The Transnationalmet with American Airlines vice president and general sales manager Kurt Stache here in August to discuss corporate demand, alliances, premium class and other topics. An excerpt follows.
How do you maintain meaningful relationships with corporate accounts that have mandates from senior management to reduce travel spending?
We structure contracts in a way that the more business they give us the greater their price discount. In an environment like this, companies tend to become more strict with their travel policies and what employees can buy from an air travel perspective. In many of our large accounts, we are getting a greater share of their business. It is a much smaller pie; that is the unfortunate part. The fortunate part is that in many cases we are growing our share of that smaller pie. It is really hard to stimulate corporate travel. This downturn has illustrated that again. As the recession hit hard, American Airlines and others lowered prices. Prices are as low as they have been in many years.
Is that true across the board, for all classes of service?
Yes, in coach it is. In the premium cabins, we see new products or products that are discounted with restrictions. You see airlines, or at least American, implementing new products to try to stimulate at least buy-up into the premium cabins. When we look at our corporate travel patterns, clearly companies have restricted the travel policies and volumes are down 15 percent to 20 percent but revenue is down more like 30 percent because when they travel they have gone from buying the higher fares to buying the lower fares. Dictated by travel policies, customers are buying in advance and getting the lower fare. It is compounded by the fact that fares are as low as they have been in a long time, so you get the double impact of going from premium to coach and then getting a pretty good fare in coach, so our yields have taken a big hit.
Has American, like other carriers, reduced the real estate in first and business class, and what is the fate of premium class?
I can certainly answer the first part. We have not changed our premium real estate. It takes a lot of money and a lot of time. When you are a carrier of our size and you have a widebody fleet of 100-plus aircraft, it takes a couple of years to introduce new products. Even changing the number of seats in a cabin can take a while. There is cost associated with that. The other thing is, we're in it for the long run and we believe over time that business will come back. We're seeing a little bit of [improvement], particularly in the financial services industry, which was hit hard earlier in the year. They are clearly recovering, and there are more deals going on. They will not only fly more but buy premium products. When you are in that business, time is money and you have to be productive when you hit the ground. So we'll see areas of improvement. But in every downturn we have seen a lag in the return of the high-yielding premium customer and this go-around will be no different. In fact, it will probably be more depressed than we have seen in the past. Eventually, it does come around. It just is a matter of when. If a few companies begin to loosen their travel policies, you tend to see others begin to follow. It is hard to envision that now because we are in a deep recession, but it becomes really almost an employee benefit and a means of talent retention--particularly for consulting companies or investment banking firms. If you are someone who flies more than 100,000 miles a year, it does make a difference. We have seen that before: You saw it in the late '90s; even in 2006-2007 you saw that. I think it will get back there. No one knows when. The whole global market has been depressed, so I don't think there are a lot of people who wish they had more seats in first class. Our expectation is that markets like China and India will be first to come back, so the ability to put Boeing 777s in those markets will be advantageous for us.
As AA, British Airways and Iberia continue to wait for a decision from the U.S. Department of Transportation on the request for antitrust immunity, what do you tell clients who are seeking alliance deals now?
Given our size, we are always in the market. Corporations are always issuing RFPs and we are very much involved. We haven't put anything on hold, nor will we. While we don't have a joint venture with British Airways and Iberia, we still have oneworld, and it will continue to play a key role. We are able to offer products through oneowrld. We see it as a further extension of what we have today and [are] making it better and easier for our customers down the road. Our sense is that customers value an alliance. What we're trying to do is no different--and in fact catch up--to where Star Alliance and SkyTeam are today. A third immunized alliance brings that much more competition into the arena. The global customer today wants a solution that fits their global business, not just for certain segments of the network. We believe that is what customers are asking for.
Regarding RFPs from corporate buyers, have you noticed any changes in how they want to structure deals or build the relationship?
There hasn't been a whole lot of change. But maybe one area where there is change--and this anecdotal from a few of the larger accounts we have--they are looking to further consolidate their business. They may have had six carriers in a program, now they may be looking to have three or four. I am seeing a little bit of a move toward picking fewer partners but doing more with them.