The transatlantic aviation marketplace remains a competitive hot spot for major network carriers desperate for corporate travel business. Though low-cost operators have not yet penetrated the sector, bigger airlines are struggling to improve passenger yields, calibrate capacity to a shrunken business travel market, stake out positions within global alliance groupings and demonstrate their value either with or against improved premium class products. Buyers seeking to take advantage of an opportune negotiating environment, however, must navigate a market increasingly defined by entangling airline alliances. Though some multinational travel buyers suggested transatlantic-centered global partnerships have progressed—certain companies already have established favorable alliancewide contracts—many others remain unconvinced. The alliance scene is set to change again in dramatic fashion when KLM Royal Dutch Airlines makes its decision on a partnership
(see story). Meanwhile, longtime partners American Airlines and British Airways are in the process of ramping up codeshare cooperation.
"The alliance geography on the transatlantic will look much clearer in six months," said Graham Atkinson, chairman of the Star Alliance management board and United Airlines senior vice president of worldwide sales and alliances.
Airlines on both sides of the Atlantic are approaching the corporate market with similar strategies, namely a transition by some European carriers to marketshare-based contracting. "Before, it was mainly revenue goals," said Michiel Verhaagen, KLM vice president of global business, explaining the carrier's recent move to marketshare deals that aligns with partner Northwest's strategy. "Suppliers are getting themselves more professionalized and creating global account management teams to work with multinational enterprises."
For KLM, that also has meant consideration of a data aggregation and decision support system furnished by the Prism Group and already in place at Northwest and other U.S. carriers. A test phase has been extended through Nov. 1.
"The system is beautiful for proactively screening multinational corporations, but we do not know how the test will come out," Verhaagen said, adding that KLM also is testing a data aggregation system furnished by TRX Inc. "Can we get rid of our old decision support system? That is one big question we'd like to answer during implementation."
Meanwhile, U.S. airlines continue to leverage international traffic for domestic programs and pressure the foreign flag carriers, said Kyle Perry, WorldTravel BTI vice president of industry relations. "But British Airways and Virgin Atlantic, for example, have been very aggressive with discounts to win business."
Perry also noted that U.S. carriers—American, in particular—have been receptive to flat fare arrangements on the transatlantic. "The foreign flag carriers are responding," he said, "but only after the corporation is offered a flat fare by a U.S. carrier."
"The majority of our contracts still are based on percentage-off, but we do respond to requests from companies if they need fixed fares," said Mathias Friess, Lufthansa German Airlines director of passenger sales in North America. "We are seeing more of that on many routes."
'A Game of Alliances'
Transatlantic carriers increasingly lean on their overseas partners for expanded network coverage, key in attracting multinational accounts. KLM's alliance with Northwest is more mature than most by virtue of a longstanding joint venture, but airline sales executives at the larger alliances—Star Alliance, SkyTeam and Oneworld—insist their partnerships create new opportunities for corporate customers, contrary to assertions by many buyers
(see story)."Nobody has shown me the benefits of an alliance, unless you are operating with six or seven of the allied carriers," said Caro Cook, senior transportation officer for the International Monetary Fund. "No one comes close to the old Atlantic Excellence partnership." That alliance—comprised of Delta, Austrian Airlines, Sabena and Swissair—disbanded in 1999 when Delta aligned with Air France as a precursor to SkyTeam
(BTN, Oct. 4, 1999). For many travel managers who had established effective alliance contracts, the Atlantic Excellence collapse was a step in the wrong direction.
"One alliance benefit I did have was when Swissair and Sabena were together with good fares through Belgium," recalled Ian Nurdin, business travel manager for Nestle UK. "Sadly, that is no more."
Delta even acknowledged that certain Atlantic Excellence benefits currently do not exist within SkyTeam, including an integrated back-end payment process for corporate accounts. "Now, joint sales management in SkyTeam is actively under discussion, but we still are at the very early stage of corporate contracting," said Paul Matsen, Delta senior vice president of international and alliances, noting a goal of 75 to 100 alliancewide corporate contracts by year-end.
