Jeroen Hurkmans: The air RFP is dead

19 March 2019
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Jeroen HurkmansVice President EMEA/ APACAdvito
Supplier

How old and new approaches differ and what changes should be made for more dynamic sourcing

Today’s travel managers are putting in a lot of effort for lower and lower returns. Digital transformation is not only changing the way that businesses in the travel sector operate, but also changing how they communicate with travellers and how travellers communicate with them.

One of the biggest events in a travel manager’s job that exemplifies this trend towards diminishing returns is air sourcing. Many programmes still rely on the legacy air RFP process to source their suppliers. But taking a more dynamic approach could result in savings and additional benefits to corporate travel programmes.

The big problem with the air RFP process

If you've been in the business for a while, you're familiar with the way airline sourcing worked in the past. At first, it was an annual event, and travel managers had to renegotiate contracts every year. More recently, contract durations have lengthened to two or even three years. But most organisations still negotiate full contracts at the end of each contract period because they want to make sure they capture the changes and the opportunities that have arisen (and are still valid after the contract period) for their programme – a process that is both time-consuming and expensive.

Being tied into a lengthy contract doesn't make sense in today's dynamic market. In a given three-year period, things can change in many ways. An organisation might expand into new markets or change business operations in an existing market. Even more disruptive are mergers, acquisitions and sales of divisions – and these changes aren’t only occurring on the buyer side.

There's change within the airline industry, too. On a bigger scale, airlines are going bankrupt; others are merging or being taken over. On a smaller scale, airlines are adding or removing routes or changing the capacity of certain routes. This has an immediate impact on a travel programme, and if these changes are left until the end of the contract period to address, it can mean a loss of money and efficiency for the programme and travellers.

Taking a dynamic approach to sourcing

When there's change, there's an opportunity to negotiate better deals. But travel managers can't do that if they're tied into long term contracts. The bottom line is: the industry companies and airlines are changing, so waiting for three years to make adjustments doesn't make business sense. You’re leave money on the table. Instead, you need to adjust your programme on an on-going basis to keep up with those changes. That's where taking a dynamic performance management approach to sourcing will make a difference in savings and performance.

With a dynamic approach, you can essentially have evergreen contracts which you update on an on-going basis. With real-time overviews of supplier performance, you can go back to the airlines to renegotiate terms and adjust contracts. Travel managers can see where it makes sense to add new carriers or change the combination of carriers in their programme without the need for a big sourcing event every couple of years.

Another major driver in the shift to dynamic performance management is the new air retailing model that is currently being implemented by many airlines (NDC/One Order initiatives). Pricing is going to be more personalised and more dynamic than in the current distribution model. As a result, ongoing adjustment will have to become the new normal to turn this new industry practice into an opportunity for travel programmes.

Traditional sourcing is a huge undertaking, but dynamic sourcing requires less work from both parties. And the simple fact is, waiting to renegotiate contracts every several years is just not necessary in the digital age. With a dynamic sourcing approach, you can update your contracts on an ongoing basis, allowing you to account for changes in the organisation that impact the travel footprint as they happen. With the right data, it doesn’t make sense to wait until the sourcing event to invite new carries to the programme or eliminate ones that are no longer adding value.

Even though the industry overall is shifting to dynamic performance management, there might be some cases where the air RFP process is the right option. For example, if there is a massive change in the scope of a programme or a huge shift in the industry at large (e.g. a disruptive distribution technology impacting the corporate contract process - such as blockchain smart contracting), an air RFP might be the only way forward. In addition, if a company needs to build its entire programme from scratch, or rebuild after a major merger or divestment, a traditional RFP process would be necessary to source the suppliers on the front end.

However, that doesn’t mean that they should continue to manage the programme with traditional reviews every 2-3 years after the initial sourcing is complete. They can (and should) still approach programme management dynamically to avoid being tied into long-term contracts that might cause them to miss savings opportunities and decrease programme performance.

Going beyond sourcing to data-driven programme management

One of the most important components to programme success is data. When moving away from the legacy RFP process, it is important to shift other aspects of the programme to align with the new way of sourcing. How can a travel manager know if a supplier is over or under performing on a certain route without the right type of analytics in place? And if the travel manager makes changes to supplier contracts, informing their travellers and driving a behaviour shift is the logical next step.

So, the mindset shift needs to move beyond air sourcing alone and encompass the entire travel programme. Adopting the dynamic approach to programme management can improve both supplier relations and traveller engagement. It can recognise how both pieces work together to drive a programme forward and allow travel managers to make real-time adjustment to both pieces based on data.

Data identifies what is happening in the market, how suppliers are performing and how the overall organisation is performing. Travel managers can and should leverage the wealth of data that is available in order to improve the overall success of the programme.

Putting travel managers back in the driver’s seat

Dynamic sourcing and programme management has several benefits for travel managers. It provides a more streamlined approach that delivers on both savings and traveller satisfaction, as well as higher ROI for the programme. Instead of going back through a whole list of carriers and renegotiating everything from scratch, travel managers can focus on those where there's the most potential for improvement.

One of the biggest benefits of this approach is that it puts travel managers back in the driver's seat in terms of contract negotiations. Instead of airlines telling travel managers what's not working, real-time data helps travel managers to steer the conversation, and tell airlines what needs to be done. In the past, the airlines would be the ones telling travel managers which routes were (and weren’t) performing. And maybe they were correct, but now we can see why: they might not be competitive, they changed the flight schedules, fares are not available, or their market share dropped. It is the “why” element that is essential to dynamic programme management.

Being able to understand the reasons for underperformance is key to negotiating better contracts. This data also provides a big picture overview, allowing travel managers to track corporate performance and see what they need to do to get better partnerships with suppliers.

Using data to influence traveller behaviour

Adopting a dynamic sourcing approach to influence supplier contract negotiations is just the first step in modernising a travel programme. It's important to ensure that traveller behaviour is in line with any new priorities you've set.

Traveller engagement helps to communicate and explain programme changes and get travellers to make the right decisions for your programme. Make travellers aware of changes and use merchandising and marketing techniques to shift traveller behaviour based on those changes drives savings. This gives the travel manager a better negotiating position with airlines, and increases programme ROI.

Transitioning to the new approach

In this digital world, the industry as a whole is headed toward dynamic performance management; a process rooted in real-time data that moves along with both market and programme performance. The legacy air RFP cycle will become a relic of a bygone era as organisations shift to make proactive, data-driven decisions – not only in their travel programme, but also in their business operations over all. As the travel industry moves rapidly in this direction, you don’t want to be left behind.

You can integrate dynamic performance management into your programme now to reap the benefits. With a dynamic model based on real-time travel data, programme managers will be at the forefront of creating value for their organisations and their travellers alike.


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