BTCC Tries Airlines Again

<H1>BTCC Tries Airlines Again</H1> By Jay Campbell

<I>King of Prussia, Pa. </I>- The Business Travel Contractors Corp. is trying one more time to get the major airlines to work out a new deal with corporate buyers.

This time, BTCC will offer the airlines an arrangement that focuses on net fares for specific city pairs rather than a nationwide contract fare approach.

BTCC, which will issue the revamped proposal next month, also is seeking to establish a virtual association of corporate travel buyers via a private Compuserve site this fall. The new industry organization, the Business Travel Coalition, will attempt to foster Internet-based debate and will advocate the corporate perspective on issues affecting corporate travel managers. The coalition is open to corporations of all sizes from the United States and abroad, and participation in the BTCC is not required.

The new airline program, referred to as Phase II by BTCC president Kevin Mitchell, incorporates airline objections to the first proposal. That initiative, sent in January, was not accepted by any of the major airlines except Southwest (<I>BTN</I>, April 8).

"The three main objections from the airlines were that BTCC wanted too much change too fast, that the business contract fares did not reflect competitive conditions of local markets and that with a systemwide approach, we did not offer the airlines opportunities for new business," Mitchell said.

To make the program more appealing to carriers, BTCC will focus on cities where the group's members have the largest market presence. The BTCC companies' top 100 city pairs from a given hub city would be posted, and airlines would be asked to offer fares stripped of overrides and commissions in return for a minimum of 90 percent of the BTCC's volume.

"On some routes, there will be one airline with a large overall presence, say 90 percent," said Mitchell. "That airline has no incentive to bid on our business for that route. A carrier with 60 percent overall share may bid to protect its position. For carriers with 20 or 30 percent, it's a no-brainer."

For the BTCC's 25 companies, the new program provides an opportunity to attain "true net fares which are fixed for the life of the contract and not floating as a percentage off full coach, which the airlines can adjust," Mitchell said. The fares do not strip out CRS and credit card costs, but "that's on the horizon," he added.

Mitchell said there are already two test airlines for the new program (not including Southwest), which are among the seven largest majors. Contracts will be termed for six months to reduce airline risk and should begin appearing in the fall with participating carriers.

As for Southwest, BTCC companies are in the process of shifting their travelers to the low-fare specialist in markets it serves. Mitchell said the companies are even looking at funneling their travelers through the secondary airports Southwest serves, which is not required in the contract.

The second part of Phase II is the creation of the Business Travel Coalition, which will require annual dues of $100 to be paid by corporations only; no funding from suppliers will be accepted. There will be no meetings except for a steering committee composed of current BTCC participants. The group will communicate via Compuserve in a private site accessible only by members.

"The decision to form the coalition evolved after observing several industry events that evidenced a common theme: little regard for the corporation as the customer," Mitchell said. Such events, he said, include supplier actions such as value pricing, the commission cap and hotel early-checkout fees, which surprised corporate customers and caused disruption and frustration.

The Coalition is working to establish a 10-member advisory council composed of industry associations, suppliers, consultants and other experts. Eight of the 10 Advisory Council members have been chosen, and Coalition members will be recruited beginning in September.

Concerning the new airline proposal, consultant Harold Seligman of Management Alternatives in Stamford, Conn., said the chances are better that at least one of the other major airlines will be willing to sign on with BTCC.

"This new proposal is parallel to what the airlines are accustomed to in dealing with corporations," he said. "It's what the airlines are already doing with corporations-giving them net fares for targeted market share on certain city pairs-but it's certainly a significant amount of business when you're talking about 90 percent share from a group of companies like this one."

But Tom Wilkinson, president of Alexandria, Va.-based Travel Management Group, didn't see how the new proposal was much more appealing to carriers. "The new proposal still doesn't avoid the fundamental problem of the original one, and that was quite simply that the airlines would have to give up pricing control," he said. "What's new here is that Kevin is trying to rely on the total market power of the consortium in specific cities, and the more he does that, the closer he comes to the parameters set by the Department of Justice-in other words, approaching possibly objectionable or illegal conduct."

While Seligman said that "all he needs is one of the big guys," Wilkinson disagreed, noting that if BTCC gets only one carrier, "it could be easy for competitors to undercut the BTCC fares, and then what would happen to the 90 percent share commitments? They would be very difficult to defend in any corporate environment that I've worked in."

One airline executive dodged the question of whether he had heard that a new proposal was to be issued and opted instead to attack Mitchell and the original BTCC concept. "Our companies have told us they want to deal with us directly, so that's what we'll do," he said.

Mitchell responded by pointing out that a recent letter he sent to nearly 2,000 corporations asking whether they were interested in BTCC's Phase II yielded 180 requests for more information.

"I think that shows these companies don't feel secure enough to deal one on one with the airlines," he said. "We've signed up a formidable competitor in Southwest, one that's not known for making bad decisions and one that is known for scooping the airline industry. There may be something Southwest has figured out that the other airlines haven't tuned in to."

Still, Mitchell admitted that the original proposal was hard to bite, especially for the airlines that don't have Southwest's renegade reputation.

"In the first proposal, we were asking the airlines to do a lot for a small number of companies," said Mitchell. "Now we're responding to their desire to reflect the differences between regions of the country. Now we're more localized."

BTCC lost the memberships of two of the original companies before starting Phase II. However, it gained two as well, keeping the number at 25. The group is funded through April 1998.