Noting a growing appetite among global companies for single-point multi-airline contracting, the three major airline alliances—Oneworld, SkyTeam and Star Alliance—in recent years have signed an increasing number of corporate contracts.
Even so, some sources noted that pricing from the alliances rarely beats what a company could get from a single carrier and that antitrust regulations make it difficult to structure singularly priced deals.
While noting that alliance-wide discounts rarely beat out single-carrier bids, Bob Brindley, vice president of the Americas for Advito, BCD Travel's consulting division, said alliance-wide negotiating could yield corporations benefits both in sourcing and managing travel. Alliance deals give travel buyers one account manager, unified reports and, in many cases, one set of negotiated commitments, he said, adding that the benefits of contracting with an alliance become stronger if the alliance's route structure closely matches the travel patterns of the corporate client.
"Where we've seen clients benefit is the efficiency level. Instead of managing eight contracts, they have one contract, so there's one set of goals they have to work toward," Advito's Brindley said. "They're really only meeting with one carrier or account manager, because they'll take the lead from an alliance perspective. And also, from the cost of program management there are some efficiencies in doing that."
Additionally, said TRX's Travel Analytics vice president Scott Gillespie, alliances give some incentive to travelers to follow preferred-carrier policies.
"The other major benefit is program management from a traveler's perspective," he said. "It's easier to promote that broad set of carriers to your travelers and get them benefiting from the same frequent flyer program."
Gillespie and Brindley both noted a growing number of clients signing with—or at least exploring—alliance-wide deals, and the major alliances concurred.
Gaining usage from large corporate travel buyers at ChevronTexaco, DaimlerChrysler and Hoffman-La Roche, Star Alliance said its Corporate Plus product has grown more than 20 percent year over year and, as of last month, more than 80 companies had signed alliance-wide deals, which represents more than E2.2 billion in corporate revenue last year to member carriers. Technology giant Cisco is the latest to sign a deal with Star Alliance and Coca-Cola also is expected to join the Corporate Plus program, said Philip Saunders, Star Alliance vice president of sales, marketing and loyalty.
Oneworld manager of corporate sales Eileen Yeager, who works as a liaison between alliance carriers and corporate customers, said alliance-wide deals are driven both by increased sales and marketing cooperation by the alliance carriers as well as the ongoing impact of procurement on the travel management function.
Furthermore, multinational travel consolidation also has grown the appetite for alliance-wide deals. "Corporations used to say they were global, but they used to be global by their business, not by the management of their travel spend," Yeager said. "Clearly, more are going global—not many are 100 percent there, but it's definitely going in that direction."
"We have a dozen or so very strong companies that we work closely with and we manage those vis-à-vis the alliance," Oneworld's Yeager said, noting that many more companies contract with some subset of alliance carriers, but "we do not brand every deal that has multiple carriers as a Oneworld deal."
Philips Electronics became the first company to pilot a SkyTeam airline alliance corporate contract, for which Philips global commodity manager for air travel Peter Sijbers insisted on a single point of contact for active monitoring
(BTN, Nov. 6, 2006).The deal extends to 40 countries and accounts for about $84 million of Philips' $230 million air spending. The agreement with SkyTeam, which started in December 2005, dwarfed a two-year, $42 million deal Philips held with Star Alliance.
Sijbers rejected a common complaint among travel buyers that alliance deals usually work out to be less valuable than selective deals with individual airline members. Philips already had a global contract with its home carrier, KLM, and local agreements with other SkyTeam members, such as Continental, Delta and Northwest airlines. In the SkyTeam negotiation, Sijbers insisted on a single deal and that "the starting point was that the sum should be greater than the parts."
Advito's Brindley categorized the pricing of the deal as an exception, rather than the rule. "Sometimes the whole does equal more than the sum of its parts, but a lot of times the carriers are still competitors with one another, even if they're in an alliance. You can use that to your advantage to sometimes negotiate better deals individually than you could together," he said.
Travel Analytics' Gillespie noted that it's difficult to quantify pricing differences between alliance deals and individual carrier deals, but encouraged travel buyers to line the two up before signing a contract.
"You might be able to get an alliance proposal in round one and then in round two get an independent proposal, or vice versa," Gillespie said. "That's possible and it's just a sourcing strategy, but it's hard to know for sure whether you'll get a better deal."
Antitrust issues—faced in at least some markets by all alliances—also has become a factor that sometimes makes it difficult to structure singularly priced alliance deals.
"You really don't have true alliance pricing unless you have that antitrust immunity," Brindley said. "Otherwise, even if they're part of an alliance, it's not truly an alliance-wide bid. They'll offer their own components under an umbrella, but you're really negotiating separately by carrier."
While codeshares among alliance partners typically are a given, the alliances have found varying degrees of success in gaining antitrust immunity from regulators. U.S. Department of Transportation last month proposed to extend antitrust immunity to United Airlines and Star Alliance partners Swiss International Air Lines, Polish Airlines and TAP Portugal, while permitting United to expand cooperation with partner Air Canada. "In addition to United and Air Canada, the European members of the Star Alliance with immunity are Austrian Airlines, Lufthansa German Airlines and Scandinavian Airlines," DOT said in a statement. DOT plans to make a final decision late this month.
SkyTeam's most recent attempt at furthering its immunity was not as successful, as carriers in 2005 withdrew their request for antitrust immunity following resistance from DOT. The alliance partners said they would, at a later date, pursue their request
(BTN, Jan 23, 2006). However, in 2002 DOT gave antitrust immunity to SkyTeam carriers Air France, Alitalia, CSA Czech Airlines and Delta.
Oneworld's American Airlines, meanwhile, has antitrust immunity with Finnair and LAN Airlines and its LAN Peru regional affiliate, but said it is disadvantaged when it comes to alliance-wide deal making, according to Dan Garton, American Airlines executive vice president of marketing. "We are disadvantaged in terms of antitrust immunity. We can offer discounts, but it is a little more cumbersome process than the others can, because we cannot be appearing to be discussing fares with the other airlines in our group—some of them we can, but not all of them. There are other alliances that have a greater range of flexibility. We can get there for you, but it's a little more complicated."
John Jackson, director of passenger marketing and sales for Korean Airlines' American headquarters, said the carrier has had a relationship with Delta that predates SkyTeam, of which the two carriers were founding members. As such, Delta and Korean have a level of antitrust immunity and have coordinated on corporate deals with customers.
However, for those SkyTeam carriers that do not have antitrust immunity, Jackson said a corporate client could request that carriers coordinate on deals on the client's behalf, giving carriers a level of immunity in setting corporate pricing. "Companies can authorize antitrust immunity," he said.
Oneworld, however, said that thus far, it has avoided the practice. According to Yeager, "We're continuing to reevaluate it. We know historically the customers tell us the other alliances will take that broader legal risk. I'm not saying we're not ever doing it and I'm not saying we'll do it tomorrow."
Instead of finding workarounds to collectively price corporate deals, Oneworld's Yeager coordinates from a central location, tying together a single contract from various carrier bids.