The SkyTeam airline alliance and Royal Philips Electronics of the Netherlands last week said they had agreed to a framework for the alliance's first global corporate contract. Covering 25 countries and roughly 40 percent of Philips' more than $200 million global airline spend, the deal is scheduled to take effect Dec. 1.
Meanwhile, Air France and KLM Royal Dutch Airlines—two SkyTeam members—have progressed on integrating their corporate sales platforms. Since finalizing their cross-border merger last year, the two carriers combined global corporate sales departments, began unifying global fares and account management systems, launched new customer relationship management initiatives and signed new global deals with most large travel management companies.
SkyTeam in August announced its readiness to negotiate global contracts with large corporate clients
(BTN, Sept. 5), though Philips last November already had begun to outline plans for a comprehensive agreement with the alliance.
The new arrangement includes Air France, Continental, CSA Czech, Delta, KLM, Korean and Northwest airlines. The deal follows and augments an earlier and less substantial relationship the electronics giant established with the Star Alliance.
Benefits of the SkyTeam deal include incremental cost savings, traveler recognition, harmonized pricing, a single point of entry, combined performance reporting and transparent faring and contract structure.
"We are getting away from being purely driven by price to have value added to the entire program. That is difficult in the hectic environment of travel and airlines," said Peter Sijbers, Philips' global commodity manager. "We will commit to market share if you will commit to maintaining your competitive position in the marketplace. If you agree on that, then all the other elements will fall into place, including harmonized pricing, flying out on one carrier and back on another, etc."
"The sum needs to be better than the individual elements, and we said that we would not sign any side deal with an individual SkyTeam member," Sijbers added. "You are either in that relationship or you are not. The reality also is that Philips is an alliance of businesses, so what you do for us as an airline alliance is also what you expect from us. We need to mirror what we are doing, and so far, so good."
The relationship first grew from close cooperation with KLM to include Air France. "Being able to take advantage of the second hub in Paris at Charles de Gaulle is of key importance to us," said Sijbers, noting Philips' southern Netherlands headquarters location.
It then expanded to encompass most other SkyTeam alliance members, though Alitalia is not involved, due in part to Philips' ongoing assessment of its Italian travel program.
"The U.S. SkyTeam members are very much involved, although not having antitrust immunity is a critical hurdle," Sijbers explained. He acknowledged the complexities that stem from that, including the differing priorities of Continental, Delta and Northwest.
Nevertheless, involvement in the arrangement by the U.S. SkyTeam members was essential for the Philips program, particularly the key component of the transatlantic market. The company's other key areas include Brazil, China, Hong Kong and Singapore.
The deal includes route-specific, harmonized pricing, generally based on point of origin, rather than point of sale. The agreement covers more booking classes than what had been included in an earlier KLM agreement, and such value-adds as airport lounge access for Philips' travelers. "We are trying to build a program beyond reasonable doubt," Sijbers said. "In that sense, I need a partner that truly is a partner. We want to build recognition."
To further simplify the relationship, Philips has a single point of contact within SkyTeam. To collect and analyze its travel data, Philips uses The Prism Group of Albuquerque, N.M. "They have been instrumental in pulling it all together, in combination with American Express Consulting," Sijbers said. "An analysis of current programs, cross-checked between the two and used with benchmarks, gives a pretty good insight of where you need to be."
Meanwhile, feeder flights flown by KLM between Eindhoven and Amsterdam are scheduled to end in December and Philips instead will make use of trains. The airline previously had planned to suspend the service, but opted to reinstate flights thanks to a commitment by Philips. "The agreement expired earlier this year and we said we would not renew because of the expectation that SkyTeam needs to incorporate the train service," Sijbers said. "I want the train to at least be part of the commercial offering."
He acknowledged that there still are other issues to work through, including guaranteed availability of fares. "The initial package is concluded. If we need to make changes, we will make changes," he said. "That is the commitment on both sides."
Sijbers also cited John Guarneri, Philips director of global travel services, for gaining procurement buy-in.
SkyTeam said it plans to expand its global contracting efforts to include other multinational corporations. "Through the global contract, SkyTeam is better able to leverage its worldwide network to provide valued customers, like Philips, with seamless solutions for corporate business travel," said KLM executive vice president for commercial Paul Gregorowitsch.
