Fare benchmarking: does it really tell you anything?

Do you shop around when it comes to buying bread? The answer is probably no since bread is a food staple, the grocery business is highly competitive and prices are increasingly comparable online and retailers tend to charge similar prices.

Consumers usually make buying decisions on other things: how close a supermarket is to home, for example.

Dealing with constant price change

Flight shopping is far more complicated. A fare might change hundreds of times a day and by large amounts, depending on both remaining supply and current and future demand. Deciding where to shop is tougher and is why holidaymakers spend so much time comparison shopping.

In the business world, most travellers and bookers do not have the luxury of shopping around for every flight. Those that do soon find out that saving money costs time and effort.

Buying by the basket

The increasing influence of procurement teams in purchasing business travel has been accompanied by the rise of an interesting way of comparison shopping which is rather like consumers who shop in one particular supermarket based on the price of a standard basket of items on a single day.

In business travel, this is called fare benchmarking. Travel management companies invited to tender for a company’s business travel account are asked to provide fares for tens of flights on key routes on specific dates and times, usually in a range of advanced booking windows. The resulting spreadsheets contain hundreds of prices. TMCs who provide consistently low fares score highly.

Fare benchmarking has become popular among companies with medium travel spends and also in tenders run by external consultants who are often remunerated according to the number of TMCs responding to a tender or because complicated tender processes require more analysis.

Fare benchmarking sounds good but for one thing – airline seats are not bread.

The burden of proof

Since fares are based on supply and demand, just holding a seat changes the market. If one TMC holds a seat and another is doing its benchmarking at the same time and can only secure a more expensive seat, which one really is better? Some TMCs may also engage in deliberate seat-blocking to the detriment of other bidders.

There is also the matter of proof. TMCs would be foolish to invent fares but they know a travel manager is unlikely to check fares in too much detail.

What is the answer?

Once the exercise is complete and a TMC appointed, what then? There is little to compel the TMC to continue to seek the best fare on the market.

While fare benchmarking provides a snapshot of how good a TMC is at securing low prices at one point in time, it is not everything. Travel managers who do use them should make sure the exercise is repeated regularly and that fares secured in this way are independently audited to make the process more robust.

Or we could be brave and recognise that procurement’s focus on price is unsustainable and that travel managers should instead be comparing TMCs on long-term value.