AA Holds On To Top Spot In BTN's 2nd Annual Survey

<B> AA Holds On To Top Spot In BTN's 2nd Annual Survey</B>

By David Jonas

Despite labor and governmental setbacks that plagued the carrier throughout 1999, American Airlines for the second year in a row managed to take the top spot in Business Travel News' Annual Airline Survey. Measured by responses from corporate travel managers and travel agents, the survey found Continental, United, TWA and Delta rounded out the top five carriers with which to negotiate and maintain domestic travel programs. While the majority of the 14 carriers included in the survey showed some degree of progress, buyers still are telling the airlines that there is plenty of room for improvement.

The survey asked respondents to rank carriers, on a scale of one to five, in various categories, ranging from flexibility in negotiating prices and amenities to the quality of sales rep visits. It also included overall price value, a category easily won by Southwest Airlines for the second straight year.

This year's survey included 10 different categories as well as usage figures and an overall weighted score for each airline. A total of 304 surveys were returned and tabulated for overall scores as well as subsets for corporate travel managers and travel agencies.

Overall, buyers gave the airlines a slightly higher combined score than last year. "Most airlines are cutting better deals than they were a year ago," said John Heilner, consultant for Management Alternatives in Princeton, N.J. "Some of that is real and some is perceived, since net-net deals mean deeper discounts." Heilner added that another reason could be that airline alliances finally are beginning to deliver on their promises. "It's only been a small step forward, but it's something," he said. Indeed, alliance partnerships are beginning to bear fruit for those looking for joint deals (<I>BTN</I>, Sept. 20), and, as one buyer stated, "airlines are finally beginning to walk the alliance talk."

Other industry insiders pointed to a general softening of the market and slipping airline yields. "All of a sudden the airlines are chasing the customer instead of the customer chasing them," said Michael Boult, Rosenbluth's vice president of supplier relations. "The carriers have invested a lot in their fleets and the salespeople need to fill those planes. On top of that, corporations are savvier and have access to better technology. The end result is that airlines are willing to have smaller yields and offer deeper discounts."

Many buyers were pleased to discover that this past year. Fred Fischer, manager of corporate travel services for Boston-based John Hancock Mutual Life Insurance, found that mounting competition has led carriers to step back on market share demands. "Unlike past years, the airlines were really beating down the door and acting very competitively on proposals and RFPs," he said.

Phil Dunphy, travel manager at Pfizer in New York, said that airlines have put a higher emphasis on corporate sales programs. "The whole negotiating and contract process is becoming more defined," he said. "These relationships are becoming more high level and more lucrative on both sides of the table."

However, many felt that scores would have been lower than last year if passenger service and flight performance categories were included, areas where the airlines faced heavy fire on numerous fronts throughout 1999. BTN removed these topics in order to focus respondents on the airlines' ability to meet their needs as buyers and program managers.

Despite modest overall gains, the airlines as a group did not receive a score above 3.2 out of five in any of the 10 categories and finished with an overall weighted score just above three out of five, suggesting that all carriers have much work to do before satisfying corporate and agency clientele.

Two categories where the airlines showed particularly poor performance--with scores well below the overall average on both the corporate and agency side--were quality of sales rep visits and empowerment of sales reps.

"Anecdotally, airlines continue to reduce the number of salespeople in the field, resulting in fewer visits and such," Heilner said. "And as deals include deeper discounts and airline yield management systems improve, authority is going back to headquarters. It is more apparent today that the airlines' senior analysts and pricing people are involved in the negotiations."

Jack O'Neill, vice president of airline partnerships for St. Louis-based Maritz Travel Co. agreed with that assessment. "While it varies, some airlines put less emphasis on their front line sales reps because business is driven by scheduling, pricing and yield management," he said.

For the most part, buyers also reported that local reps still must defer to headquarters when modifying, extending or renewing existing deals.

Other categories with combined scores below average include quality of airline communication and flexibility in negotiating on services and amenities.

Buyers, however, found a few areas where the airlines performed well in comparison with the others. Overall price value, for example, was the strongest category for all the airlines combined, according to both travel agents and travel managers. However, the results suggest that strong rankings for the low-fare carriers in this category pulled the overall number to its top position. Southwest, for example, scored 15 percent above average. AirTran and Frontier also did well. In contrast, Delta, Northwest and US Airways all scored far below the overall price value average.

Still, some buyers said the majors are offering better deals and, in turn, a better overall value. "The airlines have recognized that there is more of a corporate focus on cost containment and stronger travel policies," said Andrew Menkes, vice president of global travel management at Republic National Bank in New York. "Stronger policies are complementary to enhanced corporate discount programs."

Rob Callahan, travel services manager at SBC Communications in San Ramon, Calif., said because prices have continued to rise, corporations are being offered bigger discounts. "Also, the carriers have been very aggressive in markets they want or need," he noted.

Buyers also gave higher-than-average marks for availability of accurate flown revenue data and flexibility in negotiating group pricing. On the data side, the airlines have invested in new systems. Boult noted that Y2K has given justification for scrapping older, legacy systems and starting anew. "Their books are just better now," he said.

