A Dozen Buyers, BA Try Extranets

By BTN / June 06, 1999

A Dozen Buyers, BA Try Extranets

With its profits under pressure due to decreased demand for business travel, British Airways has replaced the heads of sales in two of its most important regions--USA and worldwide. Just four days after arriving on this side of the Atlantic, Dan Brewin, new executive vice president of sales and marketing, USA, talked with BTN editors about the airline's views and plans in sales and distribution. Pat Terrion, senior vice president of sales, USA, added to the dialogue the following week.

BTN: British Airways is pioneering new links with corporate customers' travel home pages--called extranets--for visibility and promotions. Can you tell us more?

Brewin: British Airways has eight corporate extranets in the U.K., including Unilever. We're not stopping there, but we're still learning what they mean. It's brilliant, but you have to maintain it.

Terrion: We have four in the United States, and two are new. It's resource-intensive for both companies, but it is a nice tool with which we can communicate to the end user. Some companies aren't used to communicating this way and they won't put a lot of resources behind it. We're not in it for bookings, and without ruling anything out, I don't know if they'll be used that way. It's used more for news and special promotions with that corporation. We're a link on the travel home page and the idea is to increase our share of mind, so to speak. We have three people dedicated to technology and our corporate/agency opportunities. It's definitely something that will become more prevalent.

BTN: Can you elaborate on the statement that BA wants to move half its bookings to the Internet?

Brewin: We're making a sort of planning assumption where we believe 50 percent of business will be online. It could be the Internet, but it could be extranet or agency. Dale Moss, my predecessor, is involved in that in his new role as director of sales worldwide. It's an assumption on which we're basing our investments in IT, product, airport systems, etc. It's not a goal, but rather a view of the future marketplace and it does match our need to spend less money actually transacting.

BTN: But at a certain point you have to go for headcount--does that mean fewer agents?

Brewin: That's a possibility, certainly, as a lot more of the work is done electronically. But I don't think we should be predicting redundancy; I think people will change their roles. An Internet with a personal touch will be far more successful than one that is just a mechanical process.

BTN: Have you identified which agencies are preferred and non-preferred, under your tiered commission structure?

Terrion: For BA, 7,000 travel agencies currently are on our distribution fee, and we'll probably move that to 10,000 by the end of the summer. But we've also set up Preferred Seller Arrangements. Every other industry has a preferential system for certain suppliers. Even with consumer goods, Coke and Nike have preferred share of space, and thus a preferred share of the consumer mind. So, these agencies are not being asked to sell us exclusively, but to give us preferred selling space, whether in the global distribution system or with brochures on the shelf. There are fewer of them, but they're larger, so there are more agency locations. We do see a loss of business from those on the fee, some of whom are placing themselves there by choosing to work with other suppliers. That's fine, but it's offset by the gains we've seen from the Preferred Seller Arrangements. Over a long term, we feel the future distribution system will warrant this strategy.

BTN: BA ranked in the middle of our readership survey on the best airlines with which to do business (BTN, Nov. 2, 1998), and scored particularly low in flexibility on negotiations. Are you working to improve that?

Terrion: What's more important than flexibility is the character of the deal. I'd have to ask the travel managers how many of their deals employ shared risk, where the airline will risk providing certain amenities and/or discount for share of volume. What portion of the risk is on the buyer's side as well as the seller's? Contracts in many other industries have shared risk. That said, I don't blame the travel managers because the reality is the airline suppliers are in a state of mind whereby they don't request contracts with shared risk. They're competing so fiercely that many times they give away a lot without getting anything in return. You get your natural share anyway and there are multiple agreements with many suppliers. In that vein, if BA has to compete to provide a huge discount, then I guess maybe we have become inflexible. We're not out to say no, we want the terms and conditions to be mutually beneficial. Unfortunately, I think sometimes that's not the way our competition treats it.

BTN: With that said, are buyers now considering shared-risk deals?

Terrion: With true respect to buyers, we do have many shared-risk agreements and they are extremely loyal because the character of the deal becomes very important. We become very flexible with shared risk agreements.

BTN: How should such deals be structured?

