumption is losing momentum, fuelled by the airlines own pricing tactics. Through proactive and focused customer relationship management ATMC members have succeeded in delivering very significant savings to customers who really want to use the system that suppliers have created to the best possible effect.

Take the Sydney/Melbourne fares above. For a contract deal to be attractive in terms of price and value, a contract discount from the top economy fare of $400 would have to be over 30% to achieve a fare better than the next fare class down. Procurement executives would be well advised to review their airline contracts to see whether their deal actually delivers!.

ATMC members are seeing an increase in movement away from contract to best fare of the day as CFO's realise the financial benefits. In one case in the last 12 months a large market customer from the retail sector achieved savings running into the millions as the result of aggressively changing the company behaviour and driving best fare of the day coupled with forward planning and other processes. Actual travel activity increased in the same period for this client proving that you can do more with less with a strong mandate policy.

Copyright Rob Dell ATMC President 2006. All rights reserved