By Vajid Jafri
Searching for and purchasing travel is changing. Consumers are more Internet-savvy than ever, and they are finding that the Web’s travel options are far easier, quicker, and often cheaper than using travel agents. According to a 2006 JupiterResearch report, overall online travel revenue is forecasted to grow to more than $128 billion in 2011. In air travel alone, $72 billion will be booked on the Web over the next five years – evidence of the evolution from the old days of booking with telephone operators and travel agents to a more user-centric, 24/7, customized buying experience online.
The $100 billion airline industry is equally segmented between leisure and business travel, and in between lies the SMB market – an extremely lucrative customer segment, but the most underserved when comparing the fare options available to leisure and large business travelers.
Leisure travelers have plenty of time to plan vacations in advance, so they are able to search for and book travel arrangements according to price versus specific travel dates. Flexibility allows them to shop around until they find the lowest fare available.
On the other hand, business travelers must base their travel purchases on specific dates and tight schedules, therefore limiting their options in airline inventory. Carriers know that business travel is based mostly on fixed schedules, with travelers booking flights often one week in advance of departure, which affords the airlines an optimal avenue to raise and charge premium fares during this time. This translates into a near $50 billion industry for airlines.
Many larger corporations, those that book a minimum of $2 million in air travel per year, hold a strong bargaining chip, however. They have the advantage of leveraging their large volumes of air travel to negotiate discounts directly with the airlines. By committing to several million dollars worth of air travel per year, the airlines in turn will negotiate corporate rates between ten and 50 percent below available market rates. These fares are provided exclusively within these contractual agreements, but still set a higher premium when compared to the discounted fares available to leisure travelers that plan 30 days or more in advance.
In the middle is the SMB traveler, who is at disadvantage. These companies are squeezed the most to pay the highest price for airfare because they lack the flexibility of the leisure traveler, and they lack the clout of the large business traveler. Although the airlines recognize this market as a highly valued customer segment, they are doing the least to help these travelers save money. While leisure and large business travelers have found ways to negotiate discounts with airlines, it has been status quo when it comes to creating special pricing offers for SMB travelers. Carriers are quite savvy and know that this type of business traveler is typically booking flights within a one week window prior to departure, and airfares are at their highest during this time. A limited timeframe and a narrow snapshot of available airfares drastically hinder savings for these business travelers.
Demanding better service and accommodation from the airlines is a small request when you consider that SMB air travel is a $25 billion per year market. It used to be that carriers measured high value customers by miles traveled. Now, with so many customers paying different price points for the same trip, carriers have updated this approach and are identifying high value customers by the dollar amount spent. Delta tracks its premium paying customers very closely and they’ll try to accommodate upgrades and scheduling of connecting flights, for example, to acknowledge high value customers.
Pockets of Opportunity
There are some organizations and associations that are starting to organize the SMB community to help negotiate deals with the airlines by combining travel volume, modeled after large corporate accounts. There are no such offerings at this point that can help realize significant, ongoing savings for members. However, there are methods and programs that travelers should already be taking advantage of in order to help manage business-related travel costs.
Most travelers will initiate comparison shopping searches -- visiting one airline and then another, and then another, sites like Expedia.com, and perhaps check a metasearch site like Kayak.com -- to compare airfares. It is important to underscore that carriers are very aware of the fact that business air travel is purchased typically within one week of the actual departure date, so this is when airfares are at their highest. At any given time a traveler conducts a search, they are only viewing a snapshot of what is available, and, therefore, they purchase airfares at a premium. Business travelers can act like consumers when comparison shopping, but they must remember that consumers plan their travel at least 30 days out. Travelers that can accommodate longer planning times increase their chances of finding the lowest fares carriers publish that are used to attract leisure travelers.
If schedules are tight and dates cannot be planned out in advance, companies should try to leverage existing programs that are a step above traditional frequent flyer mile programs that might aid in managing travel costs. Bank of America and Citibank, for instance, offer frequent flyer miles on top of points earned on spending. Even some financial institutions are offering travel insurance alongside purchases – perhaps a benefit worth leveraging considering the abundance of recent uncontrollable irregularities. Also, many carriers are beginning to set up small business programs that, for example, upon registering as a member, allow access to non-public fares that are priced at a slightly discounted fare.
