United, Continental Close Gap On American's Lead
<B>United, Continental Close Gap On American's Lead</B>
By David Jonas
American Airlines once again received the highest overall score in BTN's annual airline survey, although competitors are close on the heels of the three-time winner. Measured by responses from corporate travel buyers and agency respondents, the survey found United and Continental marginally behind American, while scores across the board for all carriers generally were lower than last year. Delta and Midwest Express, the turnaround story of the year (see story, this page), rounded out the top five.
American's lead in the overall rankings dwindled to just .02 points over rival United, which was boosted by a first place finish among corporate buyers. Continental's easy victory on the travel agency side--its third in a row--propelled it to a third place finish, only .04 points behind the leader.
The survey asked respondents to rank carriers, on a scale of one to five, in various categories, ranging from flexibility in negotiating prices and amenities to the quality of sales rep visits. It also included overall price value, a category easily and expectedly won by Southwest Airlines for the third consecutive year.
A total of 275 surveys were returned. Scores were tabulated overall and also for subsets of corporate travel buyers and travel agency representatives. Respondents averaged $11.6 million in U.S. booked air volume and represented all regions of the United States.
The front runners were well ahead of the rest of the pack. However, tightness at the top suggests a more competitive environment.
"I believe the real difference is no difference," said Tony Milikin, vice president of purchasing at Sealy in Greensboro, N.C. "The ability to differentiate from one another is tougher and tougher."
John Heilner, a consultant with Management Alternatives/MSIG in Princeton, N.J., said pricing has become extremely competitive of late. "We have seen the key carriers fire shots across each other's bows," he said.
"The environment in the past 12 months has been extremely competitive and the movement toward procurement and purchasing departments getting involved presents new challenges," said Monisa Cline, managing director of corporate sales at Continental Airlines. "Also, there may be some perceptions tied to fuel surcharges, for example, as the pricing area has become even more sensitive."
Despite intense competition, scores for the industry at large in every one of the 10 categories were lower than last year. In fact, the overall weighted score for the industry declined 5 percent, to 2.85 from 3.01. While service elements were not included, most sources said responses to survey questions regarding negotiating and maintaining deals were affected by highly publicized problems, such as airport congestion, flight delays and labor unrest.
Said one buyer, summarizing the perspective of many, "The general disenchantment with airline service and all the other things you read about almost every day certainly creep into perceptions. With the fuel surcharges, general increases in pricing and another commission cut, it was a tough year."
Even so, declines in particular areas tell a deeper story.
Availability of accurate flown revenue data, a category in which the airlines performed well last year, was one of the lowest ranking categories this year. "There now is more of an onus on providing data, which carriers never have been all that good about," said Shaun Malay, director of corporate travel for New York Life Insurance Co. "Data is powerful stuff and travel managers in the past year have more of a heightened sense about it. Carriers necessarily aren't doing any worse of a job, but awareness about standardization and data capture has really taken off."
United Airlines, for one, agreed.
"The demand for sophisticated performance reporting clearly has increased and I am not sure the industry is keeping up with that demand," said Joe Laughlin, the carrier's vice president of North America sales.
The complaint/problem solving category also saw a decline, to 2.88 from 3.08 last year. "The airlines really should be more flexible with solving problems, especially for their corporate accounts," said Jimette Newton, travel manager at Orland Park, Ill.-based Andrew Corp., which last year had an air spend of $7.5 million. "They should bend over backwards when they are the preferred carrier, and sales reps should be more accessible knowing that corporations could opt to look elsewhere."
While the overall industry score for flexibility in negotiating transient pricing remained about the same, scores for negotiating group pricing declined noticeably. "Group pricing has been good, but I would like to see it get better," Malay said. "There still is this disconnect between group and transient. It should be one piece of paper. The problem is not the airlines' willingness to negotiate group pricing, but the measurement, which often does not delineate the revenue."
Of course, some travel managers had a different experience in the past year, finding the airlines more responsive and flexible than ever. Thomson Corp. director of corporate travel Chris Staal, said, "We renegotiated four airline agreements in the past five months and found all the carriers to be creative with their contracting and proactive in building relationships. The sales efforts on all fronts were very positive."
