US Airways Retools Contracts

<B>US Airways Retools Contracts</B>
<I>Emphasizes Seat Over Systemic Share</I>

By David Jonas

Most of US Airways' corporate accounts are transitioning to a new program focusing on market share in key city pairs. The comparative corporate performance factor eliminates the emphasis on systemic revenue share while providing opportunity to boost discounts in certain areas based on shifting seat share.

While some buyers suggested this new strategy of corporate contracting would hurt some corporations, particularly larger ones, the carrier said more than 60 percent of all accounts already have transitioned to comparative corporate performance factor, which evolved into its current form last year.

"CCPF first was developed as in-house program, originally designed as an automated program evaluator for field sales reps," said Paul Leyh, US Airways' global director of corporate programs. "But during the past two years, it has taken on a life of its own as a transition away from revenue share programs. We have wanted to get away from that type of thing."

Measuring performance only in markets where US Airways operates enables corporations to get higher discounts where they can concentrate share--in the carrier's hubs in Philadelphia, Pittsburgh and Charlotte, for example--while not being penalized in other markets.

Mitch Swanger, a manager of corporate strategy at Rosenbluth International, said, "If a Philadelphia company that has been on a revenue share program bought a company in Salt Lake City, for example, US Airways' overall revenue share would go down because it does not offer any service to Salt Lake City. That market will not count in the measuring," he said. "The airline expects 0 percent in that market."

As one of US Airways' primary agency partners, Rosenbluth was approached last year to run data through its systems and provide feedback. "Since it was a new concept, on a certain level, there were a lot of meetings and dialogue to make sure we understood it and that our corporate strategy managers were comfortable with the measurement process," said Michael Lynch, director of corporate strategies at Rosenbluth. "Though the negotiating environment is the same, the measurement process is different and we helped them get our clients to understand how it worked."

US Airways is pushing most of its accounts into the new program, either as contract renewals or improvements on existing agreements. "If a corporate account was on a revenue share program and not performing, for whatever reason, we would see if it makes sense to bring them immediately into CCPF," Leyh said. "However, it is not so black and white that we won't look at things in different ways. But the response has been positive and I cannot think of any accounts that have refused to go this way."

CCPF uses a four-tiered structure to determine discounts for each city pair, based on share. The lowest level of market share likely will not result in any discount for that city pair while the highest level, based on share increases, will bump discounts up additional percentage points, even in hubs, to as high as 20 percent and beyond. However, one travel manager familiar with the program, said any corporation falling just below one of the thresholds "will lose out significantly while not performing all that differently."

Nevertheless, the airline said it and each corporate account come to an agreement beforehand on discount and threshold levels. "There are parameters, but there are not hard numbers across the board," Leyh said. And of course, high-performing accounts that achieve those thresholds then will receive the next level of discount.

One travel manager, whose company is located in a US Airways hub and has a modest volume with the carrier, has found CCPF beneficial. "We move up 3 percent in discount effective Sept. 1, based on our performance, and I expect to move up another 2 percent in October or November based on our compliance policy, which resulted in a 30 percent market share increase in [this hub]," the buyer said. "Their thought is if they have the most seats in a market, you should be on their birds. Shying away from revenue and looking at seats in the market is a different way of doing business."

And more equitable, according to some. Others, however, don't see the program as a win-win, particularly in circumstances where the company already has moved as much share as possible. "This is a tough sell for good travel managers that have maxed their efforts on compliance on competing city pairs," one travel manager noted.

Another, whose company insists on maintaining a revenue-based program with US Airways, said that "the market changes too quickly and there is no airtight way of measuring."

Indeed, performance monitoring is a sticking point that may serve to confuse the process. "When you evolve and become automated in anything, there is bound to be initial difficulty," Leyh acknowledged. "It would be difficult for corporations to see the monitoring since it is a comparison against the actual share in a market in a given month. It is like the QSI data, in that they just don't have it in their hands."

However, Leyh said information is shared quarterly, or even monthly in some cases.

Aside from clearly defined incentives for increasing share in key markets, comparative corporate performance factor also provides both buyers and US Airways a faster negotiating tool. "The process is designed to allow account managers to bring all the data with them in their laptops, negotiate directly with corporations and agree to a program on the spot," Leyh said. "One of our goals has been to empower our salespeople and this is the tool we developed. Automation in the field means less need to obtain data from headquarters."

While formulas used to determine city-pair targets may be complex, actual comparative corporate performance factor-based contracts are just a few pages in length--a welcome change for many buyers wary of long, elaborate agreements.

Though comparative corporate performance factor is considered a new model for crafting contracts, at least at US Airways, the concept isn't all that new.

Said Rosenbluth's Lynch, "More and more carriers are trying to measure based on lift and seat share in a marketplace rather than overall systemic figures.