Fischer said the enhanced technology even is apparent on a day-to-day basis. "It is truly amazing how they can bring information back to you these days, especially through initiatives such as direct data reporting through ARC," he said. On the flip side, however, Fischer noted that travel managers cannot "invent statistics" because the carrier data is so precise, efficient and comprehensive.

Meanwhile, buyers rated flexibility in negotiating group pricing as the second best category. Those results may be due, in part, to a proliferation of zone fares and more of an uderstanding about their availability and benefits.

Similar to 1998 findings, American garnered top marks in seven of 10 categories. When excluding the smaller travel agent contingent from the results, travel managers ranked the carrier first in eight of 10. Its overall score was more than 13 percent above the industry average, both overall and according to travel managers only.

Some analysts said that American has become somewhat more competitive than in the past, while others added that while AA may not be offering the best discounts, or even showing much degree of flexibility, buyers appreciate the professionalism and sophistication of the sales force. And corporate travel managers said AA is paying attention to them.

One buyer commented, "AA has developed a large route basis and has knowledgeable sales executives in the corporate arena. Their reps are very sophisticated and that's what gives them an edge."

"They have been very aggressive lately," Fischer added. "They're offering more through regional feeds and codeshare partners and doing more than others on the international front."

Continental placed second overall, up two spots from last year, and notched a first place score in the complaint/problem solving category as well as eight other top three scores. Among travel managers, it finished third, just behind United. In fact, Continental said it has made corporations a primary focus since last year's survey

However, according to corporate travel managers, the carrier did worse in some categories than others, including quality of sales rep visits. "Because we are spread somewhat thin in manpower, we can't spend enough time with as many customers as we would like," said Dave Hilfman, Continental's vice president of national sales, adding that new staff in the national corporate sales department and field sales staff will alleviate the shortage.

Another area where the carrier performed below its own average, similar to many of its competitors, was empowerment of sales reps. While Hilfman said that Continental's reps indeed are empowered, he noted that the largest corporate agreements are analyzed carefully at headquarters for "the best interests" of both the carrier and customers.

The carrier did have a strong showing in flexibility in negotiating both transient and group pricing. On the latter, Hilfman said Continental has been focusing on its GroupWorks product, which offers "one-stop shopping, competitive pricing and a quick turnaround."

United also showed some improvement, and like Continental, jumped two spots from fifth to third, and to second according to corporate travel managers. "They have been quite aggressive and a price leader in corporate discounting, and therefore one of the easiest to strike a deal," Boult said.

United, which declined to comment on the specific results, said "our internal measures show that we are making a lot of progress with our customers."

Indeed, Menkes said both Continental and United have renewed their focus on corporate travel. "Their improvement this year is a clear sign of senior management's commitment to the corporate marketplace," he said.

<B>Dropping Three Notches</B>

Delta, meanwhile, dropped from second overall last year to fifth in 1999. "Delta definitely has been more difficult to negotiate with in the past year," Heilner said. "They have not been as aggressive on discounting."

One reason for the decline in the eyes of travel managers, who rated them below the industry average in six categories, could be an attitude adjustment. "There has been a change in management and marketing philosophy to a less aggressive discounting strategy," Fischer noted.

However, some buyers said Delta has improved in some of its corporate relationships. "The fact that they have dropped in the survey is extremely surprising," Dunphy said. "Perhaps they just have lost focus on the smaller players while paying close attention to the larger accounts."

While mired in financial dire straits, it is clear that Trans World Airlines does not have much room to hold a hard line. Perhaps more so than any other major, TWA cannot afford to let buyers walk away from the negotiating table without signing a deal. As a result, the carrier for the second year in a row received the highest marks in flexibility of negotiating transient pricing, its only top finish both overall and among corporate travel managers. Similarly, it placed in the top three on both charts, as well as on the agency side, for flexibility in negotiating group pricing. "They are happy to get anyone on board," Boult said. "They have marginalized themselves to death and now you don't have to give a lot to get a lot from them."

"They are grateful for what a corporation can give them," Fischer concurred. "Plus, they've been very supportive and have tried to be there when other carriers have not." Furthermore, Fischer added that an agreement with TWA could be as simple as two paragraphs compared with 17-page documents coming from other competitors.

Even so, both travel managers and buyers graded TWA far below the average in availability of accurate flown revenue data, quality of airline communication and quality of sales rep visits. One disparity, however, is in the overall price value category, where agents scored TWA below average but travel managers scored it above. Other challenges faced by TWA include a limited network and no strategic alliance ties.

US Airways also has been experiencing financial woes, as well as a rocky labor environment and poor performance. And similar to TWA, it may be hurt by its lack of alliance inclusion. However, buyers were not overly soured by such developments and the carrier managed to lift itself from eighth to sixth overall by scoring near or above average in most categories. Much of the improvement can be attributed to a revamped sales team (<I>BTN</I>, Aug. 3, 1998).