Agency respondents, similar to last year, gave much lower scores than corporate buyers. Many suggested the changes in distribution channels, commission structures and override programs--whether intentionally aimed at minimizing the agency's role in the process or not--is the cause for the disparity. Scores for quality of sales rep visits, 2.22, and empowerment of sales reps, 2.41, were the lowest scores tallied in the entire survey. The overall agency score, 2.71, was down 7 percent from a year ago.
<B>Individual Carrier Performances</B>
American Airlines' first place finish was achieved without receiving top marks from either corporate travel buyers or travel agents. However, strong showings from both kept it in the top spot overall, including top three scores across the board, except in overall price value where a few low-fare carriers, as expected, received higher marks.
On the corporate side, American slid from first last year to third, though a mere .02 points behind co-leaders United and Midwest Express. Indicative of the industry, scores from buyers were lower than last year, though six of 10 were good enough for top three rankings compared with competitors.
"AA's strategy with corporate and agency accounts is visionary, to say the least," Milikin said. "It sets the standard for the industry in sales, marketing and relationship management."
Other sources praised American's local support centers, account maintenance on the national level, continued aggressiveness in pursuing accounts and professionalism of the sales staff. "We really never hear 'no' from them and they consistently show willingness to think outside the box, contractually," Malay said.
Frank Morogiello, American's managing director of national accounts and sales programs, said in the past few years there has been a race in salesmanship. "It has been our stronghold for a long time, and now our competition is trying to mimic our programs," he said, noting in particular its corporate advisory board meetings and executive desk. "But the difference is consistency in our salespeople and how they have been trained."
Rolfe Shellenberger, senior consultant at Runzheimer International, identified a different reason for American's continued success in the survey. "They face more competition than any other major carrier. In every market they fly, they are matched against at least one other formidable competitor, so they must be aggressive," he said.
Morogiello agreed that competition, particularly for the largest travel buyers, has increased recently. "We have had programs in place with the top 100 buyers or so for several years and it is becoming a matter of competitors coming in and undermining those programs," he said. "In some cases, we need to get out of the way because it isn't right for us financially, and in other cases we have the last right of refusal. Other guys now are attacking this market segment and dedicating personnel to national and global accounts. And, of course, the accounts are getting smarter."
On the agency side, American for the second year in a row placed second overall and at or near the top in most categories. As with many others, scores compared with last year generally were lower across the board. In quality of sales rep visits, for example, American finished third with a score of 2.80. It also finished third in that category last year, but more than 20 percent higher at 3.42.
Neck and neck with rival American in the eyes of many buyers, United Airlines dramatically gained ground to finish second overall, just .02 points behind. In doing so, it tied for top honors from corporate buyers including number-one scores in flexibility in negotiating transient pricing and availability of VIP services.
"United and American are very similar beasts. United has had to catch up over the past couple of years and now it shows in their ratings," Milikin said. "The improvement in United's Executive Desk/VIP desk is huge, for example. In the past, AA's desk was known as steak and ale versus UAL's McDonald's. So, this is a huge relief for corporate travel managers."
United, which among buyers was ranked in the top three in several other categories, attributed the improvements to internal training and a new communications group for the salesforce. "We recently completed a corporate strategic sales program for all account executives," Laughlin said. "That included support for decision processing with modeling on our corporate volume agreements and some progress in terms of performance reporting."
Laughlin added that such training also aided in empowering sales reps--a category in which United finished second overall--by using practical, real-life applications to make sure they remain flexible and comfortable with the process.
"United has been much more active, cutting more deals and cutting them more broadly. And of course, they are the biggest carrier and that makes a big difference," Shellenberger said. "They have done a very smart job in grabbing a strong position in every market they go into by securing numerous corporate deals."
Like most other carriers, United's score for providing accurate flown revenue data fell sharply from last year. And while Laughlin acknowledged the disparity between buyer demand and the industry's ability to fulfill it, he said United is looking to improve the process through online data delivery.
On the agency side, United finished third overall and above the industry average in all categories except overall price value. Heilner was surprised the airline ranked that high: "There still is the halo impact of being the airline seen by agencies as leading the commission reductions," he said.
Continental, while dropping from second to third in the overall standings, also closed the gap on perennial winner American. While lower than last year, Continental's weighted average score was just .04 points behind the leader as it attained top three rankings in eight of 10 categories. Its steady overall growth, and rapid expansion in New York, has brought the carrier further into the fray.
