United Airlines is implementing a new, three-tier corporate pricing program for all corporate accounts that includes negotiated discounts on every published fare in the domestic market. The revamped discounting strategy is one element of a wider plan to inject more value and utility into relationships with corporate accounts and coincides with United's sales reorganization. It follows modifications to the published fare structure earlier this year and broad corporate contract changes enacted by other major carriers.
United also has relaunched its small business rewards program, embarked on a strategy to migrate corporate bookings to lower-cost distribution channels and begun formulating other programs for corporate and agency clients.
At the same time, United parent UAL Corp. is trying to tie up loose ends and complete a lengthy bankruptcy restructuring by this autumn. The company recently reworked its United Express network contracts and continued reallocating resources to higher-yielding routes, but again requested more time to file a reorganization plan. If approved, the extra time would aid efforts to resolve labor issues and secure adequate financing to emerge from Chapter 11 protection.
An amalgam of corporate pricing designs recently rebuilt by other carriers
(BTN, March 7), United's newly revised structure still is based on fare classes. It includes discounts on premium cabin and other high-end business fares as part of a flexible business fares level, a mid-range discounted business fare level and an "excursion fares" tier covering all other economy and heavily discounted published fares, including United's low-fare Ted operation previously excluded from most corporate programs. In general, average discounts for most accounts will be lower than previous levels to correspond with the overhauled published pricing environment. The carrier expects to roll out the new discounting format to the bulk of its account roster in the coming months.
United offers three general corporate pricing tiers and discounts on all fares, like Continental
(BTN, Feb. 7); fare class as a determinant, like Delta and Northwest; initially unchanged international discount programs, like American—yet, taken as a whole, United's structure differs from any one competitor's.
"Many of our customers have told us they have been quite confused about the effect of the new fare environment and the new corporate discount programs being introduced by the airlines at this point in time," said Jeff Foland, United vice president of North American sales. "We are trying to introduce simplicity in the process while tailoring a program to be specific those individual corporations."
A key element of United's corporate pricing redesign is complete discount applicability across the domestic market. Since carriers began excluding a range of low-end fare types from corporate programs in the past few years, some travel buyers have been disappointed, insisting their companies' volume should always warrant preferential treatment.
"Corporations that have implemented a managed travel program should certainly expect the airlines to provide a discount for their product with no exceptions," said a travel buyer at a large United account who was reticent to talk specifics until understanding all the details of contractual changes. "If an airline does not recognize our leverage of scale and total spend, we will not do a deal with that airline."
"It makes American Airlines look uncompetitive," added another buyer from a United corporate customer. "United is betting the farm on business travel."
To address the corporate market, United has launched all-premium transcontinental services
(BTN, Aug. 2, 2004), beefed up its international route network (see Inside Track, page 4) and added internal sales resources
(BTN, Feb. 7). "While others appear to be pulling back on that dimension, we are doing just the opposite and heavily investing in our sales organization," Foland explained.
United this month also introduced a revamped Perks Plus rewards program for companies with only modest volume on the airline. After spending $5,000 on the airline in a three-month period, enrolled companies can select their choice of rewards, including upgrades, elite frequent flyer status and free travel certificates. Individual travelers continue to earn personal loyalty points. United said the program now is uniform across all markets.
Other airlines have said their small business rewards programs reduce sales costs by centralizing account management and that many corporate clients—by desire or default—have switched to those standardized programs from tailored discount agreements. Foland would not speculate on how many accounts would enroll in or transition to Perks Plus. Existing Perks Plus accounts were carried over into the relaunched program.
United is examining various value-add options for corporate customers, including traveler services, travel management data and consultation, operational support and employee productivity.
"Although some individual aspects of an airline's offering may be a commodity, the breadth of ways we can institutionally create value for our corporate customers and travel agency partners is actually not a commodity," Foland said.
Another United initiative impacting corporate clients is planned reductions in distribution costs. UAL this month said it has targeted $100 million in annual savings by 2007 from reductions in GDS and other transaction fees, commissions and incentives
(BTNonline, April 11). The company's overall distribution strategy includes development of direct corporate booking options and renegotiated deals with GDS companies
(BTN, Jan. 21). Its three-year deal with GDS operator Sabre—which requires United to provide full fare content in exchange for reduced GDS fees—is set to expire next April. Similar deals with GDS operators Amadeus, Cendant Corp.'s Galileo and Worldspan are also scheduled to expire later next year.
Meanwhile, UAL recently requested another extension for the deadline by which it exclusively can submit to the bankruptcy court a restructuring plan. If approved during a court hearing on April 22, the extension would give management until July 1 to file the plan and until Sept. 1 to secure acceptance of the plan.
Also on April 22, United will ask the bankruptcy court to approve new deals with SkyJet and Trans States subsidiary GoJet, which by early 2006 would fly United Express feeder flights at Chicago O'Hare, Denver and Washington Dulles. The two regional carriers agreed to assume services previously operated by Air Wisconsin
(BTN, Nov. 11, 2004) and fly a total of 30 CRJ-700 regional jets equipped with first class and Economy Plus seating. United, however, said it is "considering reductions in the United Express fleet to further reduce spending on U.S. domestic capacity."
Since 2000, UAL has lost nearly $10.5 billion, including assorted one-time and reorganization items. Labor challenges top the list of impediments to a successful turnaround and company executives recently repeated assertions that UAL must reach new agreements with labor groups, including termination and replacement of existing employee pension plans. Should it fail to do so, management and labor leaders would face a scheduled in-court showdown beginning May 11.