The race is on for U.S. carriers and their partners blessed with antitrust immunity to gain new corporate business by selling their vastly expanded route structures and demonstrating the cost efficiencies alliances can offer.
Airline executives and other sources say the industry will see a major shakeup in preferred supplier arrangements over the next two years as these alliances come to fruition.
United Airlines and partner Lufthansa already have begun consummating joint deals and will soon begin working with SAS. American Airlines and Canadian Airlines International have signed "a high number of joint programs, mostly in the U.S. and to a lesser degree in Canada," said CAI's general sales manager for the U.S., Bill Thompson.
Delta and its partners Austrian, Sabena and Swissair are hoping to begin approaching corporations as one entity in the second quarter. Northwest and KLM, operating under antitrust immunity since 1993, have "several handfuls of joint deals" and will continue to look for corporations that demonstrate they can shift share, said Northwest vice president of corporate and agency sales John Temple.
Meanwhile, regulatory decisions on the AA-BA proposal also will have a serious impact on the prospects of these and other carriers hoping to compete on the all-important transatlantic routes. Not only might AA and BA fall even further behind the aggressive efforts of United and other alliances, but U.S. carriers and partners without antitrust immunity-Continental, TWA and USAir-will see their ability to attract new international business either enhanced or reduced, depending on the Heathrow decision.
"I would be concerned with time if the DOT was much later than April 10 with its ruling because of the important summer selling season and weighted revenue goals," said Dale Moss, BA's executive vice president of sales and marketing for the U.S.
Northwest's Temple agreed. "I can't overstate the value of time in a relationship like this," he said. "We have an advantage because we've had a chance to get to know our partner and the way they think. It's not that I'm not concerned about the other alliances, but they will require a lot of time."
Starting March 29, BA officially will lose its East Coast feed from USAir. USAir will lose a major partner to feed into, but has stated it will pursue transatlantic growth independently.
"For USAir, getting key international routes could make all the difference in its ability to put together a corporate package," said Mike McCormick, director of supplier relations for Philadelphia-based travel agency Rosenbluth International.
USAir is in a good position to go independent considering its presence in the Northeast, the number-one jumping-off region for Europe. Geographical presence for airlines and companies alike will largely define who winds up with whom.
United, for example, is at first targeting its own customers who do not have all their European needs fulfilled by United. "The main criteria is, if we're already doing business with someone, can Lufthansa be a value-add?" said United director of business markets Joe Laughlin. "Likewise in Germany on Lufthansa's part."
Larry Silman, vice president of sales, client relations and operations for Chicago-based Arrington Travel Center (and a former executive at United's Apollo CRS), said 1997 will give United "the opportunity to find some clients they will later have to fight over with AA-BA. United sees themselves as a year ahead, and once they generate the business, it will be up to someone else to take it away."
Phil Dunphy, corporate travel manager for New York-based pharmaceutical company Pfizer Inc., said that he will "absolutely" consider the United-Lufthansa partnership, even though the company is spending only $1 million a year with Lufthansa. On the flip side, Pfizer executives often travel to Brussels, so the Delta alliance might be the choice. "I don't see that one alliance would be the sole provider," Dunphy said.
For BA, despite the loss of USAir's feed, American's extensive domestic network "certainly gives us the opportunity for more large companies," Moss said. "We should be able to offer more global solutions for more customers."
Moss said both BA's and AA's sales staffs, while careful about legal concerns, have developed various scenarios depending on the level of restrictions levied on the alliance. Both carriers have had to stay away from identifying potential customers in the absence of antitrust immunity, he said.
"We're going to try to do the best we can to be there for our customers and win the race with regard to market share or revenue programs when it comes to code-share efforts," American's managing director of field corporate programs and special sales, Frank Morogiello, said in a faxed comment.
Yet to be clearly demonstrated is to whom the benefits of alliance efficiencies will go. Clearly, airlines involved in these partnerships are reaping serious cost savings, but they must satisfy the financial needs of many parties, from stockholders to customers and employees.
"We have literally carved up the sales territory and we now send in one sales rep for both carriers," Temple said. That is just one area of savings for alliances and is by no means the largest. Operationally, carriers can reduce seats in a given market to match demand-an immense savings. They also can share facilities, eliminating redundancies.
For travelers-and travel managers on the service side-the benefits include smoother international connections, more attractive frequent flyer programs, shared airport checkin and access to lounges and clubs.
For corporate travel managers, the main direct benefit seems to be a reduction in the number of airline deals, which traditionally has reduced costs both in the management of contracts and in the price itself. "It's a one-stop shop for negotiating. I think it's a positive step," said Carol Salcito, president of Stamford, Conn.-based consultancy Management Alternatives.
"It's economy of scale," said John Guarneri, manager of corporate travel services for Pittsburgh-based Bayer Corp. "You're giving one alliance $6 million rather than $2 million and $4 million to two different partners."
The issue of price, however, remains contentious. An informal poll of Business Travel Contractors Corp. members' thoughts on airline consolidation drew unilateral opposition-and in some cases, outright fear.
"In the short term, there will possibly be good pricing, during the 'honeymoon' period," said one respondent. "The longer-term prices will go up in competitive markets."
"I expect prices to go up considerably," said another. "Our negotiating leverage will dwindle to nothing." And one respondent said, "on one hand, they should achieve economies of scale and efficiencies. On the other hand, three or four supplier blocks might not be enough. What happens if they carve up the world and stay out of each other's way?"
Additionally, travel managers are skeptical about whether the partnerships can really work, given the wrestling over control at Northwest-KLM and the breakup of BA and USAir, among other past partnerships.
Canadian's Thompson said he understands the market's concerns. "Price is always going to be a factor," he said. "But even the alliance programs will have to be price competitive. You'll always have to fight what the other guy is willing to give your customers."
Some expect AA and BA to become the price leader as others play catch-up on the transatlantic routes. According to Pfizer's Dunphy, "American has lost quite a few corporate deals to United. Now they're aggressively trying to get us back."
BTCC travel managers are trying to address concerns about their leveraging power through their participation in what is essentially a buyer's alliance. However, some airline execs feel size has little importance when it comes to leveraging.
"Our perspective isn't strictly about size," Temple said. "Our interest level is greater if there's a bona fide travel policy in place. We have quite a few corporate customers which are significant because of their location or their international needs. Though it's increasing, there are still few companies that can really shift the business to me."
But Thompson said the carrier's perspective of a customer's relative importance changes as the airline grows, especially with an alliance. "It boils down to the type of business the corporation does," he said. "If it's not a global player, there is some impact on leveraging. Of course, the airline isn't going to ignore a major regional player either. But you do fall into the scenario of, for example, the largest corporate account in Canada is suddenly one of many huge accounts in the partnership."
Despite the debate, one recurring and unexpected theme popped up in interviews: As these partnerships develop-not just between airlines, but among buyers and agents as well-the various parties are realizing how much more they need each other.
"After deregulation in the 1980s, there was definitely more of an adversarial relationship," said Rosenbluth's McCormick. "It seems like more of a spirit of cooperation these days.