Among corporate buyers, Continental finished fourth overall and above the industry average in all categories. Particularly strong scores were recorded in complaint/problem resolution and quality of airline communication. "We literally have every single corporate officer assigned to 12 corporate clients across the country to make ongoing visits and develop relationships," said June Bennett, the carrier's vice president of sales. "We want to hear what they are saying and bring it back to headquarters." Continental next month will hold its first advisory board meeting for industry consultants, complementing twice yearly corporate advisory board meetings.
While corporate buyers scored Continental's overall price value higher than last year, several other areas experienced declines, including sales rep empowerment. "We do not tend to do across-the-board discounting like our competitors, and customization of deals requires more analysis," said Cline. "Maybe that is perceived as not having empowerment on the spot."
However, the carrier's E-Z Deal program is designed to give small and midsize companies an immediate discount. At press time, more than 500 accounts had signed on to the program.
Meanwhile, buyers rated Continental's group pricing flexibility sixth. Moving forward, the carrier will implement a new group pricing model that allows buyers to get a quote on the spot "90 percent of the time."
On the agency side, Continental finished as the clear winner for the third year in a row by claiming top honors in six of the 10 categories.
"We are not more aggressive with overrides and don't use them with most agencies we call on, but we have been very consistent and they know they can count on us when their travelers' clients need assistance," Bennett said.
Delta Air Lines, overall, moved up a rung on the ladder to fourth with essentially flat scores from a year ago. Bucking the trend on the agency side, the carrier actually improved its overall score by posting year-over-year gains in five categories while remaining in the fourth spot. Specifically, agents gave Delta the highest score for quality of sales rep visits, more than 30 percent above the industry average. It also received second place scores for sales rep empowerment and availability of accurate flown revenue data.
However, corporate buyers placed Delta sixth overall, down a notch from last year. While Delta beat the industry average in flexibility in negotiating both transient and group pricing and ranked second in quality of airline communication, it fell below average for negotiating service and amenities, complaint/problem solving, empowerment of sales reps and overall price value.
"They do not seem to get it and have been missing the target for several years now, especially on the corporate side," Milikin said. "Delta's focus is on discount and revenue, not growth or market share."
"Delta Air Lines definitely still plays hardball, it is inherently part of their culture, which doesn't seem to allow thinking outside the box," added Mike Mary, director of travel services for Adidas in Portland, Ore. "And more so than other airlines, they are plagued by a hub mentality."
Other sources agreed that Delta's conservatism means very little latitude or empowerment in the salesforce at all levels.
Delta refused to comment on survey findings.
Northwest Airlines jumped two spots to sixth overall, but still lagged behind the other major carriers on the corporate side, where it finished seventh. Areas of particularly poor performance included flexibility in negotiating group pricing, complaint/problem resolution and overall price value.
"Domestically, there is a perception that the product is tired," said Thomson's Staal, noting that inflight food is one area where improvement is needed. "But I certainly have seen improvement in terms of responsiveness and the level of their commitment to partner with corporations."
Buyers ranked the carrier in the top three in availability of special services to VIP travelers and quality of sales rep visits, both of which were improvements over last year, as were scores for flexibility in negotiating transient pricing and quality of airline communication.
Fay Beauchine, Northwest's vice president of sales and customer relations, said the carrier continues to work at strengthening corporate relationships. "We established a philosophy to be easier to do business with and to be more flexible," she said, noting additional corporate contracts processed through the quick start program.
As for availability of accurate flown revenue data, a category in which Northwest improved while every other major carrier declined, Beauchine said, "The trend toward airlines and corporations looking at the same data is here. We are talking to middlemen in the marketplace who say they have the ability to clean data and the ability, once and for all, to remove the data discrepancies that bog down the pace of negotiations."
Agency respondents rated Northwest more poorly, ninth overall. Many scores were below the industry average, including overall price value. That score of 2.70 was dead last though slightly higher than last year.
US Airways dropped from sixth to seventh in the overall rankings, but remained close to the industry average in most categories. However, the decline from last year included notably lower scores in availability of accurate flown revenue data and complaint/problem resolution.
On the corporate side, the carrier again dropped a notch to eighth place overall, with scores generally below the industry average.
