One-on-One with Jens Bischof: Lufthansa's N.A. Exec Takes Joint-Contractual Worldview
Lufthansa vice president for the Americas Jens Bischof spoke last month to Business Travel News contributing editor Amon Cohen about how the airline cooperates with its subsidiary carriers and Star Alliance partners on corporate agreements, signs of a business class revival and the future of unbundled distribution charges.
BTN: To what extent does Lufthansa negotiate jointly with the other European airlines it owns and Star Alliance partners?
Bischof: We see a joint-contractual world, which means one face to the customer offering a wide array of joint products—different airlines, different needs, different origins and destinations and harmonized pricing. There is a clear set of possibilities with the group airlines, the joint-venture deals we have on the transatlantic market and the Star set. It is a one-stop solution, which can create a lot of efficiencies, not only on the airline side but also more importantly on the customer side because you can negotiate a joint deal with several airlines in one meeting.
BTN: Is it now standard practice that one person will represent all the Lufthansa-owned airlines in negotiations?
Bischof: As long as the customer wants it. If the customer wants us to show up with two representatives, we can also be in a position to offer that, but of course one would make much more sense.
BTN: Is it now the norm that corporate clients are doing one deal, not only with Lufthansa but also with partner carriers?
Bischof: In regard to Star agreements, I definitely see a trend for broader deals than just a single airline agreement, but there is no general move to full Star Alliance deals.
BTN: Are you able to put a figure in terms of percentage growth of multi-airline deals?
Bischof: There is a significant increase in Star Alliance deals and also in joint-venture deals.
BTN: How many agreements are Lufthansa-only deals?
Bischof: If we talk about North America, there are very, very few exceptions—well below 5 percent—where we have stand-alone deals. The rest are joint offers with our partners, Air Canada, United and now Continental, where we team up to create a better offer.
BTN: We have spoken to travel managers and travel management companies who are concerned the transatlantic joint ventures will become too powerful and exert considerable pressure on clients to suck in the rest of their business, leading to a loss of negotiating leverage.
Bischof: I understand the point. A few years back, I was Lufthansa's head of corporate sourcing and also had the travel management responsibility, so I can easily put myself into the shoes of the travel manager, but to be very frank, if you look at the structure and price development over time, there was only one direction this could go. However, I believe there is still so much competition. Take the transatlantic market out of Frankfurt, where you have 10 or 11 airlines. Prices have been going down year over year. Even with more consolidation, there is no way to reverse that trend because there is so much capacity in the market, which clearly works in favor of the travel managers.
Both on the European and U.S. sides, this has been looked at very carefully by the authorities, and the customer concerns have been clearly assessed. If they had the impression that this would narrow competition and cause a rise in prices, it would have led to a carve-out or there wouldn't have been antitrust immunity at all, and indeed on some routes we do have carve-outs.
BTN: Are you putting pressure on your corporate clients to deliver more marketshare to you?
Bischof: From my point of view, pressure is not a very good term. Applying pressure is not an option and it is clearly not our intention. I believe you should convince the customer with a competitive offering: network, density, harmonized pricing and being a partner who is easy to deal with.
BTN: The 2010 Industry Forecast from Advito urges clients not to give high marketshare to any one joint venture. Do you agree?
Bischof: The value proposition for a customer who is willing to dedicate a relatively or absolutely high volume to an airline group typically is to get the better discount, and that is the nature of any business. There is a clear value in dedicating more to one entity.
BTN: Would you like to see the proposed American Airlines-British Airways joint venture go ahead to ensure robust competition among the three main airline alliances?
Bischof: Lufthansa has always believed in having fair and healthy competition.
BTN: Would antitrust immunity for some combination of the Oneworld carriers contribute to that healthy competition?
Bischof: There is a perception that this is pretty much the same as what Star Alliance and SkyTeam have in place, but if you look at the route network and the overlapping and domination of some origins and destinations, I would say there are differences in the application from BA and AA. It needs a fair assessment of the markets and O&Ds, which was also done for SkyTeam and Star Alliance.
BTN: How is the transatlantic business market looking?
Bischof: Volume overall has picked up as a result of stimulation at the lower end of the price scale. We are almost back to 2008. Nevertheless, we are now at a stage where we are comparing a bad year with a bad year, so it could make more sense to look back 18 or even 24 months to get a real idea. The market is there. What is different is the structure.
BTN: Do you see any sign of policies on business class starting to be relaxed?
Bischof: We don't see any further reduction. I have more than two handfuls of customers returning to business class travel policies in the United States. Corporations are realizing it affects the customer side of their business if they cut back because employees don't want to travel if they have to cross the Atlantic three times a month in coach, or they lose a day because people need to rest, or they need to pay more for a more comfortable hotel so their travelers can recover. I wouldn't say it was an excessive trend, but a few early birds are realizing this is affecting their revenue and therefore reversing their policy.
BTN: Is there any particular sector where you are seeing this?
Bischof: We see it, surprisingly, in the automotive industry. We are seeing it in those sectors which were in trouble at a very early stage of the crisis and have experienced the revenue impact I was talking about. We are seeing it also in the pharmaceutical and financial industries.
BTN: Perhaps the issue of most concern to travel managers is ancillary fees that add cost to the managed travel channel, such as global distribution system and card merchant fee surcharges. In Germany, Switzerland, Austria and Liechtenstein, you introduced the Preferred Fares Program for GDS bookings, which has not been popular with travel managers. Do you think, on reflection, you did the right thing?
Bischof: I am not sure I go along with your conclusion that it was not popular. We created a transparency about GDS costs, and they are quite substantial. We were able to reach agreement on new and competitive GDS fees with Worldspan, Sabre and Galileo, so there are no additional fees if you use those three major GDSs. If you want to use Amadeus, then unfortunately we have not been able to reach agreement so far on more competitive fees. It is not a question of unbundling. It is more a question of transparency, which was important to us.
BTN: Do you plan to start surcharging for card merchant fees?
Bischof: There are no plans at this point. However, we do see the need for improvement and restructuring of those fees. We need to find some more competitive business models and compensation schemes.
BTN: Are card companies' merchant fees too high?
Bischof: If you look at what airlines earn per seat or kilometer, I would say this is a challenging situation for the airlines and a major cost block.
BTN: If the card companies don't restructure their pricing, will you introduce a surcharge?
Bischof: I would not put it that we would impose a fee or do something where the corporate ends up paying. I would say there is a clear necessity to find a more competitive approach. Every member of the value chain should contribute toward that.