Positioning itself as a low-cost carrier since last year's merger with America West Airlines, US Airways is significantly reducing the number of contracts offered to corporations and has made deep cuts to its salesforce. While several US Airways clients from large companies said the move represents a degree of abandonment of the carrier's corporate base, the airline said that as an LCC it is offering fares that are historically low—with or without a contract.
One corporate travel airline analyst said US Airways has reduced the number of negotiated contracts by the thousands, but US Airways asserted it is not adopting the model of some low-cost carriers that foregoes corporate negotiations. "We're going to continue to have many hundreds of corporate contracts," said Travis Christ, US Airways vice president of sales, marketing and distribution, "so it's not that we won't have deals with individual companies. We'll have a lot, but for the rest of companies that don't meet our criteria, we won't have a program. Some of those criteria are things like competitive markets, high-yield, high-fare paying companies, certain high-fare markets like the transatlantic and transcontinental. Also, just as importantly as all of those things, we look at companies and agencies that have demonstrated that they do indeed have the ability to move the business."
Delta Air Lines vice president of sales and distribution Pam Elledge during the Association of Corporate Travel Executives conference in Atlanta last week said LCC capacity now represents 50 percent of the domestic market. Others questioned the estimate. Scott Gillespie, president of Solon, Ohio-based Travel Analytics and Helane Becker, managing director of The Benchmark Co., said that with US Airways and America West in their ranks, LCCs comprise closer to 36 percent.
Rob Brown, Southwest Airlines director of corporate sales, said that providing fares discounted to the extent that deeper negotiated rates are moot has been the Southwest approach to corporate buyers.
US Airways' Christ echoed that sentiment. "In the economic environment that we have, you would have thought fares you're paying today were great with a big discount 10 years ago," he said. "Now all of a sudden everybody has that discount. We need to adjust to that market and that's an opportunity to simplify and keep our costs down so that we can remain profitable when we do sell those fares. That means cutting out some overhead. That's one of the reasons that indeed our combined salesforce of the two airlines is about one-third of what they were collectively before the merger. So we ended up on a lot fewer people focusing on the real core companies and travel agencies where we think having that staff can make a difference."
Travel Analytics' Gillespie said none of the other legacy carriers have made similar cutbacks on corporate programs.
Travel buyers from such large travel-purchasing organizations as Lucent and Lockheed Martin, among others, noted a dwindling sales staff and in many cases a less responsive US Airways when it comes to corporate clients. "They have stripped out all of the former US Airways' sales top executives along with their knowledge of the corporate clients," noted one buyer.
"My position is, if they don't want to negotiate, we're not going to use them," said Richard Wooten, director of corporate travel services at Lockheed Martin. "The amount of spend that we have justifies a discount. Maybe it's not half off of the ticket price, but it should justify a discount. They're in procurement. They do the same thing. Whatever they purchase to make the airline run, they don't pay full price for it and I don't see airline tickets any different than any other purchase."
Wooten added: "If everybody took the right stance and said, 'We'll move to people who will work with us and discount,' they would. But if you cave in every time…"
US Airways is not sharing all of the staples of hard-line LCCs, and corporate travel buyers still will see the carrier maintain many elements associated with legacies, from assigned seats, meals on certain flights and its Star Alliance membership to airport lounges, transatlantic service and an international network. Another differentiator palatable to corporate travel buyers is the carrier's participation in global distribution systems.
"America West and US Airways have longstanding relationships with GDSs," Christ said. "We've announced that we have our long-term deals with Sabre and Galileo, so clearly we intend to be a part of the GDS environment."
America West and US Airways last September officially cemented their merger and began trading on the New York Stock Exchange under the 'LCC' symbol
(BTN, Oct. 3, 2005). Since then the company has been integrating the carriers and continues to do so.
"It's proceeding ahead of schedule," Christ said. "Certainly on the sales and marketing and frequent flyer, Web site side we're making great progress. So far, we've been able to keep the issues to a minimum, but integrating two airlines is really hard. Certainly, this is the first airline merger where the Web was a significant distribution channel and where the two airlines' Web sites were 20 to 30 percent of the revenue. So you go from having a real hard problem with integrating res systems to now having to integrate res systems and Web sites, which is a whole other IT issue." Last month, US Airways discontinued the America West's AWACorplink booking tool with plans to launch a merged Web site.
Christ said they also have been working on aligning corporate relationships once held separately by the two carriers. "We're working very hard to get rid of any distinction between the two," he said of contracts. "There are still a few that have their old USAir contract or their old America West contract that only apply to certain segments, but that's strictly a function of having the time to go through a sweep through those."
Christ added that the merged carrier is taking existing contracts on a case-by-case basis, largely depending on how long they are valid. "It depends on the time. If it's just a couple of months, we generally can let it expire. If it's 12 months or more, then we need to move ahead and renegotiate."