Continental Airlines in recent weeks enacted several policy changes meant to improve its financial footing, and competitors were quick to follow. Discontinuing waivers and favors, expanding paper ticket surcharges and canceling travel agency cluster discount programs will cut airline costs and raise revenues but further pressure travel agencies already scrambling to provide value to clients.
Other recent developments likely to further antagonize agencies and their clients include widely adopted strategies to significantly restrict nonrefundable fares (see story, above) and exclude low-fare buckets from corporate discount programs, United Airlines' move to tighten its upgrade policy, new fees slapped on excess baggage and removal of various inflight services and amenities.
Continental in a July 29 letter to agencies, said, "We will no longer be granting fare rule waivers on any fare in any market." Waivers and favors traditionally are rule-benders meant to empower agencies and ingratiate important customers. They provide latitude on advance purchase and minimum/maximum stay restrictions, change fees and excess baggage fees, among other things.
Delta Air Lines matched the policy two weeks later. "These practices were originally intended to provide a remedy for ticketing errors and certain situations outside a travel agent's control," wrote Lee Macenczak, Delta senior vice president of sales and distribution, in an Aug. 15 letter to travel agencies. "They were originally developed for rare occasions, but are now being used routinely to circumvent the pricing structure, which impacts the integrity of our fare structure."
Another two weeks later, both American and United announced to agencies they had discontinued waivers and favors. Sources indicated Northwest made similar changes, but a carrier official said some modifications were made as part of the November fare restructure
BTN, Nov. 12, 2001 but nothing recent had been announced.
US Airways opted not to formalize any new policy. "It is unfair to say those airlines have discontinued waivers and favors," said B. Ben Baldanza, US Airways senior vice president of marketing. "They tactically decided to be less liberal. The bottom line is that agencies, corporations and individuals get treated differently based on their level of economic importance."
Others agreed. "There is always flexibility and wiggle room for large customers hitting their targets and there always should be," said Michael Boult, COO of Eclipse Advisors, the travel procurement technology division of Rosenbluth International. "But if you are marginal, this is a shot across the bow."
Indeed, some travel buyers confirmed anonymously that special deals through their agencies are likely to remain in place. "This was a move to slow it down, not necessarily to eliminate waivers and favors completely," said Thom Nulty, president and COO of Navigant International. "Logic will prevail."
Further, there may be inconsistencies within an individual carrier's strategy, according to Jack O'Neill, president of TQ3 Maritz Travel Solutions. "The way the airline salespeople are working in the marketplace is not necessarily reflective of discussions we have with headquarters," he said.
Jerry Behrens, vice president of business solutions of New York-based Tzell Travel Specialists, said the development is more likely to impact smaller clients, those that have not negotiated corporate deals. "Those smaller companies used waivers and favors extensively," he said, adding that small clients became accustomed to getting waivers that resulted in discounts as high as 25 percent on certain tickets. "Some of those clients are now taking connections or going with low-cost carriers." Behrens cited JetBlue Airways' service from Newark to the Los Angeles area as an example. "If these clients do leave the major carriers in droves, the majors will have to try to get them back by reintroducing" waivers and favors or some other form of discounts.
Dave Hilfman, Continental vice president of multinational sales and revenue programs, argued that the elimination of waivers and favors balances agency competition, allowing each "to take care of their clients on the same level, without one having an advantage over the other."
Also, some buyers can expect other value-adds, depending on the level of importance conferred on their company's business by preferred suppliers. For example, Brian Burke, travel manager for Chandler, Ariz.-based semiconductor company Amkor Technology, said, "The carriers are compensating us for the elimination of waivers by giving us more upgrade coupons and giving employees free membership in their premium clubs for the year."
Still, many buyers were irritated to learn flexibility had been lessened, especially because carriers made the changes without informing them directly, even if their agencies had been put on notice.
In another step to respond to the weakened fare environment, Continental on Sept. 15 will terminate all corporate cluster discount agreements. Those agreements provided limited discounts through certain travel agencies to clusters of smaller clients unable to negotiate individual corporate discounts.
"These programs worked well and provided value, but it appeared they were not being utilized as we hoped," said Hilfman. "We felt it best to cancel those programs and focus on corporate programs negotiated on a case-by-case basis rather than administered on a macro basis through the agency."
Hilfman added that some agencies already have provided data supporting stand-alone deals for their clients. Overall, more than 100 agencies are affected by the policy change.
A letter issued by Continental in mid-August to its agency clients announcing the change stated that agencies will suffer debit memos if they ticket under the cluster agreement codes after Sept. 15.
"It is an incentive for agencies to extend the discounts to small companies and move marketshare in certain carriers' favor," TQ3's O'Neill said of cluster agreements. "But they really only affect companies with annual air spending of under $2 million. Cluster agreements were never a long-term deal; it was always just a couple of months at a time."
But Navigant's Nulty said cluster deals "are coming in and out of the marketplace" and can help certain larger companies in cases where they cannot fly on a preferred, contracted carrier. "The fall is extremely difficult under good circumstances. In the current climate, it will be very tough for the airlines," he said. "I think we're going to see lots of marketing gimmicks and deals that are targeted at gaining added marketshare."
Separately, Continental began charging $20 for paper tickets on domestic routes where e-tickets are available, regardless of point of sale. That represents both an increase in the fee and expansion to the travel agency distribution channel, affecting the vast majority of tickets issued.
Competitors matched in varying degrees. Delta and United also are charging $20 for paper tickets on e-ticket-eligible itineraries through all channels while US Airways is charging $25. Northwest also is charging $25 across the board domestically, but only through direct channels internationally. The carrier has been working with global distribution systems for nearly a year on an automated paper ticket surcharge collection solution.
Though pesky at times, the surcharge won't be overly bothersome to the vast majority of corporate travelers who, as a group, largely prefer e-tickets. In fact, many companies have reached an e-ticket penetration well over 90 percent.
Agencies also will contend with a $25 administrative debit memo levied by Continental for any incorrectly reported U.S. taxes and fees and a $25 service fee for any debit memo issued that is not a flat fee or "administrative in nature." But O'Neill said debit memo issuance is "not a black and white issue" and that mistakes oftentimes can be attributed to the airline rather than the agency. "Can we charge the airline $25 for each mistake they make?" he asked.