Boycott Prods SAS To Action

<B> Boycott Prods SAS To Action</B>

By Amon Cohen

Scandinavian Airlines System has bowed to a corporate client boycott in Sweden and introduced a program that will include up-front pricing for the first time. The much-criticized carrier also has admitted that it needs to be more flexible and--in sharp contrast to U.S. airlines--hinted that it will raise commissions.

SAS remains the world leader in commission reduction, with a basic level of 4 percent plus a cap in its home markets, giving agents an average return of 2.8 percent. Scandinavian corporates long have complained that this effectively has been a price increase for which they have not been compensated. The U-turn by SAS is a testament to the increasing professionalism of travel management in Sweden, where several major companies--including Volvo, Pharmacia & Upjohn and Astra Zeneca--have announced in recent months that they were unable to conclude a corporate deal with Scandinavia's dominant carrier.

SAS long has had the upper hand in the region because it has a very high share of available seat kilometers coupled with its EuroBonus frequent flyer scheme. Travel managers have fought back by improving their management information, presenting the business case to travelers for using other airlines and achieving senior buy-in to tighten policy.

According to Swedish press reports, SAS grew its volume 2 percent less than the rest of the market in September 1999, compared with the same month in 1998. As BTN went to press, SAS was poised to unveil details of its new program for corporations. Erik Strand, senior vice president for sales and marketing, said it would be available to all corporate clients and would involve paperless ticketing and the paying of a bonus up front. "We are facing a new reality concerning how to deal with corporations," said Strand. "Companies are getting stronger and their policies are more accepted by their employees. In some cases we have not been as flexible as we can be."

Pharmacia & Upjohn is one company that has complained that SAS was not being sufficiently flexible. It had a local deal in Sweden with the airline for five years and last November attempted to extend it to include the whole of Europe, plus the United States and Japan. "We finished in April and we didn't reach any conclusions," said Agneta Djerf, Pharmacia & Upjohn travel manager for Europe, the Middle East and Africa. "There was nothing to agree upon--Pharmacia & Upjohn saw no positive effects of a European or global deal."

Djerf's requests for some kind of up-front discount also were rejected. Having failed to pull together a regional deal, Djerf told each country to conclude an agreement with whichever airline offered the best terms locally. This could include SAS, as proved the case in the United States. However, in the Swedish market, SAS was not willing to negotiate selected route deals unless the total flight volume remained the same as last year.

"Our policy is that travelers have to use the least expensive ticket within Europe, but there was no way SAS could come down to the level of its competitors--there was a very big difference," said Djerf. "Our travelers are allowed to fly business class long-haul, but this did not make any difference to SAS. It is changing more and more. Companies are looking at the cost of tickets and with management information getting better and better, they can place the data in front of their presidents, who now understand the savings they can make."

Djerf also attributed her success in buying away from SAS to increasing competition from other airlines in Sweden. That is a view shared by Eive St&auml;llvik, head of Volvo Travel Management. "It has not been possible to reach an agreement with SAS that is acceptable to us," he said. "We looked at 20 different airlines and SAS was not competitive in terms of price, schedule or quality."

Although many observers have questioned the competitive value of alliances, St&auml;llvik said in this case they were of assistance. Instead of having to deal with 20 airlines separately, there are now a small number of alliances eager to take on the dominant local carrier. His experience was that the Qualiflyer alliance of Austrian, Sabena and Swissair negotiated the best. St&auml;llvik also tried--and failed--to secure net pricing. "Net fares make it much easier for us to explain to people within the group and to steer travelers, but SAS said it was not possible," he said.

Swedish Business Travel Association chair Cathrine Wickerts said "a significant number" of Swedish companies have not renegotiated with SAS. "The airline is always telling us that it does not matter what we say as travel managers because it has the strongest frequent flyer scheme," Wickerts said. "But now we are able to get our travelers to understand why they should use the airlines we choose for them. We have shown SAS that we are empowered to move market share from them."

Wickerts also criticized the inability of SAS to offer net deals. She has negotiated net fares with British Airways and even with SAS's Star Alliance partner Lufthansa.

SAS clearly has taken on board the criticisms about net deals, but Strand contested that there had been a major revolt by corporate clients.

"There are only three top Swedish corporations with which we don't have an agreement and 280 with which we do," he said. However, he was disturbed by the claims that SAS saw no need to negotiate with corporates because of the EuroBonus program.

"If someone on my staff said that, I would be angry with them," he said. "We need to deal with corporations and with individuals."

Whatever the details of the new, corporate-friendly SAS program, Swedish travel professionals clearly feel that travel manager power is here to stay.

"We are empowered to deal on a higher level than in other countries," said Wickerts, while Annika Ortmark, a partner of corporate travel consultancy Ortmark & Consultants, Stockholm, noted that "travel managers are moving into the chief financial officer's department, so there is more focus on cost."

Asked whether it was travel agents or corporations that have shifted market share from SAS, American Express Nordic vice president for corporate travel Jon Risfelt gave the credit to the travel purchasers. One of the most successful weapons, he said, has been the printing of an invoice with every ticket showing the traveler the full cost of his or her journey, including the transaction fee and commission.

"The difference in commissions between SAS and other carriers can be as much as 5 percent," said Risfelt. "Finnair has been 9 percent for most of this year.