Buyers See Air Seller's Market
<H1> Buyers See Air Seller's Market</H1>By Lauren Bielski
<H3> Business planners report They Are bargaining more, Yet Getting fewer perks</H3><B>C</B>orporate buyers searching for discounts on group airfares are reporting strikingly similar-and equally restrictive-deals with all carriers.
Whether this is because they are buying less advantageously than they could if their company's travel policy and schedules permitted or because they are at the mercy of market forces that make good deals scarce may depend on which side of the negotiating table you sit. Carriers assert that many planners still don't have the lead times necessary to take advantage of less frequently traveled routes or off-peak schedules, while planners claim that carriers now give less across the board because they have cut back capacity and business is good.
In fact, corporate buyers are typically bargaining more intensively for the same privileges as before, confirmed Bill Boyd, president of Sunbelt Motivation & Travel in Irving, Texas.
"This is the airlines' year," he said. "They've trimmed costs and cut load capacities, either by pruning frequency or using smaller, more cost-effective planes on highly traveled routes." The net effect, he said, is the creation of a seller's market and a lower cpm. "They don't need the meetings business the way they once did-nobody will get more than 5 percent off the lowest published fare."
Traditionally, the complexities of carrier economies-particularly the industry's low cost of selling an empty seat coupled with low barriers to entry-would spur fare wars in the leisure market and intense rivalries in the business and government sectors as well.
Over the past two years, however, the airlines have settled in to existing route structures or cut them back significantly, and have adopted more conservative operating philosophies, said Bob Harrel, airline analyst for American Express.
"The total number of planes flying in the system-measured by available seat miles-has been reduced from the 5 to 7 percent range down to between 1 and 2 percent, while traffic has increased by about 11 percent," Harrel said.
This is affecting yield management techniques and ticket prices. For buyers, it means that the deals just aren't as sweet as they used to be. "Airlines are trimming marginal capacity-which has always impacted the bottom line," Harrel said. "USAir, as an example, is boasting load factors of 70 percent."
"Seats are tight, but they aren't tight on every flight every day," said Debra Horn, manager of special pricing at USAir, based in Arlington, Va. In her experience, buyers have gotten better at knowing their schedules in advance and having a say about where and when executives fly. Contrary to many industry observers, she said she is seeing more buyers getting discounts, and in some cases, substantial ones.
Most of the 350 buyers surveyed by Meetings Today, however, said they are seeing less flexibility. More than 70 percent of the respondents said they are receiving the same discounts as last year, and 14.3 percent said they are receiving fewer discounts. But 14.3 percent also said they are getting greater discounts (See chart, Page 11).
The standard offering for meetings fares remains 5 to 10 percent off the lowest applicable fare or one free ticket for every 40 purchased. The percentage of those receiving discounts has held steady since MT last surveyed group air activity in 1994, when almost 20 percent of respondents indicated some positive or negative change in the levels of discounting. Perks, such as free drinks and use of airport club and or meeting room, also were offered less often, with only 10 percent receiving free drinks as opposed to 16 percent during the last survey period.
The experiences of individual buyers illustrate the statistical findings. "We thought we were going to get terrific discounts this year, but the deal fell apart when we couldn't guarantee mandated use of that carrier," said Tom Boone, manager of travel and meeting services at Republic Mortgage Insurance Corp. in Winston-Salem, N.C., which holds about 50 sales and board meetings annually.
Boone, who works with agency First Travel Corp. on air negotiations, explained that the deal in question involved a rebate on every round-trip flight. Last year's terms-5 percent placed into a kitty for free upgrades, club membership and free tickets-were to have been bolstered to 8 percent. Then the company's decision to change many of its meetings destinations forced the company to use other carriers.
Without the promise of exclusivity, the notion of pooling reserves for future discounts became yesterday's news. "I got the impression that the carrier was attempting to discourage the arrangement anyway," Boone said. "They seemed to prefer time-of-ticketing discounts because, I suppose, those are easier to track."
But inventive buyers still can find ways to trim their group budgets, said Jack Hamre, vice president of transportation with Carlson Wagonlit Travel. He maintains that the reasons for uniform pricing among carriers has as much to do with the purchasing behavior of corporations-which may have destinations that don't fall in line with convenient route structures for airlines-as it does with the airlines micromanaging cash flows. "It's still a question of needing to understand your group's travel patterns and buying behavior, and matching it with an airline's route structure," he said.
Not everyone feels the squeeze of the seller's market. Christina Moore, a meeting planner with Office Depot in Delray Beach, Fla., recounted that while meetings were originally infrequent and unorganized, they expanded rapidly with the addition of about 75 stores annually over the past five years-and made her a player with Delta and USAir, which are both vying for the estimated $8 million air business out of Office Depot's training center.
Still, even sophisticated negotiators feel they are limited in the face of "one size fits all" discounts among carriers. "I'm not certain that combining transient air volume with meetings gives me any real break on meeting fares," said Judy Elliot, manager of meeting and travel services at Ralston Purina Co. in St. Louis.
Ralston Purina uses American Express to negotiate transient travel, but Elliot often handles arrangements for meetings, which have very short lead times. On the rare occasion when Elliot has substantial advance notice of a meeting, she gets the best fare when the vast majority of a group flying from several cities can be pooled to count as a single group flight.
Unfortunately, many firms can't easily get a handle on their meetings spending. Greg Xenias, project supervisor of market communications with Babcock & Wilcox, a boiler-equipment manufacturer in Barberton, Ohio, has much longer lead times for two scheduled user-group meetings this year. The participants change so much from year to year, however, that it is hard to come up with a feasible purchasing profile and stick to a single carrier, he said. His company uses Rosenbluth to negotiate for rates based on group and transient volume combined.
Of course, carriers with the clout of a hub in a particular region have always had the upper hand, especially in the case of groups. "When an air carrier is the only game in town, it is going to take advantage of that fact," said Jan Schofield about her dealings with USAir in Pittsburgh.
"It's a bit too soon to say if Rosenbluth's strategy of leveraging our entire volume is getting me better meetings deals," said Schofield, corporate meetings manager for ServiStar, a $1.8 billion international hardware, lumber and garden retail chain based in East Butler, Pa. "We might do a little better if I pushed a little harder-returned the contract submitted by the airline and made a pointed request for a site- inspection comp, for example-but it's hard to say given the climate. I certainly wouldn't expect an increased percentage.