Corps. Spicing Up Air Programs With LCCs

The entry of low-cost carriers into more business markets and their increased efforts to work with corporate travel buyers is, more than ever, prompting companies to reconsider supplier portfolios. Though such airlines primarily are used in spot-buy situations as part of a lowest logical airfare policy, a growing number of companies are considering them as secondary preferred carriers.

New developments, including JetBlue's entry into Boston this month, Frontier's planned development in Los Angeles and Southwest's aggressive intentions in Philadelphia, have drawn buyer interest. Meanwhile, these airlines are building dedicated corporate portals in an effort to translate that interest into action.

Maintaining a delicate balance that preserves discount programs with major network carriers is the toughest challenge. Others include aggregating all options at the point of sale, tracking those permitted to book through external channels and convincing travelers to sacrifice frequent flyer perks.

"Before, it was a niche situation in which we only built into our analysis specific client needs in Southwest Airlines markets," said Bob Brindley, vice president and general manager of Travel Procurement Solutions, a division of WorldTravel BTI. "That has changed, and low-cost carriers, at least, must be part of the analysis."

Corporate buyers may opt to use low-cost carriers simply by considering their services as part of a lowest logical fare policy, or they actively can promote them to their travelers as a preferred option—especially for those based in cities home to a low-cost carrier hub. Both scenarios can create a slippery slope for companies hesitant to shift share from major preferred legacy airlines.

Enough buyers have sought examination of the ramifications of using low-cost carriers that Eclipse Advisors, a unit of American Express, fashioned a new tool specifically for that purpose. The Low Cost Carrier Opportunity Analysis considers fair marketshares of LCCs in a client's top markets, availability of matching low fares from preferred major carriers, potential gross savings levels achieved by shifting share and net savings after factoring in higher rates from preferreds—both in impacted and unrelated markets—assuming those preferred carriers lessen or cancel any negotiated discounts in response.

Using those considerations, the Eclipse tool will suggest specific share levels by carrier and by market that corporations can aim for in order to achieve the greatest overall savings. "In some cases, it absolutely makes sense to shift share to low-cost carriers—mathematically," said Eclipse COO Michael Boult. "In other cases, it may not because you'd be giving up too much on your corporate discounts."

That, according to Brindley, is not necessarily any different than a situation in which a company is trying to handle multiple major, preferred carriers in a given market. "If the mainline major carriers see they potentially will lose business to a low-cost carrier, they will become more competitive and will come up with a fare match or give a corporate client a guaranteed flat fare," he said. "They will leverage the rest of their network and say, 'If you want to retain discounts in other markets, we want a majority of that business.' "

Those with international travel, in particular, risk losing corporate discounts on higher-price routes that, to this point, do not have low-cost competition.

"You can't have your cake and it eat too," said American Standard Companies global strategic sourcing director Tom Barrett. "In the long term, you have to give up a discount position if you cannot maintain marketshare."

Boult, however, generally suggested that "more often than not, the major carrier won't pull your deal, so, at the moment, corporations can have it all."

They at least may have some success in securing sweetened deals from major preferred carriers desperate to retain corporate business, especially if they can prove definitively the ability and the desire to move share. Some travel managers suggested that decisions by major carriers to remove corporate discounts from lower-fare buckets—a development that helped divert buyer attention to LCCs—can be reversed if the lack of differentiation in price and product at the lower end of the airfare spectrum drives away enough business.



Other Considerations

Those choosing to work with certain low-cost carriers may have to take extra steps to make available all options at the point of sale, principally because many do not participate in all or any of the main global distribution systems used by travel agencies.

Yet, as top executives at low-cost carriers happily point out, more corporations proactively are seeking ways to include discount airlines in their programs, especially as these carriers grow at several times the rate of legacy airlines and invade major carrier hubs and business markets around the country.

Atlanta-based Worldspan, for example, uses its own TripManager booking system for internal company travel, which normally would not include AirTran Airways inventory. "We set up the preferences and manually input the AirTran fares ourselves," said George Dunwoody, the company's business travel programs manager. "In recent weeks, AirTran went ahead and made enhancements to our current program and added a few more benefits." Worldspan, which has a long history with hometown Delta, maintains preferred agreements with all three former airline owners.

In some cases, low-cost carriers automatically are included in corporate booking tools and/or are easily accessible to corporate travel agents, depending on the global distribution system in question. In other cases, corporations are using Southwest's Swabiz portal—soon to be emulated by AirTran, America West and JetBlue—or other existing airline-direct channels.

Booking travel outside the GDS channel not only opens lower-cost options but also, in some cases, eliminates travel agency transaction fees and excludes those reservations both from travel agency data reviewed by major carriers and the GDS booking data sold to airlines.

One West Coast-based midmarket company anticipates a 20 percent savings on transaction fees in 2004 by booking travelers directly on JetBlue's and Southwest's Web sites. "Bypassing the GDS is a benefit as it doesn't count against our total numbers, which affect fulfillment on our corporate contracts with the major carriers," said the company's corporate travel director, speaking on the condition of anonymity. "The only problem is tracking. JetBlue doesn't have a corporate product. Southwest offers great reporting, but we do have to manually incorporate it into our numbers."

There are other considerations in guiding travelers to such external channels when agents are not involved. Those travelers first must be informed of those options, taught how and when to consider them and made aware that, in some cases, the designated travel management company cannot provide preflight or en route support for those itineraries.

"Security and tracking your travelers are the most important things," said Kevin Iwamoto, global airline and car rental supply manager at Hewlett-Packard. "There may be an extra cost to consider in integrating that into your own database."

Other factors to keep in mind include low-cost carrier use of alternate airports that may be more or less convenient and therefore more or less expensive in terms of ground transportation costs, the value of a nonstop itinerary versus a connecting one, specific airline ticketing policies and the evolving inflight experience.

"There is a lot to weigh, and it's not just about leather seats and DirecTV," Iwamoto said, "but the magic number is 30 percent marketshare. Once they go above that, and they are rapidly approaching, it will force changes in the way mega carriers do business. You'll see them beefing up the long-haul services and downsizing or abandoning the short haul."

On their way to that magic number—the latest statistics place low-cost share around 20 percent of the domestic market—discount airlines continue to flourish and build networks that corporate travel managers are finding hard to dismiss. JetBlue inaugurated Boston service this month; Frontier in April will begin developing Los Angeles into a focus city; Southwest in May will make a much-heralded entry into Philadelphia (see story, page 1); and America West continues to ramp up transcontinental services.

"Maybe we had a share of the business of some accounts in the past, but we were missing this transcon piece," America West vice president of sales Ron Cole said. In fact, both AWA and JetBlue now fly nonstop between Boston Logan and the Los Angeles area, in direct competition with American, United and US Airways.

"Boston-Los Angeles will be a bellwether market that will show if a low-cost carrier can drive preferential share," said Larry Restiano, director of the customer value program and consulting group for American Express supplier relations.

In other markets home to low-cost carriers—Frontier's Denver hub, AirTran's Atlanta base and America West's Phoenix operation, for example—2004 will bring even more opportunity to corporate travel managers.

"It comes down to the origination and destination level and whether the low-cost carrier has enough city pairs in a corporation's program to qualify as a secondary preferred," said Andrew Menkes, chairman and CEO of Princeton, N.J.-based Partnership Travel Consulting. "Don't be pennywise and pound-foolish. Buying on the spot market may have its advantages but that needs to be mitigated against the overall travel program."