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American Airlines in December appointed 12-year company veteran Kurt Stache vice president and general sales manager, responsible for all worldwide sales activities. He spoke this month with Management.travelabout business travel trends, corporate sales and international service developments. An excerpt follows.
What is your perspective on the state of business travel?
We hear a lot of feedback, certainly from economists and even from some of our own [corporate clients] that there is some weakness out there. The interesting thing, from a booking perspective, is that we have not seen a real impact yet. We watch it very closely each week to gauge where our forward bookings are, and the reality is, with the exception of transatlantic markets, things are still holding up pretty well. The transatlantic marketplace is pretty competitive these days, and certainly some of the financial services companies are cutting back somewhat on their travel. To what extent is unclear at this point, but there is a little softening in that area.
Business travel has been seen as an indicator of the broader economy. So why do you think advance bookings are holding up now in this part of the cycle as the economy weakens?
Is this a new era that we live in? I guess we won't know until time passes. Bookings have held up reasonably well, but I go back to 2001, actually March 2001. Early in that year, we had a hint that things were slowing down, and people were talking about the economy slowing. Within a few weeks during March 2001, things dropped dramatically. It left an impression on me on how quickly things can turn. Simultaneously, everyone turned back on their travel budgets. But we have yet to see that, and I remain hopeful it won't happen. If and when it does turn, it can turn pretty aggressively--at least that's what history tells us.
From your base of corporate clients, do you get a sense that if they were going to be cutting back, it would be cutting back on the number of trips or buying more cost-efficiently through lowest fare policies, advance purchase, fewer premium tickets, etc.?
We have seen a slight trend toward booking lower fares--fares that have more restrictions on them. That has been a subtle shift that we have seen over the last three to six months. I don't know if that is driven by smaller travel budgets or a slowdown in the economy, but there has been a slight change in [fare] mix. But yields have been holding up pretty strong. Of course, the airlines--American included--have been driving up fares due to the dramatic increase in oil prices. That is our biggest challenge today. The concern one always has in increasing fares is will the demand slacken and traffic start to fall. We haven't seen that much slowdown in traffic yet.
Can you generalize the latest AA efforts to attract and retain corporate accounts?
In markets where we know there is strong business demand, we've improved the inflight experience: new business class seats for Boeing 767s and Boeing 777s, enhanced first class cabins on all 777s, [product upgrade] work on 767-200s, which are for transcontinental flying ... On the premium service side, we've added new clubs--in New York JFK, Tokyo and Nashville, Tenn., and are underway with a major refurbishment in Heathrow--and invested in products that our corporate customers value significantly. On the network side, corporations clearly have gotten more global, and their feedback to us is that we need to continue to focus on our international expansion. Shortly, we'll be launching new long-haul service to Barcelona, Milan and Moscow. Early next year, we'll be going into Beijing. We're arming our sales reps with more technology and making some internal investments in our organization to better equip our folks for the new business world we are in. It's the ability for our sales folks to have greater access to information--databases, the ability to reach and interpret that data--in a more user-friendly way than we have had in the past. It used to be more difficult, where you had to go to multiple areas to access it. We're investing in what we would call a salesforce automation tool, or a customer relationship management tool, that helps provide greater continuity within the group. It is on our 2008 list of things to implement. We are seeing some accounts become more transactional, but we believe, creatively, there are win-win opportunities for everyone involved if, instead of always taking the lowest fare, there are more incentives by moving more share to the primary carrier. As a sales organization, we focus on how we can build deeper relationships and build value beyond just price. If it is all about price, it can be a pretty challenging business.
American has long operated at London Heathrow Airport, and it does not seem as if the AA-British Airways alliance will change materially any time soon. Given that, what impact will the new U.S.-European Union open skies agreement have on American when the deal takes effect March 30?
As far as American Airlines is concerned, probably the biggest change is that we have the ability to move some of our routes from London Gatwick to Heathrow. In fact, this spring we will be terminating our service to Gatwick altogether; Dallas-Gatwick, Raleigh, N.C.-Gatwick ... those are all moving to Heathrow. That will certainly help us from an efficiency perspective and provide opportunity to serve Heathrow from the big markets we don't today. There is no doubt in our mind that Heathrow will become even more competitive [as other U.S. carriers begin new service]. It has always been a competitive marketplace, and it was interesting to see Continental Airlines pay $50 million for each slot it bought there. We're ready to compete. And we have also launched service to London Stanstedthat came in large part from customer feedback from financial services companies that find Stansted an easier airport to get in and out of and geographically closer to some of their offices in London. With the British Airways relationship, we continue to add more codeshare flights. The ability to move all of our service to Heathrow should enhance connecting opportunities for cities like Dallas and Raleigh that only were served via Gatwick. But those are marginal moves; nothing major at this point in time.
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