These programs still lack maximum value for smaller businesses. By registering for carriers’ individual business programs, you are then pinned to flying on the routes that airline covers. Since it is fair to say that there is no one airline that covers the entire air route system, it may be possible that the lowest airfare offered on an alternate carrier will go undiscovered. Unfortunately, today there are no managed programs available where negotiated volume plans can be registered with one carrier, so business owners and their employees will need to continue comparison shopping across carriers, and this might require multiple registrations across numerous sites. Additionally, while most of these programs will be free to register, pay heed to the fact that these carrier programs may require volume of ten flights per year or perhaps even monetary commitments set at a pre-determined minimum expenditure per year – limiting SMBs travelers to fly with just one or two carriers.
Credit card company travel programs lack reporting capabilities that businesses could use to gain insight and visibility of an entire snapshot of the market – all publicly available airfares – as well as what led an employee to purchase a particular airfare. It is easy to see what the traveler bought, but no one knows how many options the traveler viewed in the market and what factors led to their purchase. Without monitoring in place, the bill arrives and employers presume their employee purchased the best fare available for a trip to New York City, for example. Additionally, employees might purchase a full-fare ticket with their preferred airline just to reap the earned rewards themselves, or be pinned into buying a ticket with one airline over another because of adherence with travel programs on corporate cards.
On the Horizon
If we look back nearly ten years ago, we were introduced to online travel sites such as Expedia, Orbitz and Travelocity. Carriers began moving their inventory online, and recently there has been an emergence of newer metasearch sites. The Internet has been a great boon for SMBs because comparison shopping on these sites, carrier sites, and metasearch engines eliminates travel agent fees and markups on tickets.
Recently, Expedia announced a program that aims to cater to small business travel, and certainly other players will follow suit. However, it should be kept in mind that some of these programs are ultimately targeted to larger corporate travel. Secondly, the fares that are offered are still the publicly available airfares.
The big names in travel search still do not have access to wholesale consolidator airfares, which are deeply discounted, exclusive fares and have been traditionally sold only through offline travel agents. Surprisingly, approximately 20 percent of the total U.S. airline market – or $20 billion – is sold through wholesalers, and travelers purchasing tickets online at Expedia or Travelocity will not have access to these rates. Wholesale airfares are slowly being introduced online; cFares is one new company doing this. Travelers can still leverage these airfares offline through a retail travel agent; however, they will incur a fee as well as a possible markup on the fare itself.
There are other sites emerging that are being integrated with the online travel providers, enhancing the overall online buying experience and enabling smaller businesses to leverage their traveler-profile limitations to the fullest advantage. For example, if you’re traveling from San Francisco to Boston, you can save money with Farecast.com, which is the first airfare prediction site that recommends when and where to buy airline tickets based on shifts in available airline inventory.
Another site, Seatguru.com, offers every detail of the plane you’ll be flying on, such as prime seat locations, exits, on-flight entertainment, and food and beverage options when you book your flight, regardless of airline. Using a site like this one allows travelers to find and choose the seat with the most legroom, best temperature, least noise, and greatest overall comfort – a perk that helps offset higher premium airfares a bit.
Also available are First Class Flyer and Expert Flyer sites that actually inform travelers of the chances of being upgraded. These sites enable you to see which class of seats are still available and then leverage that information to request an upgrade.
For a business where stretching dollars makes a difference, the Internet should be used to look into all options and find the most affordable and accommodating airfare that matches their schedule.
These are the pockets of opportunity that are currently available today that will help SMB travelers make the most out of their travel expenses, as well as help to enhance the overall experience – both in online buying and during the actual trip. Keep these in mind and remember that the Web has created an open market providing greater access to the airlines database for discounted airfares and consolidator wholesale airfares.
Vajid Jafri is founder and CEO of cFares (
