Negotiation technique: Airlines case

I breathed a sigh of relief as I boarded the last flight of the day to return to Ho Chi Minh City, and can’t wait to come back to Ha Noi city to negotiate the implementation of the revenue pooling strategy between the two airlines. Under this strategy, the two airlines will pool capacity on one route and then redistribute revenue based on the proportion of tickets sold by each airline. Still, the two airlines operate in different segments (low-cost and full services), and both need to negotiate the percentage of revenue split instead of using the number of tickets sold to decide each airline’s share.

As a Chief Commercial Officer of a low-cost airline, I can’t lose this opportunity to keep the promise to stakeholders to help the company recover from the loss. Look at the current situation, the contribution margin only covers a part of fixed cost, and there are no alternatives to this strategy. I can’t increase the flight frequencies since there is no guarantee that the flight utilization will stay the same, and operation costs may be overrun. Cutting flights is also not an option since it impacts revenue, market share, brand image, and higher accumulated fixed cost.

If the strategy is successfully implemented and my airline could get a revenue share of 30%, we will be positive after three years operate at a loss. The strategy also enhances the brand image of the two airlines. However, there is no guarantee that the group revenue will increase, given that there are no changes to the market demand. While the low-cost airline might benefit from the strategy, the full-service airline can end up in loss.

To come up with an agreement after negotiation, I need to sweeten the deal and bear risks for the partner airline. From this point of view, I don’t necessarily compete over resources in the negotiation. I aim for a higher benefit for both parties with this strategy; I would communicate this intention clearly early on to set a tone for cooperative negotiation. I aim for larger pools (more routes or routes that have high frequency), not through being demanding in negotiation but rather by being collaborative and supportive to build a bridge to that goal.

Put me in another party’s shoes, I can see that the full services airline’s best alternative is to increase the budget for marketing to attract more passengers, which is unlikely to happen given the stagnation market. This strategy gives them opportunities for branding, repositioning their brand, and keeping the competitor away from the luxury market segment.

To create additional value, I would discuss additional negotiation issues beyond the main distributive issue, namely the time lot at the airport, and the share of marketing cost, which will help me create value above and beyond the bargaining zone. I will explore a compatible issue early in the negotiation to facilitate trust, create a point to hold on to when the discussion gets derailed, and potentially build a long-term relationship.

I could use negotiable issues, namely the split of marketing costs and time slots at airports, as a trade-off. Although the marketing cost seems minimal to the full-service airline, it is enormous for my company. The time slots are not that important because people always trace low, costs within the low-cost segment. I keep in mind that linking negotiable issues is critical, combining and recombining negotiable sub-issues to bridge the gap to my goal. I notice that negotiating one issue at a time can lead to consecutive lose-lose compromises.

Although envision all strategic steps for the negotiation, I recognize that soft skills are an essential part of success. Reflecting on my life, I have worn many different hats, from Michigan Ross MBA student and leader of the student consulting team to company leadership. Each trained me in certain leadership strengths, namely communication, conflict management, empathy, and data-Driven. Still, there is no particular hat that gives me all the skills for this negotiation, and continuous switching between hat make me lose sight of the big picture. I would rather see myself as a hat that is a combination of all the hats that I wear in my life. Suddenly, I feel empowered by those ideas. I feel as if I play a Lego house with negotiable issues; this hat enhances my creativity to build up a higher building that surpasses my goal. I feel more than ready to jump right into the negotiation now.

However, today’s meeting has something that concerns me. Although I got the buying from Vietnam Airlines’ leadership, there were some managers that seemed not to pay any attention at all. I feel frustrated and even incredulous about my idea for a second. I redirect my attention to the company leader since, in the end, they are those who make the decision. Although I had to rush to the airport to catch the flight to go back to HCM city, I told myself that I would reconnect with these managers to learn about their opinions that may resolve any confusion or concerns regarding the strategy before the negotiation day.

The cabin light is turned off, and the flight is about to take off. Finally, I have some time for a short break after a long working day.

Truong Dinh

MBA2 - Michigan Ross