The Power of PRISM.
PRISM-Group has established itself as the de facto standard for consolidated corporate airline spend. Airlines have grown dependant on Prism’s reports since they provide an actionable level of detail about the airlines’ sales performance. The standard Contract Qualification Analysis and Contract Term Analysis reports dominate airlines’ customer reviews, and sophisticated customers can learn how to manage their program more effectively with them. This article will walk you through the power and value Prism reporting puts into airlines’ managers hands, and offers insights about how Travel Managers can use the data too.
Airlines exchange discounts for higher share from clients – that quid pro quo forms the basis for a managed travel relationship with their corporate partners. It’s an easy exercise for Airlines to determine how much share or revenue a particular customer delivers. But without PRISM Airline managers were in the dark about how customers performed for other suppliers. Here’s an example: in the crowded trans-continental market between LAX and JFK, American has dominated for over fifteen years with the only three-class, wide-body aircraft. Today a client can fly transcon, non-stop, on AA, United, Delta, JetBlue, or Virgin America. Since DL’s market share is about 20%, a customer who spends $1MM would need to spend $200K on DL to achieve ‘fair market share.’ In the past, carriers relied on booking reports from the corporations’ travel agencies to determine total spend. It was fairly easy to manipulate the picture given to airlines by excluding reports from divisions that supported other preferred carriers. In the transcon example a corporation or lead agency would provide a report that summed to $300K on Delta (a 50% share premium above the $200K required for fair share), and $300K on other carriers. Delta is happy – they’re earning half the customer’s business and have a 50% share premium in the market since they only ‘see’ $600K. Unfortunately, another preferred carrier receives a similar report showing Delta’s performance, but also a second report from the VIP agency that accounts for the missing $400K – and if 95% of that spend and the bulk of the other $300K from the report to Delta would actually sum to about $700K. That reveals a situation where Delta is a secondary carrier and another preferred actually earned far more than a 50% share premium.
Trust is an important ingredient in any relationship – in a world without PRISM it was in short supply. Airline account managers spent considerable time performing due diligence on the self-reported data used to calculate travel agency commissions and airline rebates and performance. Airlines had entire departments dedicated to audit reports and they sent a steady stream of email and faxes to field sales managers directing them to verify data. The transcon example is extreme, but it could happen through careless reporting or by design, and the possibility alone was enough to keep airlines on guard against manipulation.
PRISM changed that and delivered transparency and simplicity to a formerly cumbersome, error-prone process. PRISM acts as a data clearing house – and the more airlines that rely on it, the more accurate the information becomes for all airlines. Prism created a positive feedback loop for data integrity. Now travel agencies send their reports directly to PRISM for evaluation and airlines gain visibility on their true share and how ‘other’ carriers are performing for the same corporate customer.
PRISM reporting primer.
Prism reports allow airline sales managers to investigate Origin and Destination performance by cabin, by fare basis, and even display the average ticket price or yield for ‘other’ carriers (their competitors aggregated data). For the first time an airline could determine if price was really the driving force behind lost share or uncover other possible causes.
Another terrific feature that benefits airlines and travel managers alike is the ability to run contract performance reports by travel agency. Travel programs that use multiple travel management companies have a way to compare their agencies compliance with the corporation’s business rules. Simply run PRISM reports and isolate the agency. This is especially helpful to identify performance drivers in International markets. For example, in the Paris<>New York market travelers are supported by agencies on two continents and it’s likely that each agency has different incentives that conflict with their responsibility to their corporate customer. Different decisions at each agency might lead to very different outcomes when viewed in the context of support to preferred carriers. Simply put, a Paris-based agency is more likely to support Air France, while a US based agency will support Delta. That’s probably harmless if SkyTeam has a metal-neutral view of the relationship, but it could be harmful to the corporate customer if their US agency is supporting the Star Alliance. The sum of the parts matter – skilled travel management teams will ensure that over-performance in one area doesn’t compensate for under-performance somewhere else. The best programs will align the entire team to support their policies and drive contract performance to maintain or enhance industry leading discounts from their travel suppliers.
In a previous article I described how important yield is to the travel management teams as a corporate performance metric here. Yield is the primary metric PRISM users apply to market strategies. It’s superior to average ticket price because it reduces the number of marginal flights when you’re evaluating a large data-set. Specifically, average ticket price (ATP) is very sensitive to context (cabin and distance), while yield is less sensitive to distance since the number is derived by dividing the ATP by the flight’s distance. Once a sales manager removes East coast shuttle markets (the bulk of those marginal, yield-skewed flights), it’s much easier to build a US domestic to domestic term and assign reasonable share goals.