Terrion: A perfect example would be if someone is agreeing to buy a certain level of market share for a commensurate upfront discount--and if they don't achieve targets, we have letters of credit, where we'll draw down on the difference, or clawback agreements where we would bill them.

BTN: Is advanced bulk buying a trend?

Brewin: I don't think it is a trend at all. Sure, there's a relationship between the corporate and the supplier, but we have no such arrangements. To be honest with you, it isn't often in the carrier's interest to do that, because you're locking in the price. What happens if the contract isn't achieved? Do you have a falling-out with that organization? So, I think it builds hostility, not a relationship.

BTN: How many corporate negotiated contracts fulfill their thresholds, 50 percent?

Brewin: I have no idea of whether that's right or wrong, but it comes back to a fundamental issue, which is really, "how well does a corporate control his organization's travel?" It shouldn't be 100 percent, because that would mean my community of airlines have got it all wrong by giving targets to the corporate marketplace that are all easily met.

Terrion: Five years ago, it was about 7 to 10 percent on average fulfilling. Now, it's more than 60 percent. If they don't fulfill, we drop them. It's because the industry is maturing properly--it's shared maturity.

BTN: How do you respond to the news that American Airlines is selling a discounted pro-rate for connections on BA in order to squeeze corporate benefits out of the non-immunized alliance (BTN, March 8)?

Terrion: We're not 'upset' with this activity, as someone said in your story. We're not endorsing it and we're not not endorsing it because we're not allowed to talk about it or to work with AA on pricing. We've had offsetting opportunities on the European side whereby BA is a beneficiary of our relationship with AA.

BTN: Is this happening on the European side?

Terrion: Certainly we have opportunities there, and we have opportunities on the beyond flights that AA operates connecting to our gateways.

BTN: Where's the opportunity for real e-ticketing savings?

Brewin: Clearly it's a way to get transaction costs down, but you need sufficient volume for that, and I don't know where that is. I think we're a fair way off--whether it's two or three or five years, I couldn't tell you. I can relate to my U.K. experience, where e-tickets have penetrated the short haul market. It gets to a penetration of about 15 percent and then it seems to top out there. I'm not sure whether that's consumer non-acceptance, or some agency issues or maybe our own issue of not communicating about it. We presume it's the communication.

BTN: Are you working on interchangeability of e-tickets?

Brewin: Yes, there are folks working on this in the U.K. One of my direct reports in the last job was dealing with this issue, as well as how to increase the penetration.

BTN: Where does BA stand on customer relationship management (BTN, April 26)?

Brewin: There's a huge amount of work going on in that area. But it's a huge task and one can easily over-promise in this area. The main task is linking the role of an individual because he's a corporate traveler one day but a leisure traveler the next, and his buying patterns and behaviors are different. Customer intimacy has been a running goal in BA's sales organization for about four years.

Terrion: The industry's so competitive that the opportunity for profit is in the middle market, small profitable companies with growth potential. There's no way to take over the middle market.

BTN: How's the Venture Club incentive program (BTN, Jan. 25) for small businesses going?

Terrion: It's going extremely well. We have thousands of accounts, but it's too early to tell how it will work over the next three to five years.

Brewin: I believe the managers here are in conversation with colleagues to bring the program to the U.K., and I'd anticipate we'll do that because the sector of the medium-size corporates is of great interest. They're hard to get at but very important in volume.

BTN: What's happening in the area of premium bookings?

Brewin: Business travel in and to the U.K. is not strong at the moment and there are many reasons for that. The Far East collapsed, the U.K. economy is less buoyant than here. We're not at death's door, but total business travel to the U.K. went up just 2 or 3 percent last year. What do people cut when that happens? Advertising, travel, discretionary items. Transatlantic business travel, though, has improved in recent months.

BTN: Some travel managers have been concerned that their companies are unable to reach fares unavailable in the GDS, such the distressed inventory specials on the Internet. How would you answer to that concern?

Brewin: First, these fares are primarily intended for the leisure market and if we make access to them too easy, we've diluted our business. Second, making connections to allow companies to book them would be a huge task.

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