Buyers Eye Airline Negotiations, Service

Verizon travel services senior specialist Debra Goldmann and Wal-Mart director of global travel services Duane Futch sat down with Business Travel News editors at the Association of Corporate Travel Executives conference in Miami this month to discuss airline negotiating and customer service.

BTN: Some analysts have pointed to evidence that domestic demand is weakening. Is that being reflected in your corporate discounts?

Futch: I think what's happening is the airlines are back to being able to manage six months to a year out. Over the past three years or so, they've been managing the cash flow every hour. Now they're able to manage out further and take a look at this. They're looking at some of their advanced bookings and they're starting to see a bit of weakening in that. I think they're going to start reducing prices.

You can't turn on the TV right now without hearing it's going to be $4 gas. What are people going to do? They're going to cut back. Their vacations aren't going to be long. I really haven't seen an airline come out and say, "We're reducing our fares by $10 because the price of gas went down." The other day an airline said they were charging another $5 because fuel is going up—but, hold it, the price of fuel is still below where it was a year ago, the last time there was an increase.

Goldmann: It depends on the carriers. I hate to say that. It feels like some are really tightening their belts. Others, I feel, are enjoying being in the black and are being even a bit more flexible.

BTN: After the new contracts with global distribution systems last year led to more pass-through fees for agency customers, are airlines taking care of their best customers after mangling them a little bit?

Futch: I'm not so sure it's that. I think they realize they all have a horrible customer service issue on their hands. It doesn't take a rocket scientist to go in and look at DOT statistics to realize that if you fly 10 flights, you're going to arrive on time on at best seven of those flights. They have a real customer service issue on their hands, and people are tired of it. I think people are starting to look at alternatives right now. Some of the alternatives could be fractional ownership. If the airlines are going to charge a certain fare, you start looking if it's cheaper to charter. There may be a separate theory these days when they start adding in productivity, like if you have to go from A to B and B to C to get where you're going and you can go direct to come back. Companies are now looking if they have to spend the night and what the cost of that is.

BTN: What are other customer service concerns beyond delays?

Goldmann: We have to check everything now. Getting your bag on time and undamaged is a real gamble on every trip. On business, I used to never, ever pack a bag, but now, I'm packing more than I used to just because I know I have to check.

Futch: It starts at the airport. You have to show up earlier. You have to go through the cattle line of the TSA. It's a lot of things. However, the airlines over the last six months have tried to do a much better job of customer service. We're noticing—as the leadership within the global travel area—that it is getting better. You're starting to see a resurgence of that: some new uniforms, things that are being cleaned up. I think there's been a radical change in how they approach customer service, but some airlines still have big problems.

BTN: How much does customer service play into contract negotiations?

Goldmann: If an airline doesn't perform well it gets a reputation, and we're the ones getting the complaints. It's more of a reactive type of situation. If there are airlines that people aren't happy with, we will take that into consideration during negotiations. When we get complaints, we pass them right along.

Futch: We rate our airlines on customer service as well as price. You have to use things that are tangible, like DOT statistics: on-time percentage, lost bags, late flights percentage. Sometimes people get a bit too wrapped up on price. There's a delicate balance between customer service and price. It really is a trade-off. When you start looking at the productivity of your people traveling, it's one thing to have a low price. It's another thing to make your meeting on time.

BTN: Because of Verizon's mergers with MCI and Verizon Wireless, you have contracts with different airlines. Does it still make sense to keep those?

Goldmann: We're looking to rationalize that. We're looking at it from a perspective of cost per mile as well as frequency of flights. We're also looking at flights originating outside of the United States. I've never had to deal with that in the past since our international folks did their own thing because it was so small. Now we're looking at that and where the point of sale is. Did you do something with that, Duane?

Futch: We're doing point of sale all over. Our contracts are written to the local country currency. If it's the United Kingdom, it's in pounds. They'll book there, but it technically becomes point of sale in the United States. Although we still get the rate out of the country to the United States, we can't get it vice versa at the same rates.

Goldmann: Do you feel you have as much control over your program there? If our folks want to fly British Airways, they fly British Airways.

Futch: We played pretty hard on that. You have to play within the box. But, you do have exceptions.

BTN: Do you mandate your airline program?