PRISM makes it very easy to create airline offers for corporate customers – particularly since every flight may only be assigned to one term. The most simple contract form would contain a single term: all flights, and a corresponding share goal: 50% (PRISM also allows goals to be measured by revenue or share of flights). The next logical division would be the addition of a separate International term. Still another term would isolate the shuttle markets (BOS<>LGA, BOS<>WAS,LGA<>WAS). So far, this isn’t very fancy, but it’s manageable.
The dominant US Carriers need to prevent margin erosion in markets they own, and only pay for the most competitive markets (without losing money). The most effective way to do this is to create terms that segment markets based on relative dominance. Essentially, flights to and from fortress hubs should receive little to no discount, while focus cities would earn moderate discounts, and competitive spoke cities would achieve the highest possible discounts. Additionally, a second variable, fare basis code would be layered on top of this too – no point paying a rich discount for a deeply discounted ticket out of LAX when they could sell the same ticket through their website. Add in a few international terms, some Alliance terms, train service in Europe, terms to price departures by the day of week and different points of sale or points of origin and your sales manager has created a whopping 75 term, 120 page contract. Multiply that by twenty carriers in a program and suddenly corporate airline travel managers have 1,500 pages of detailed contract language to support (airlines should be cautious here).
PRISM has changed the business.
Even with the endless strategies – hubs, spokes, focus-cities, market groups, cabin, fare-basis, tiers by frequency, country, day of week, static or dynamic share goals, revenue or share of flights – network airlines face the same dilemmas that plague smaller, start-up carriers. How do you extract more revenue from a customer that repeatedly misses their share goals? Those goals were established to reward the client for additional share, but in cases where an airline is negotiating with a multi-national corporation carriers have little choice but to offer rich incentives just to maintain their fair share. Consider a situation where a large bank has offices in London, Frankfurt, Hong Kong, New York, Tokyo and Singapore. Which carriers or alliances are likely to earn a preferred status? It’s difficult to determine, but assuming an equal distribution in the traffic patterns flowing between these cities, it’s very likely that the travel management team would like to participate with all three major global alliances to maximize traveler flexibility and retain world-class pricing in as many non-stop markets as possible.
An example. Assume the travel policy allows business-class for any over-water segment, and first-class for any flight over seven hours. Carriers with two cabins will be passed over for those with a traditional three-class cabin on the longest haul flights. Additionally, it’s not hard to imagine that at least one Alliance would offer discounts >50% off of published fares. This forces the non-preferred alliance to offer >35%~40% just to remain on the shelf. This is catch 22 for vendors. It’s extremely difficult to earn preferred carrier status when travel committees and travelers are unfamiliar with the products, and VIP agents have not yet established trusting relationships with the hopeful vendor’s support staff. Unfortunately, a 40% discount that achieves less than fair share places constant pressure on the Airline’s sales leadership and account teams.
Based on the numbers its very likely that the industry’s best path forward is to decline to offer discounts to large customers that will not perform to fair market share (FMS). This problem is similar to OPEC and the cartel’s attempts to extract higher prices for oil. Too frequently at least one participant cheats and drives prices down. The same is true in the corporate discount world – airlines have a strong incentive to remain connected to customers who may never choose them, but would happily accept a discount. Any carrier or alliance that didn’t achieve FMS would enhance their competitors’ position by enforcing discipline and only carrying passengers who paid the published fares. Over time, this behavior would reduce the need to offer the rich discounts offered today. In the long run, consolidation will improve this situation for carriers, and shift the profit burdens to their corporate customers.
PRISM-Group provides many ways for airlines to measure their decisions, uncover competitors’ strategies, and discover how customers’ behaviors change. Prism gives airlines confidence that didn’t exist before – they’re here to stay.
Paul Laherty is passionate about Travel Management. Paul has led the Americas Air and Hotel consulting teams at Advito, BCD’s travel management consulting company. Prior to Advito he managed teams in Sales, Marketing and Finance at American Airlines. Paul’s work at AA included supervising the global corporate contract team, working closely with large customers in Global Sales, and he managed the Los Angeles sales team where he met some very well-known customers. He also has extensive experience in loyalty marketing, both business-to-business, and consumer. Paul managed American’s business loyalty program and he launched a loyalty credit card with American Express. He enjoys applying original research (he calls it Phynancial Fisics) to solve problems. Paul lives in Southlake, Texas with his wife and two daughters and flies a Cherokee 140 as often as time allows. He is active on Linkedin where you can view his detailed profile here: http://www.linkedin.com/in/paullaherty, follow him on twitter @Paul_Laherty or send questions to email@example.com.