Meanwhile, an internal SkyTeam sales document obtained by BTN said pricing managers from Air France, Alitalia, CSA Czech and Delta—the four antitrust-immunized partners that will participate in a transatlantic revenue-share program set to take effect later this year—"will closely coordinate their transatlantic pricing plans." The document also said the carriers have targeted "complete harmonized pricing to the 17 antitrust-immunized countries by the end of 2003." The 17 countries include: France, Germany, Italy, the United Kingdom and the United States.
In general, from the buyer point of view, bigger is not necessarily better. New partnerships seemingly announced each week generate a confusing scenario of overlapping networks, though three major groups now dominate the transatlantic market. Domestic partners Continental, Delta and Northwest have not yet announced any codeshare flights to Europe until Northwest's joint venture partner KLM announces a final alliance choice. Aside from that imminent decision, the transatlantic soon will see an even larger Star Alliance presence.
US Airways, which already coordinates services with United, as early as this week may announce an initial wave of transatlantic codesharing with European Star Alliance anchor Lufthansa. "It is a game of alliances competing against each other. For us, in addition to the United codeshare through Washington, we will have US Airways on top of that, including Raleigh, which is a big corporate area," said Lufthansa's Friess. "We can let the corporate customer choose which feed and which transatlantic gateways to use."
In the midst of ongoing alliance construction, the transatlantic partnership between American and British Airways has been a staple for years, if in name only. The partners this month finally began long-awaited codesharing on beyond-hub routes and certain transatlantic services from Manchester
(BTN, Sept. 8), but for years have insisted corporate customers could take advantage of respective beyond-hub flights. Cooperative services from London Heathrow, for now, still are prohibited by regulators.
"Every little bit helps," said Dan Garton, AA executive vice president of marketing. "Is it enough? No, we'd like to be at least on equal footing. We still have a ways to go in getting more of the benefits that [the other alliances] already were granted. At least we have the door open."
"You can see the cracks in American's strategy," KLM's Verhaagen said, "especially when they started with the co-branded American Express card as opposed to BA, who has tendencies against Amex." British Airways also announced it will revert to a standard base commission structure for travel agents while American, like its U.S. competitors, abolished all base commissions.
Premium Product Competition Intensifies
BA's business class sleeper seat, contrasted with American's long-haul product, represents yet another difference. "The transatlantic is split between fierce competition in price in the coach cabin and fierce competition in product in the premium cabins," Garton said. "Now, the market has sleeper seats in first class and smaller sleeper seats in business class. Two classes of service each with lie-flat seats is kind of illogical to me, but it is a product war."
Garton, therefore, did not rule out the possibility of an American Airlines business class sleeper seat, similar to new premium products unveiled recently by several transoceanic airlines
(BTN, Aug. 11).Northwest is the most recent U.S. carrier to make the move by introducing a revamped World Business Class. "It leapfrogs all domestic carriers' business class and a lot of international carriers," said Fay Beauchine, Northwest vice president of sales and customer relations, citing "infinitely adjustable" lie-flat seats, privacy and a state-of-the-art audio/visual entertainment system. "It induces trial by customers and will help us maintain our competitive advantage in corporate accounts or get us into that position in an account."
At Delta, "we clearly are looking at the next-generation product," Matsen said without indicating any specific plans to redesign the BusinessElite product. "Product continues to be critical in the business class market," he said, "and I expect the bar will continue to be raised."
In Europe, Virgin Atlantic's newest premium product already is having an impact. Airline executives at competing carriers anonymously admitted Virgin's Upper Class will lead to more intense competition for corporate accounts, while corporate buyers said Virgin has been more aggressively courting them.
"The introduction of Virgin's flat bed in business class will really shake things up," said Travel Analytics CEO Scott Gillespie. "British Airways will have to reprice, and it also may impact American and United. From the accounts we are dealing with, they see a big gap between what British Airways offers and what Virgin will offer and what American and United offer."
Air France also is set to unveil new premium, long-haul products at the end of the month. Sources indicated that its new first class will include sleeper seats, while business class will feature nearly lie-flat seats.