Goldmann: When we mandate something we want it to make sense. At one point, we mandated a Newark-Dallas route with a particular airline when we first moved our headquarters to New Jersey. Then summer hit and all of a sudden they changed their schedule. All of a sudden we were getting all these phone calls. Before, folks were able to make their flights in and out in a day, but now the early flight was gone. We learned that lesson the hard way. You think you're the only client your rep has, but believe it: you're not. So we make sure in a mandated situation our folks have enough flights, the right flights and at the right cost.

In the old days, we used to have guaranteed fares that we really used. Now the definition of a guaranteed fare is more of a ceiling. I'm trying to bring that back because it makes life so much easier. Even the loading, it makes it easier for the agency. Even though it's a smaller part of our business, we think we can do some things on the international side by aligning airlines to the specific markets. We're going to try that on the domestic side too.

Futch: A little more than 99.5 percent of our reservations that we control throughout the world is through the global distribution system.

BTN: Is the UATP card contributing to that adoption?

Futch: They don't have a choice. It's all done. If they pull out their corporate card and go to the Internet, they'll have a long explanation and they may not get reimbursed. We're at about 99.5 percent for airline. Hotels are where our challenge is, but that's getting better. We just signed a contract with Bidstork. Coolest darn things you've ever seen. A bunch of really smart guys and girls in San Diego put together this unbelievable RFP-bidding-type program. We just signed on with them. They monitor our rates for us. If we're not getting our rate, they even send out the notice to the hotel to say, "You didn't give us the Wal-Mart rate and you owe us this many dollars back."

BTN: Are you seeing any fluctuations in the standard contract length with airlines?

Goldmann: We're still around two years.

Futch: Two years and everyone can get out in 30 days and go back to the table.

Goldmann: Same with us.

Futch: You can sign all sorts of contracts, but I'm telling the airlines and starting to put into the contacts that if your pricing, your schedule, your frequency and your customer service don't maintain themselves—what I would call a balanced equilibrium—then I don't have to do anything inside this contract.

Goldmann: But they can walk away within 30 days. Everything we do now goes through legal. There are contracts, there's this and that, but they're just pricing agreements and they can go away like that. I've had prices change on me and I haven't liked it, but the airlines will just say, "We can't offer the discount we were giving you. We're in the red." What can I do? We don't really have a leg to stand on.

BTN: Unless you want to go out and negotiate another deal, right?

Goldmann: Right.

Futch: It's a delicate balance, and you have to have a partnership with the airlines that have contracts with you. It's a very delicate balance of them providing pricing and customer service and you getting what you want out of it. We're talking to our airlines all the time. They're in to see us every quarter, and we talk about all the things that are going to go on. You don't want surprises. The airlines today are in a tenuous position.

BTN: What about the ones that are emerging from bankruptcy? Are they better off now?

Futch: If you go back and look at all their plans they submitted to the court, it's all based on $40, $50 a barrel for oil. It doesn't work. You just hope they shed enough costs that they're going to be able to survive and get to the good times. I don't know how you come out of bankruptcy still losing money in the last quarter before you come out.

BTN: Some airlines are exploring new ways to sell their products and looking at unbundling their fares. Have you had any conversations about this with your preferred carriers?

Futch: At the UATP conference, they had Air Canada, Frontier and a couple of others. Frontier said they were definitely looking at it, while the guy from Air Canada ran the audience through their process: You buy the base fare, but if you want an aisle seat then you pay this much, if you want an exit row, it's this much. Then where they really got me was if you want to check a bag, add this on, but if you don't want the frequent flier miles, deduct this.

You can entice anybody with a low base fare. I think it's wonderful that Ryanair has a E5 flight from Dublin, Ireland to Barcelona, Spain, but it's the E500 in add-on fees that kill us in the end. You don't want your travelers adding this and deducting that. Now, it's eating into productivity in the office as they add up all this stuff as they go. People aren't into that.

Goldmann: It's bad enough you're paying a transaction fee, a GDS fee and for your meal.

Futch: Just put it all in the base price so we can quickly compare.

BTN: Otherwise it becomes a shell game.

Futch: And people won't put up with that.

BTN: The airline Web sites seem to be the testing grounds for this, so perhaps there's more leisure appeal at this point.

Futch: They forget: We're the people who really make the money for them. It's the companies that put people in those seats day in and day out every day of the year—

Goldmann: —and pay top dollar within three days.

Futch: Right. They forget who's really bringing the revenue to the table. Sure, the leisure traveler may go to Orlando once every two years. If that's loyalty, then, OK…