Low Cost Carriers (LCC’s) and Their Impact on Your Corporate Airline Deals

Based on the Asia Pacific Travel Cost Forecasts for 2015,  strong competition in the airline sector of the Asia market will depress many airfares. The dominance of low cost carriers (LCCs) in the region are pressuring the major carriers to match their low-cost airfares.   For travel buyers this is an opportune time to leverage this dynamic in order to negotiate better corporate deals with their preferred carriers. In addition, this current situation enables companies the chance to explore program opportunities that would gain cost advantage with a hybrid strategy of utilizing LCCs and legacy carriers.

In 2010 there were only seven (7) LCCs in the APAC  region; by 2015 this number has risen to 47 with another 10 new entrants planned by the end of 2015. With the LCC growth starting only five years ago, corporate program engagement is still in early stage development. Only 54% of LCCs can be booked through GDS systems and less than 30% have collaboration with T&E tracking tools. This poses risks in real-time data gathering when it comes to duty of care obligations and also creates challenges with accurate expense reporting.  The LCCs have built booking systems that have made it easy for travelers to book online and via mobile devices.  LCC’s low fares on high-traffic routes such as Kuala Lumpur to Hong Kong, Bangkok to Singapore, etc. have created tangible fare savings when compared to legacy carriers. Based on PhocusWright analysis, the savings on LCC fares on international trips between South East Asian countries can be as high as 75% when compared to legacy carriers’ airfares.  In India, the LCC fare savings can be as much as 75%.

The question that many corporate travel managers now grapple with - should the company allow and engage LCCs for their travel programs?  Key points to consider for this analysis:

·         What specific travel policy guidelines should be instituted when flying on LCCs?
·         How will LCC volume impact contractual obligations with current preferred carriers?
·         How can the LCC ticketed data be tracked for duty of care?
·         What is the LCC’s current safety record level?

 

Ultimately, the decision to include Asia Pacific LCCs in a corporate travel program will depend on the organization’s objectives, the acceptable tradeoffs between policy/control and cost savings, and the impact on the overall user experience.

 

Sources:
Travizon Travel Management
BusinessTravelNews.com
GBTA


Potential Impacts – Delta’s Planned International Capacity Cuts Amid Currency Challenges

As reported in a recent Business Travel News article, Delta has announced that they plan to cut international capacity by 3 percent in response to the strengthening US dollar and decreased demand in certain markets that owes to lower oil prices.

On a typical day, Delta operates approximately 148 international flights from the United States, with a seat capacity of almost 24,000.  A 3% reduction in capacity would amount to about 720 seats, or the equivalent of almost five flights.  This is in addition to the 27 flights and 8,800 seats operated by its various Joint Venture ("JV") partners (Air France, Alitalia, KLM, Virgin Atlantic and Virgin Australia).

In that context, we would view a 3% reduction as a fairly minor tweak rather than a wholesale change.

In Delta’s presentation about the adjustments, they specifically mentioned reductions in capacity to Tokyo; however, that needs to be put into the context of their build up in Seattle, where they are bypassing Tokyo and flying non-stop to Shanghai, Beijing, Hong Kong and Seoul, and generally doing so with somewhat smaller A330s versus the B747-400s and B777s that they operate through Narita.

Delta operates about 60% as many seats on 55% as many flights as the combined American/US Airways; 90% as many seats on 87% as many flights as United. So, they are definitely in a position where they do need to be careful about reducing capacity and ceding business to their competitors.  (These figures exclude JV partners, when they are included for each of the JVs, Delta operates 62% as many seats on 56% as many flights as American and its partners and 66% as many seats on 45% as many flights as United and its partners).

All of the airlines have been relatively disciplined in managing capacity since each of their various mergers (Delta/Northwest, United/Continental and American/US Airways).  The exception to this occurs where they have “filled holes” in their international route networks, ex. - Delta and United expanding service into Latin America and American expanding its own service into Asia.

While capacity reduction may negatively impact corporate travelers in certain situations, an emerging positive trend is the increased comfort and service levels across all major carriers as they invest in the upfront cabin.  Those amenities do come at a cost, with a full fare round-trip business class fare from Minneapolis to Shanghai coming in at almost $18,000 including tax and tip, and pushing $20,000 between Atlanta and Hong Kong.  Of course, with a little advanced planning, flexibility on travel dates and good corporate discounts, those fares can be reduced by 75% or more.  Advanced planning and flexibility are becoming increasingly important in corporate programs that provide for business class travel, where 50-day advance purchase fares, combined with mid-week travel can achieve significantly more savings than a typical full fare discount. While those fares do have penalties and restrictions, the corporate market is mimicking domestic travel where few travelers buy $2,000+ Y class tickets when they can purchase seats on the same flights for a few hundred dollars.


Article Developed By & Posted on Travel Industry Website Provides Insight From TCG Leaders

A recent article, Saving Dollars and Making Sense of Travel Management's Worth, developed and posted by travel industry website The Company Dime features trends and best practices seen among TCG’s growing client base.

The Company Dime is a subscription based site with free trial subscriptions available to enable you to view the article in its entirety if you are not already a subscriber.


TCG 20th Anniversary & Industry Change Article Featured in BTN

On the heels of TCG Consulting's recent 20 year anniversary, the company's Chief Marketing Officer, Bill Kerr highlighted key transformations that reshaped the corporate travel industry and what roles innovation and strategy will play in successful travel programs of the future. Read the entire article here.