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Now that its perennial and oft-thwarted pursuit of a joint
venture with American Airlines and Iberia is finally a reality, British Airways
is heading to the corporate market with not only all the benefits of
transatlantic cooperation but also an expectation of a stronger hand in
negotiations, buoyed by healthier demand and a shrinking amount of available
lower-fare seats. Some U.K. travel managers, though, already are objecting to
BA's request to share confidential details of their corporate contracts with
its new JV partners.
Speaking to BTN on
condition of anonymity, three U.K. travel managers each expressed fears that
signing confidentiality-clause waivers at BA's request and surrendering the data
would at best bring them no value and at worst lead to inferior deals than
their current contracts.
The waivers are not mandatory, said BA head of U.K. and
Ireland sales and marketing Richard Tams, and are designed to facilitate better
joint agreements than those currently offered by the JV's individual partners.
In fact, a fourth travel manager told BTN
he did sign the waiver in the hope that it would lead to a more attractive
offer from AA.
The skepticism and differing opinions illustrate the wide
range of buyer opinions about the growing influence of transatlantic joint
ventures, the roster of which increased by one late last month when AA, BA and
Iberia officially announced the signature of their agreement. The carriers'
leaders touted the JV's coordinated schedules and frequent-flyer programs, as
well as the launch of new routes—including New York-Budapest, Chicago-Helsinki
and London-San Diego—that the joint venture said would be unsustainable for any
one of the partners to operate alone.
Tams rejected the notions that joint ventures by their
nature bring reduced competition and that the transatlantic market is becoming
a series of monopolies, including Star Alliance's domination of U.S.-U.K.
service and Oneworld dominating U.K.-Germany service. He cited Delta, which
entered the U.S.-London Heathrow market, BA's backyard, in 2008 and recently
announced a major expansion in service there. "If you ask Delta if it
intends to lie down and let us take the entire U.K.-U.S. market, it will take a
very different view," Tams said.
Still, Tams pointed to an improving business travel market
as the impetus for an expectation of a stronger British Airways position in
"We are beginning to see more alignment between supply
and demand, so we are trying to increase our yield in the corporate market so
we can plot our route back to profitability," Tams said. "Given that
demand is growing, that is going to have the effect of less availability of
lower fares. We are also negotiating for lower discounts moving forward. It
doesn't mean fewer deals, but we are aiming to make them more commercially
BA also restructured its corporate sales strategy in 2010,
Tams said, shifting account managers away from clients with best-on-day buying
"What we have found with a number of companies over the
last couple of years is that they have become much more transactional and that
we are only as good as our last fare," said Tams. "We are refocusing
our sales efforts on companies that want strategic relationships with us, and
we will work with the transactional clients in a different way. A number of our
largest clients know we aren't necessarily the cheapest on the market, but they
may be more interested in things like the service they get on the ground and
the quality of the management information we provide."
"Richard Tams wasn't kidding," one buyer said. BA "is
taking a very aggressive stance. My negotiations with BA were quite difficult
this time around."
The joint venture partners have started conversations with
some existing corporate clients about merging separate contracts, but the final
offering and approach for the corporate market remains in progress.
Developing that approach, though, doesn't sit well with the
buyers who don't want to waive contractual confidentiality provisions so that
BA can share their data with AA and Iberia.
"I declined the request to waive confidentiality to BA's
joint venture alliance partners, which seemed to come as a huge surprise to
them, and they did imply that if I didn't agree to waive it in the new contract
it would be a deal-breaker," one buyer said. "Fortunately, that was a
threat rather than a promise. I would categorize our two companies as having a
very good relationship. We have worked out many bumps in the road, particularly
in the past two years, which have presented so many challenges, not just with
the economy but with operational difficulties on their side and reduction of
spend on ours. However, on the subject of their joint venture with AA and IB, I
don't trust that corporate customers will come out better off. I'm fairly sure
we will be worse off. There is no motivation for me to hand this valuable
information to AA, BA and IB on a silver platter without any assurance of a
quid pro quo."
Another buyer expressed almost identical fears. "The
carriers are going to get very bullish. It's going to be less competition and
prices are going to go up. They wouldn't be doing it otherwise. I don't see
that they are going to bring any benefits to our business. Going to tender now
seems the wrong thing to do until the alliances have worked out what they are
A third buyer also expressed surprise at being approached by
BA for the waiver with no negotiations for a new deal imminent. "We're in
mid-contract," the buyer said. "There are no commercial benefits
evident to us. Why would we want to share our existing contracts with other
partners before they can disclose what it's going to mean for us? It's very
early. The ink isn't even dry on the joint venture agreement yet. We are taking
the view that signing a waiver of confidentiality will not deliver any value,
so we won't do it."
In response to the question of timing, Tams said, "We
decided we would go out to all our customers at once, even though some of them
do not have contracts coming up for renewal. It isn't mandatory. Without the
waivers, we cannot share the details of what we currently have with our JV
partners, so we can look to see what will be the position moving forwards."
Tams vigorously refuted the accusation that the joint
venture deals would leave corporate clients worse off. "If it's worse than
what they have got at the moment, then they are not going to sign," he
said. "It will have to be attractive for them. We're not trying to
railroad customers. The idea is to bring them a better program and not a worse
one. It is clearly incumbent upon us to explain that. We're not going to force
them to sign a deal with new partners."
However, some U.K. travel managers are concerned they will
have little bargaining power with the new joint venture because of its
overwhelming marketshare on many U.K.-U.S. routes. Once again, Tams denied this
suggestion. "There are plenty of alternatives," he said. "That's
why I have a sales force."
BTN's Chris Davis
contributed to this report.
This report appeared
in the Oct. 25 issue of Business Travel News.