Airlines To Import Pay-At-Lift

<B> Airlines To Import Pay-At-Lift</B>
<I>U.S. Buyers See Potential, Problems For New Payment Plan</I>

By David Jonas

As airlines work to make a true pay-at-lift system available in the United States, business travel buyers generally are cheering them on, even as they question the system's benefits at the negotiating table and the airlines' ability to make it fly at the airport. Despite the obstacles, both carriers and travel managers agree that such systems--which reduce transactions and lower distribution costs--are on the way and will offer value for both parties once all the dynamics are worked out.

Continental's FlightPay program, conceptually similar to Lufthansa's Pay-As-You-Fly (<I>BTN,</I> June 21), won't begin beta testing until next year, but a handful of the airline's larger volume corporate accounts are prepared to move forward, while others keep a close eye on the developments.

Earl Foster, director of global travel management for Joseph E. Seagram & Sons of New York, has been talking to a few carriers, including Continental, about implementing a pay-as-you-fly program. "While the idea is not for everyone, it is the wave of the future for the more mature travel programs," he said. "It cuts out the rework and improves the entire system." Foster said ticketing still would go through his agency, though likely on a separate contract. However, trepidation has surfaced among some buyers who expect carriers to demand more in return.

Pete Buchheit, director of travel and meeting services for Black & Decker in Towson, Md., who plans to initiate pay-as-you-fly discussions when one of his airline agreements expires this month, said, "While the idea has appeal, I would guess that they'd be asking for a very major market share commitment."

Jim Young, Continental's director of distribution strategy, agreed that there is "a big question mark" on the specifics of formulating a contract. "Through the FlightPay beta test we will see what types of new behaviors are triggered."

Some buyers and airline officials said no-show fees could be included in contracts, and Foster suggested a bill-back scenario where the corporation is liable for the agreed levels. "It has to be shared risk," he said. "For a lot of corporate travel managers, that idea is new and scares them. But it is becoming another option for putting deals together."

Hanna Murphy, Siemens' director of corporate travel and fleet agreements, and a proponent of U.S. pay-as-you-fly systems, said that once such deals are established, they can't be of the normal one- and two-year variety. "There must be trust between the airline and the corporation so they can negotiate every quarter and either increase the discount because it is working or tweak the deal because it is not," she said.

While the clear benefits for large volume accounts are the elimination of transaction fees and flexibility for travelers, other advantages add to the appeal. "It also impacts internal corporate people handling expense reports, credits and rebills," Foster noted. "With pay-as-you-fly, you can completely cut out the reconciliation process."

Murphy said it enables electronic tickets to finally become "truly paperless" by removing all refunds, credits and other activities from the agency side.

Phil Dunphy, travel manager at Pfizer in New York, added, "Taking pricing out of the hands of the travelers leads to greater efficiencies in processing travel requests as well as being able to forecast unit costs for the company."

Additional savings are possible when a corporation uses a pay-as-you-fly system in conjunction with that carrier's own card. Lufthansa, for example, is encouraging Pay-As-You-Fly customers to use its AirPlus card, and Charles Braswell, director of general services at DaimlerChrysler, said that "an approach like this is bound to happen here in the U.S.," adding that Dasa, a German subsidiary of DaimlerChrysler, already is taking a serious look at Lufthansa's system.

However, some do not understand the rationale from an airline perspective. Bill Patient, travel buyer at Elf Atochen in Philadelphia, said, "Why would airlines pursue this strategy when the current situation gives them substantial float on their revenues?"

Though some airline officials acknowledged that it does factor into the equation, Young said Continental is not necessarily after the float. "We decided that we are more concerned with keeping strategic clients," he said. "This type of change is on the horizon anyway."

Continental continues to work with the group of beta customers to determine where FlightPay can work best. "It could be limited to shuttle markets or other certain origins and destinations," Young explained. Also, the carrier must overcome several obstacles: educating gate agents, communicating the implications to travel agencies, and perhaps most importantly, developing a mechanism at the gate to identify travelers from involved corporations.

"The airlines that know their customers best from a tracking perspective will be the most successful with pay-as-you-fly," Murphy said, adding that another obstacle is how the system will function with so many rates available at one time. For that reason, she suggested only flat, noncommissionable fares would apply.

Braswell said another shortfall could emerge in the event of lengthy delays or cancellations. Also, in the event of a cancellation, will other carriers accept a pay-as-you-fly ticket? If the refusal of airlines to accept other negotiated rates in those instances is any indication, probably not.

The more sophisticated travel management programs likely will see the payoff down the road if they are prepared to tackle the uncertainties.

"Eventually, this leads to the second piece, which is electronic funds transfer," Young said. "It is conceivable that we can charge a corporation only once and avoid the 2 percent credit card fee. Instead, EFT would cost about $1 per transaction." However, Young acknowledged that Continental would need to provide the same data now furnished by the credit card companies to give the system real value.

Meanwhile, Continental partner Northwest is exploring pay-as-you-fly scenarios. Al Lenza, Northwest's vice president of distribution planning, said the concept has to be looked at in the broader context. "For it to be really interesting, it needs to be part of the whole relationship including the discount, the buy-in, the ticketing method, the checkin method and the whole cost of the transaction," he said.

Both Continental and Northwest said they are interested in working together on joint pay-as-you-fly systems for certain individual accounts, though each acknowledged the challenges involved and likely will develop their own individual systems first.

Delta is another U.S. carrier with interest in the concept. "Pay-as-you-fly is definitely on our radar screen," said Steve Scheper, Delta's general manager of agency and corporate program development. "We are looking to work through the issues with accounts we already have relationships with because any time you can reduce the number of overall transactions it is mutually beneficial." Scheper added that such a project requires integration with several departments, including pricing, revenue management and revenue accounting, and Delta is just beginning "to pool the pieces together and understand all the dynamics, the infrastructure and data issues."

For its part, Lufthansa has not set a timetable for bringing Pay-As-You-Fly to the United States, despite plans to involve up to 30 companies in Germany by year-end. One official cited "an incompatibility of ticket selling machines and the IT systems of U.S. corporate accounts" as roadblocks.

However, many expect the concept to take hold in the year ahead as more carriers develop systems and begin offering them to customers with whom they have good relationships. "I have to get enough major suppliers to do this to make a dent," Foster said. "But if my global primary and global back-up are involved, it will have a significant impact.