<B> Buyers Seek Pro Air Path</B>
<I>Detroit Start-Up Builds On Monthly Fee Deals With Corporate Buyers</I>
By Jay Campbell
More companies already are interested in negotiating with Pro Air, the Detroit-based startup carrier that last week signed five-year contracts with Chrysler and General Motors to provide unlimited travel for a set--but undisclosed--monthly fee.
One well-known corporation, whose travel manager spoke with BTN on the condition of anonymity, is hoping the airline will strike a deal on the Detroit-Newark route. The company, which is not based in Detroit, believes it could see "significant savings" by taking advantage of the Chrysler/GM model.
"We have a lot of issues to work out, not the least of which is whether our travelers will use Newark to get to our Connecticut facilities," said the travel manager. "But I'm certainly interested. We'll see what our financial executives think."
Pro Air, which operates only two new Boeing 737s on routes from Detroit City Airport to Baltimore, Indianapolis, Newark and Philadelphia, acknowledged that it is planning to negotiate similar deals with other companies.
Chrysler's Charles Braswell, manager of general services, said his company will "strongly encourage" travelers to use Pro Air to maximize savings. He expects to save $1 to $3 million annually, or 8 percent of Chrysler's total travel buget, by using the 10-month-old airline (<I>BTN</I>, June 15).
GM expects the dealto save $4 to $6 million. Manager of corporate travel Kevin Killeen, while not willing to use the word "mandate," said his company will require the use of Pro Air when schedules allow it. Travelers using Pro Air will book ticketless reservations through their companies' respective travel management companies. Pro Air is not an ARC reporting carrier, so the agencies will aid the companies in information reporting.
Both Chrysler and GM executives conducted extensive inspections of Pro Air's operations before agreeing to the arrangement, they said, looking particularly at the carrier's ability to provide regular service with a small fleet. GM, for example, "conducted a thorough review of safety and service, involving the chief pilot and chief engineers of our corporate fleet," said Killeen. "We reviewed all the performance requirements and some worst-case scenarios, and now have contingency plans in place where if there is a mechanical problem of some kind, Pro Air makes sure to get our travelers to their destination or back home."
To solve the issue of how much of the monthly fee to charge back to business units, Killeen--with the help of each unit's finance director--already has developed an allocation system based on historical usage on the routes in question. Each business unit pays its share each month.
For General Motors, the negotiations with Pro Air coincided with the creation of a new Enterprise Activity Group, a shared services organization that is recharging the company's efforts to cut costs and increase service in its non-core activities.
"The Pro Air deal is symbolic of what we're doing with the Enterprise Activity Group, coming up with innovative solutions to leverage our buying power and reduce costs," said Killeen.
Although the Pro Air deal meshed with corporate goals, Killeen still had to gain the support of financial directors, through whom he informed employees about the deal in communication packets that included answers to commonly asked questions. Those packets also were posted on the travel section of the intranet site.
Asked how Chrysler gained senior-level support for such a deal, Mike Craighead, manager of operations and office services, said, "Quite honestly, we did it the way we normally do business: by presenting our case and pointing out the issues."
Craighead, who reports to Braswell, said Chrysler, like GM, informed travelers of the deal through company news outlets and the travel home page. The travel department made clear that senior management was behind the program, including Chrysler's vice president of human resources on the communications. Chrysler still is working through how it will charge the cost of Pro Air services back to business units.
Chrysler and GM, as well as Black & Decker, Ford and a couple of other companies comprise the Business Travel Coalition. Last summer, as Pro Air was making its initial proposal to the two companies, BTC president Kevin Mitchell drew up a multi-page document outlining what he thought was wrong with the airline's thought process.
"A key point was that Pro Air was coming at this from a discount perspective, and a pretty small one at that. I emphasized they should provide a business case to Charles (Braswell), talking about what Chrysler paid before Pro Air on those routes and what they would pay if Pro Air went away," said Mitchell, who noted that in the end, he did not sit at the negotiating table with the car companies.
"I was encouraging them to think along the lines of a long-term contract with guaranteed pricing, net fares, simplified structure--the BTCC principles," he said.
Mitchell believes the program is a model for other companies and airlines, startup or otherwise, to follow.
"This deal withstood the scrutiny of a number of internal departments at Chrysler and GM," he noted. "Pro Air now can go to lessors and get preferred rates, expand and seek additional deals like this."
Killeen said he believes the model "could indeed be something that changes the way corporate travel is purchased." At the moment, though, Chrysler has "no similar plan in place for other locations," said spokesman Rocky Rockingham.
Braswell and Killeen both cited increased competition as a major motivating factor in doing the deal, and said they do not believe the deal threatens their relative positions with preferred airline Northwest. Said Braswell, "We will honor all existing contracts."
Trying to move travelers away from Northwest is nothing new to companies based in its hubs, partly because of high fares but even more because of service. Travelers with one small marketing and consulting firm, Amrigon, based in Bloomfield Hills, Mich., sometimes take American Eagle to Chicago and connect to American in order to ensure an ontime arrival for key meetings. Or, they use Flint Airport or a charter aircraft as an alternative.
"You don't need a Ph.D. to figure out that Northwest has a monopoly at Detroit Metropolitan Airport," said Richard Smith, a partner at Amrigon, which has 40 frequent travelers. "Their service is terrible. They have morale and labor problems. And Detroit Metro is widely ranked as one of the oldest, most crowded, dilapidated, inconvenient airports in the country. It should probably be scrapped and started over again. You just can't gamble on these things when you have to be at a meeting. We literally can't say we're going to be there because we don't know."
Inca Computer Co., also located in Bloomfield Hills, last year told Crain's Detroit Business magazine that it was considering leaving the area altogether because of high fares and shoddy service.
Large companies, too, are seeking alternatives. Minneapolis-based 3M in March contracted with American Airlines to supplement its service from Northwest. It was the first time in 15 years the company signed a second preferred airline.
In terms of improved competition, the Pro Air deal with Chrysler and GM is significant, said Patrick Murphy, deputy assistant secretary for aviation and international affairs at the Dept. of Transportation. "The fact that two of the largest corporations in the country would do a contract with an airline that has two planes certainly says a lot about the state of competition in the airline industry," said Murphy. "We've heard from other major corporations about airline dominance at major hubs, especially over the last few months."
According to the "Lehman Brothers 1998 Hub Factbook," Northwest Airlines in 1997 flew 78.9 percent of the seats out of Detroit Metro (up from 71.2 percent in 1991) and controlled 72.7 percent of the gates. The next largest carrier in terms of seats flown was Southwest Airlines, with 3.7 percent. Among all of the major airlines, Northwest leads the industry in dominance at its hubs of both seats (79.9 percent) and gates (74.8 percent). But Northwest ranked dead last in utilization of those gates.
If the Chrysler/GM deal ensures Pro Air financial stability, Northwest could be faced with one of its greatest challenges in the domestic market. Sources had rave reviews about the little airline.
Amrigon's Smith said he welcomes the competition in Pro Air, and in fact was one of the airline's first passengers after it began operations last July. "They've got beautiful planes, lots of space, and Detroit City Airport is small, convenient and relatively close," Smith noted.
Braswell said part of the reason that Chrysler signed a contract with Pro Air was that travelers who had flown the airline came back with such positive reports: "We've had nothing but great comments over the last six months."
Agreed Craighead, "To my knowledge, they haven't cancelled any flights. Their performance has been stellar.