However, corporate travel managers gave US Airways very low scores for both quality of sales rep visits and overall price value. The restructured sales force, while positive in many aspects, may have been a double-edged sword. A call center replaced several local sales reps and in turn may have alienated many buyers, while others said the sales team is not strong enough to forge all the necessary ties with corporations.

US Airways also received lower-than- average overall price value from travel agents. Some said the reason for that is related to high costs incurred by the carrier as it focuses primarily on short-haul routes and the fact that it dominates its hubs more than other players.

Northwest received the lowest marks of the largest carriers and was branded with the lowest overall price value of all 14 carriers in the survey--the only one with a score below three in that category. In fact, it managed to achieve a score above three in only two areas--flexibility in negotiating price for both transient and group--and did not beat the industry average in any one category.

Said one travel manager, "They just don't talk, don't cooperate after the agreement has been made, and flat out walk away if targets are missed whatsoever." Dunphy dubbed Northwest the "stealth carrier" because they come in, "hit you up for a deal and disappear."

"We have been negotiating corporate contracts actively within a new competitive environment in the past year, but there may be a lag time, even up to a year, between perception and reality," said Fay Beauchine, Northwest's vice president of sales and customer service. "We went through a difficult year in '98 and were distracted. But in '99 we have made a conscious effort to rebuild relationships." Beauchine added that a "couple hundred" corporations in the past year were involved in a quick start program that demanded less data from customers and served as a six-month pilot agreement. About 75 percent of those pilot agreements became permanent deals.

Buyers also were dissatisfied with the carrier's complaint/problem resolution. One industry observer said Northwest's customer service is so bad because they can get away with it. "They are the number-one carrier in more of their top 25 markets than anyone else," the observer noted. "Anyone who uses Northwest does so because they have to and not because they want to, and the scores certainly represent that fact."

Another buyer, speaking on the condition of anonymity, said Northwest will get itself back on track as it reorganizes many internal processes, but still has problems matching the rising bar. "The Continental team will have some influence in changing complaint resolution issues--they won't stand for the current problems plaguing Northwest," he said. "In fact, some of that influence already is having an effect."

Beauchine, recognizing that customers can be confused about customer service procesess, said that Northwest is working on a new initiative to give customers "one-stop shopping" for complaint resolution. The system is expected to be ready by Dec. 15.

Three carriers, Midwest Express, America West and Alaska, fall between the majors and the low-fare carriers. They are a level beneath the largest carriers, in terms of network and revenues, and perhaps as a result placed below the country's largest carriers in the survey. Though Midwest Express dropped a few places in the overall rankings, it still posted slight gains in many categories, and a huge improvement in quality of sales rep visits. Progress can be attributed, in part, to a restructured sales force and new strategic initiatives for the corporate market (see story, page 1).

The biggest decliner on the list was Alaska Airlines, down five spots to twelfth overall. The carrier placed well below the average in most categories, including quality of sales rep visits where it could muster only a 1.8--one of the lowest scores in the survey. "Alaska has a relatively small sales force and they operate on tough margins," said Rolfe Shellenberger, senior analyst at Runzheimer International. "They face major competition on most high-volume city pairs and do not have a lot of high-fare situations that might allow deals." Alaska faired slightly better among travel agents, due in part to an overall price value figure above the average.

America West jumped three spots to seventh in this year's survey. The carrier performed better than the overall industry average in complaint/problem resolution and overall price value. Corporate travel managers as a subset also gave America West good scores in those areas, but ranked it well below average in empowerment of sales reps and quality of sales rep visits.

<B>Agency Input</B>

While a much smaller sample size than the corporate buyers, respondents from the travel agency community also offered a few telling indicators.

For starters, agency scores across the board were lower than those from travel managers. Industry insiders and airline executives said changes in agency compensation is the overriding factor.

"The onset of commission cuts and the consequences associated is the most likely cause for the disparity," O'Neill said.

Nevertheless, Continental, like last year, was tops overall on the agency side, finishing in the top three for each of the 10 categories, followed by American, United, Delta and US Airways respectively.

"Continental has always done a real good job on the sales side with agencies," Heilner noted. "Traditionally, they have always been at the of the top of pack in terms of agency reward."

Members of the agency community agree. "Continental has a long-standing and consistent approach to the mega agencies," O'Neill said.

Shellenberger added, "Continental's excellent scores with travel agencies reflect their big-city geography and their sales strategy: reach large numbers of corporations through agencies because they don't yet have a large enough sales force to specialize extensively in corporate sales."

American, placing second overall among agencies, followed Continental closely with nine top-three finishes and top scores in availability of accurate flown revenue data, quality of sales rep visits and empowerment of sales reps. However, agency respondents scored American fifth in overall price value--the lowest score for the carrier by either subset in any category.

United, Delta and US Airways rounded out the top five on the agency side. And similar to corporate findings, Northwest was last among the majors, 17 percent below the industry average and 26 percent below the lead.

Southwest, meanwhile, garnered from the agencies the highest score in any category, 3.97 for overall price value. Agent respondents put Frontier at the bottom in overall average score.