Paul Leyh, US Airways' global director of corporate programs, acknowledged that the carrier is not as visible in the western United States because of a limited route network. "We focus our sales efforts from Chicago east, and especially in the Northeast," he said.
Indeed, many travel buyers view US Airways as a regional carrier. And Shellenberger added that the carrier severely is restricted by its costs and route structure.
"In general, the longer the haul, the greater the profit margin for an airline," he said. "But US Airways is a short-haul carrier and therefore does not have the flexibility to do the kind of contracting that's done by the bigger guys."
Furthermore, a contract dispute and a threatened strike by flight attendants early last year made many wary of the carrier.
"I have certainly seen less availability of accurate flown revenue data and less flexibility in pricing over the past few years," Heilner said, "though I suspect that turnover in the salesforce might be an issue."
Moving forward, however, US Airways expects improved relationships with corporate customers, thanks in part to the comparative corporate performance factor, a program that it launched to empower sales reps to immediately negotiate deals with buyers and to incentivize corporations to boost market share in key city pairs.
The carrier performed slightly better on the agency side, finishing sixth overall and ahead of the industry average in most categories.
Overall, Trans World Airlines slid four spots from last year to eighth. Its scores in most categories were well below last year's, although it again remained far above the industry average in flexibility in negotiating transient pricing, and tied with United for top marks in flexibility in negotiating group pricing. TWA, which handles group pricing within revenue management, said it is a "significant part of the overall business."
Among corporate buyers, TWA placed ninth. Poorest scores were tallied for quality of airline communication, quality of sales rep visits and empowerment of sales reps.
Those low scores partially can be attributed to TWA's weak position in the market and its poor route coverage. For many larger corporations--aside from those in St. Louis--TWA simply is not a viable option.
Recognizing buyer perception, TWA plans to intensify corporate sales efforts. "There have been concerns that we really have not been listening to what the customer wants," acknowledged Fernand Fernandez, TWA's director of national sales and corporate business development. "So we are asking more questions and looking for common ground on which to develop the best contract with bonus commissions, as opposed to applying a standard template."
TWA received more favorable marks from the travel agency community, finishing fifth. Particular strengths that earned scores in the top three, again, were flexibility in negotiating transient and group travel.
Southwest Airlines, with its strict adherence to low-cost, low-fare service, is a breed apart, making comparisons with the other full-service carriers difficult. Indeed, Southwest finished ninth overall but a clear number-one in overall price value from both agents and corporate buyers. In fact, the corporate score of 3.89, easily the highest in the entire survey, beat the second place finisher by 10 percent and the industry average by more than 22 percent. Scores for all other categories, with the exception of complaint/problem solving, were well below the baseline.
The carrier's refusal to offer volume-based discount agreements and to display inventory in any global distribution system other than Sabre limits its appeal and usability for many corporations. Nevertheless, Southwest generally is regarded as the healthiest airline in the United States and a champion in bringing fares down in the markets that it enters.
America West Airlines, meanwhile, placed 10th overall, down from seventh a year ago and noticeably lower than last year in all categories. Corporate buyers ranked the carrier at 11th; agents put it at seventh.
"They have small exposure and are not regarded as a major factor," Shellenberger noted. "They don't have enough of a salesforce, and they allocate it not on opportunity but on revenue, which doesn't make sense whatsoever. They do not go after that incremental buck in cities where they are not a big factor."
In fact, quality of sales rep visits was scored at 2.07 overall, 17 percent below the industry average and down from 2.73 last year.
Alaska Airlines finished last among the majors, placing 12th overall and among corporate buyers only. That performance matched last year's rankings, though actual scores were generally lower.
"Alaska is in an interesting situation because it is a full-frills airline that competes against such no-frills carriers as Southwest and United Shuttle," Adidas' Mary said. "But in terms of corporate clients, they absolutely are the toughest to deal with. Only a handful of the very largest corporations can even get deals with them."
In fact, for quality of sales rep visits, buyers gave Alaska a 1.72, more than 50 percent below the industry average.
The story is similar on the agency side, where Alaska slid from 10th to 11th and received a 1.31 for quality of sales rep visits.
The deadly crash off the California coast in January and subsequent regulatory scrutiny likely contributed to the carrier's deteriorating scores.