American and United up commissions to TMCs as corporate revenues grow

Both American Airlines and United Airlines have cited strong corporate trends throughout 2018, and have acknowledged they’re paying higher commissions to corporate travel management companies (TMCs) to remain competitive.


Summary:

  • American Airlines and United Airlines have acknowledged they’re paying higher commissions to corporate travel management companies (TMCs);
  • The higher rates are to help the airlines remain competitive and have been driven by strong general corporate trends;
  • All three of the large US global network airlines hold bullish views about corporate travel trends for the remainder of 2018 and early 2019.

United’s system passenger unit revenues grew 6.1% year-on-year in 3Q2018, and its corporate revenues grew by double digits. The airline concluded overall corporate demand is strong, and company executives remarked business travel trends were even decent in Latin America, which is battling currency devaluation just as fuel costs continue to climb.

American also concluded growth in its corporate revenues in 3Q2018 outpaced its 5.4% rise in topline revenue growth.  The company said it had a healthy pipeline of new corporate accounts, and integrated SAP Concur Triplink to allow corporate customers to book travel through American’s website while still receiving their company’s negotiated rates.

During their respective 3Q2018 earnings discussions, both airlines were asked about paying higher commissions to TMCs, a trend that seemed to begin in 2017.

“I think if you went back and looked at the history, you’d see that, that was a responsive measure as opposed to a leading measure, and really basically, our philosophy, we’re not going to lose share over something like that. Our goal is also not to win share through that, but to win share through being the airline that customers choose to fly, but we can’t allow ourselves to lose share when our competitors are out trying to buy it,” said United President Scott Kirby.

American CEO Doug Parker remarked that “if someone decides they want to really go after the business and do it through higher commissions, we need to be competitive. So that’s  what has been happening”.

All three of the large US global network airlines hold bullish views about corporate travel trends for the remainder of 2018 and early 2019. But darken economic clouds are looming on the horizon as many economists predict the US could enter a recession in 2020.