SkyTeam's global corporate sales effort significantly would be enhanced should the U.S. Department of Transportation approve a six-carrier request for antitrust immunity.
Two of those airlines, Air France and KLM, have progressed on their joint global business program since merging last year
(BTN, June 7, 2004). As it did with its cargo divisions, the carriers in July combined global business units into a functionally integrated organization.
Upon contract renewal, global corporate clients are shifting to One Corporate Travel Solution, a program for multinational clients spanning both carriers' products, networks and pricing. After a transition period, each customer is assigned one lead account manager. For new deals, the program targets companies with at least ?1.5 million in annual volume in two or more countries and an effective corporate travel management program.
Air France-KLM's marketing and B2B departments support global sales in a unified request-for-proposals process meant to mitigate the increasing complexity and time-sensitivity of inquiries from prospective clients. "To adapt to the changes and learn from each RFP, we are enriching the RFI database and making sure it is available at all locations," said Vikram Singh, director of business development for the Air France-KLM global business organization. "We have toyed with the idea of making all this information available online, interactively, to customers and their consultants. It will evolve slowly but it ultimately could lead to shorter times on both sides. It could be a competitive edge to answer quicker and manage our own complexity."
To bid on business and set contractual terms, Air France-KLM uses an in-house analytical process, as well as a system provided by The Prism Group. Prism also supplies data-aggregation and decision-support systems to U.S. allies Continental, Delta and Northwest.
"As we get into the SkyTeam issue, Prism is becoming more visible," Singh said, though he acknowledged that many companies, both European and North American, opt not to release European travel data, owing to the region's strict data privacy laws.
Air France-KLM global clients fall into two categories: partnership accounts and development accounts. "With development accounts, we are more aggressively fighting the competition," Singh said. "Ideally, we want to move into marketshare deals, and second is revenue growth."
Overall, Air France-KLM has targeted 25 percent volume growth in three years, through new account acquisition and incremental growth among existing accounts.
Most existing accounts have made the switch to the joint programs, though Air-France-KLM still is working to integrate such aspects as global faring. For example, to align with Air France pricing, KLM continues migrating from Category 35 fares to Category 25 fares filed through the Airline Tariff Publishing Co. In other words, it is switching from fixed corporate pricing to dynamic discounting. "If you want to give customers a common contract, you need to give them common discount structures," Singh said. "There is no room for fixed-fare arrangements. It was more of an adjustment for Dutch accounts, but we crossed that bridge."
"We came from a situation where we had fixed fares that did not go with the flow," said Philips' Sijbers. "To manage the perceptions of your program, it needs to be flexible."
Another next step is the full rollout of Surcouf, an internal, integrated account management system that the airlines expect to implement in all countries by February. The system—which ultimately could be linked to the Prism system to create a single, comprehensive data picture—feeds a joint corporate data warehouse. That, in turn, produces combined management information, which for now still requires a degree of manual intervention and audits until full automation is achieved.
The One Corporate Travel Solutions Web site is becoming the primary source of management information for both account managers and buyers. "It is the software that distinguishes us from the competition," Singh said. "Having the ability to have one customer interaction point on the Web site, and to deal with the rest of the organization, such as account teams in far flung places who also need access, has been one of our biggest achievements."
Air France-KLM also plans to use the site to survey travelers and travel buyers, and to provide additional customer service information.
Where permissible by clients, for example, the airlines are working to combine account data with information from the integrated Flying Blue loyalty program to produce client-specific punctuality statistics and complaint analysis. It also facilitates traveler recognition and enhanced customer service.
Longtime KLM partner Northwest actively has been developing such client-specific performance metrics in the domestic U.S. market
(BTN, Nov. 8, 2004). "We have learned a lot from Northwest and their SalesNet program," according to Singh. "Interestingly, in many requests for proposals, companies are demanding this type of information, so we are submitting this information."
Meanwhile, Air France and KLM also recognize bookings made through their respective Web sites by way of client tracking numbers, an innovation that also has benefited smaller, local accounts. Singh said KLM in particular is seeing more usage of such booking options on simple point-to-point itineraries.