<B> Air France Flap</B>
<I>Carrier's Direct Discount Deals For Small Cos. Draw Fire</I>
By Jay Campbell
An attractive net fare program offered by Air France to a targeted group of smaller corporate accounts and individual frequent travelers is ruffling feathers in the agency community and turning heads among large corporate buyers.
The one-year deal provides a 38 percent discount off Air France's L'Espace business class or Air France business class seats on flights operated by codeshare partners Continental and Delta Airlines. It stipulates that buyers book directly with the airline and it does not require any shift in market share or promise of future business.
A copy of one such contract, called the Company Business Travel Program, obtained by Business Travel News spells out the deal. It applies only to U.S.-originating full fare business class travel to Paris or destinations beyond in conjunction with a transatlantic flight. Air France provides buyers with an account number that is relayed to the reservation agent at the time of purchase. All tickets must be purchased using a credit card bearing the traveler's name or an authorized corporate card, with a signature on file. Tickets are nonendorseable to another carrier.
While at least one agency and the American Society of Travel Agents are concerned that the offering is an effort to side-step commissions and overrides, corporate travel managers at some large corporations feel slighted because they're earning smaller or similar discounts for bigger business.
"This is a promotion to reach out to smaller companies, and I can't comment on how it compares to what's offered on a long-term, global agreement," said James Lawrence, Air France's senior vice president of marketing for the Americas. "Small businesses are often ignored, so this is an opportunity for them to play in the same league as the big guys."
Lawrence's words did not allay the concerns of one business travel manager, who argued that "there are bigger customers driving a lot of business Air France's way and not yielding anything near this. We're dealing with Air France on a global basis, and buying intra-France flights--on those we get no commission and no discount."
While not revealing how the deal compares to others she has seen, Caro Cook, senior transportation officer at the International Monetary Fund in Washington, D.C., said she was "surprised by the figure."
According to Topaz International, average negotiated discounts for business class travel to Paris from Chicago, Los Angeles Miami and New York-JFK range between 20 and 33.5 percent.
Management Alternatives consultant John Heilner was amazed that the offering requires no volume targets. "Air France has reached a new level of aggressiveness in pursuing new customers," he said, speculating that perhaps Air France determined that smaller companies are more price sensitive and less apt to fly business class. "If you take the commission and override out, this amounts to around a 25 percent discount. That's a hell of a discount for small accounts and I think the larger customers should demand to be on par."
Some other sources, while also surprised by the level of discount, were less critical of the airline. "I think it's naïve to think, 'I'm big, so I should get the big discount,' " said Michael Whitesage, president of The Prism Group in Albuquerque. "Air France can't be giving discounts like that to its large accounts because that would dilute their revenue. This is a surgical move to get some small corporate business, and in any business the supplier controls the pricing. We need to respect that."
On another level, Whitesage acknowledged this was a "bold" program because it eliminates the travel agent, which in itself should make it less attractive to large corporate buyers. "It's difficult to enforce policies about coach versus business class and to get your information back for MIS if you're not booking centrally through an agent," he said.
But eliminating the agent has elicited words of caution from ASTA and howls from the TravelStore, a Los Angeles travel agency with a client that received the offer. "I'm not anxious to sue or anything," said Wido Schaefer, president and CEO of TravelStore. "But Air France has been pushing us to implement some corporate account programs and they're aware, involuntarily or otherwise, of our accounts and may have contacted people I introduced them to."
Schaefer has his lawyers looking at the issue to determine whether it violates Air France's agreement with him. Already, however, he wrote to Air France requesting immediate renegotiation of his contract.
The contractual issue, he claimed, could be compared to the recent dispute between American Airlines and First Class Travel (<I>BTN,</I> June 22). In that case, which is under appeal at the Department of Transportation, First Class Travel accused American Airlines and The Sabre Group of interfering with four corporate customers and violating CRS rules. The agency claims that in contracts for airline services, AA required the four clients to use Sabre, which First Class does not use, causing the agency to lose business from those companies.
At Air France, Lawrence defended the airline's marketing practices, noting that it had purchased a list of companies likely to be doing business in Europe from a marketing company, and then used telemarketing to get through to them. Lawrence insisted that in calling prospective clients for the program, the airline asked whether the customer already had a travel agency. If it did, he said, the call was terminated.
"We didn't like the script they were using. We raised the issue with Air France, but didn't get any indication that it would change the program," an ASTA spokesman said. ASTA on Sept. 4 warned members to "consult with their legal counsel in their home state to determine whether the offer of this discount constitutes either a breach of contract with the travel agency, in connection with override or preferred supplier agreements the agency has with Air France, or constitutes a tortuous interference with contractual relationships the agency may have with corporate accounts."
Lawrence said the airline's lawyers now are working on new contract language to ensure that the customer does not already use a travel agency's services, to the effect of, "We are assuming this offer does not interfere with any existing contract."
"We've made a major effort to ensure this doesn't step on any existing contracts," said Lawrence. "We screen the lists before they go out. The last thing we want to do is have a promotion that hurts travel agents, and to our knowledge, only the TravelStore has taken issue with the promotion. If something fell through the cracks, we take the blame and apologize."
Robert Moss, president of Belmont, Mass.-based Travel Intelligence, speculated that "it could be that Air France couldn't offer this through travel agents because the airline wouldn't be able to track it and make sure only qualified users were booking it. I wouldn't be surprised if Air France's revenue accounting system couldn't handle it that way."
Heilner said he hasn't seen many contracts that require customers to book directly with the airline, and the most notable had been deals involving the East Coast shuttles (<I>BTN,</I> Aug. 3).
"Maybe this is Air France's way of doing Internet fares," one travel manager said. "They certainly are reaching out to take control of this industry's outrageous commission and override structure.