Buyers Seek Service Pacts

<B>Buyers Seek Service Pacts</B>
<I>Comdisco Latest To Press Carriers For Better Care</I>

By David Jonas

A few corporations are renewing efforts to include service-related clauses in airline agreements, a concept generally rejected by most airlines. Considering extremely poor operating performances by carriers this summer and resulting business traveler disillusionment, however, now may be the time for buyers to ask their air suppliers for a deeper level of commitment.

Comdisco, a technology services company based in Rosemont, Ill., is the latest corporation trying to fold service elements into an airline contract. As part of its new focus on procurement--of which travel is the first area to be examined--the company this month sent out a North American request for proposals to American Airlines and United Airlines that includes numerous nontraditional requirements and parameters, while setting aside all preconceived notions.

"We are trying to convey to a prospective primary carrier, specifically in the Chicago market, that service and price go hand in hand," said Kevin Ellison, Comdisco's acquisition manager. "But service isn't just upgrades and lounge access, it's the whole process of how our travelers are taken care of. In essence, we are taking the idea of the airline's customer service plan one step further by having them add customization for Comdisco."

The exhaustive RFP includes clauses on booking, ticketing, seat assignment, the airport process and many other elements of the overall experience aimed at defining a deeper relationship.

"It is not just saying that when X occurs, our discount will increase Y. Instead, if X occurs and costs us money, we want a proper remedy to be associated," said Vince Iuorio, Comdisco's director of procurement services. "Late departure and late arrival are different and therefore warrant different remedies. A late departure tied to construction at terminals, for example, might call for access to the airport lounge because it's a comfort issue."

Some agreed that a more realistic, and perhaps successful, approach would not be based on discounts. "If on-time performance is not where it should be, it makes sense that corporations will have trouble promoting that carrier to its travelers," said Dan Nevill, director of business development for Advanced Travel Management in New York, and formerly with Continental. "As a result, corporations should ask for contract performance goals to be lowered for a given month when the carrier ranks poorly in on-time statistics."

Such a concession was granted by United to many of its corporate accounts as its on-time performance this summer dipped below 50 percent in the wake of labor action by the carrier's pilots (BTN, Sept. 4). The move by United, and one similar by US Airways last year, could mean a new awareness by the airlines to maintain customer loyalty, according to Rob Pacheco, manager of airline strategy for American Express Consulting Services.

"The issues of performance that providers are facing tell me there is room for corporations to at least discuss implementation of service expectations in their agreements," he said.

Others said the prospect of holding an airline to service commitments in any form is extremely unlikely. "In almost every other procurement situation today, the focus is on cooperation between buyers and sellers and mutual interest for a good relationship," said Rolfe Shellenberger, senior travel consultant at Runzheimer International. "But nothing suggests to me any eagerness by any airline to be accountable to anything."

So why could this work now? "The timing is perfect," Iuorio said. "United is dying to get positive publicity and be proactive on service."

Furthermore, by virtue of its Chicago base, Comdisco may have a better chance of forging this type of agreement than corporations based in less competitive markets. Of the company's $15 million U.S. booked air volume net of all discounts, as much as 65 percent flows in and out of Chicago. And of course American and United likely will not let such a sizable chunk of change go to the other uncontested.

"Chicago is probably the most complex travel management region in the country, which means exponential opportunities for corporations," said Steve Weiner, vice president and general manager for Maritz Travel Co., who also is familiar with Comdisco's travel and procurement philosophy. "While I have a feeling the airlines will work very hard to dilute the service components of the contract as Comdisco has presented it, the timing is good for them to set a new benchmark on carriers actually delivering on quality of service."

Though Comdisco is optimistic and had discussions with the carriers before sending out the RFP, Iuorio is not expecting a completely positive reaction. "There will be some back and forth as we see to what degree the airlines want this to happen," he said. "But as it is written, it is a win win. This will work."

Weiner added that Comdisco's procurement focus will help it examine the issue with a wider perspective. "They have extensive service measures in place with us, for example, and they work very well," he said.

Indeed, Comdisco said it will target similar arrangements with secondary carriers, hotels and car rental companies. The company's travel policy--which includes pre-trip reporting and strict mandates backed by non-reimbursement clauses--could help suppliers agree to such measures. Helen Scoggins, director of travel and employee services, manages the day-to-day operations of the Comdisco travel program for 1,800 U.S.-based travelers.

Aside from service commitments, the Comdisco airline RFP asks for creative pricing scenarios on top of net-net and guaranteed city pair-specific fares the company has used in the past. Comdisco expects initial responses from the airlines sometime next month.

Meanwhile, at least one other corporation, a client of Consulting Strategies in Rolling Meadows, Ill., is in the process of negotiating an airline agreement including service clauses.

"The airlines would limit this to a very large select few. It all has to do with a company's leverage," said Mark Walton, principal at Consulting Strategies. "In terms of metrics, on-time performance is possibly the easiest to measure and the amount of discount can be increased in a prorated, tiered scheme."

Walton added that in some cases standard language can be written into the contract relative to work stoppages or extreme schedule adjustments, such as substantially decreased capacity in a key market, that would generate penalty fees paid back to the corporation.

"I wouldn't be surprised to see these ideas utilized more in the future. It is a creative way for the airlines to possibly garner new accounts and be more competitive," he said. "If there is a choice between two airlines flying the same equipment with the same frequencies, what else can you measure? Looking at service absolutely makes logical sense."

Contrary to popular belief, some carriers may entertain the concept. "We are willing to discuss service with all our corporate customers," said Fay Beauchine, vice president of sales and customer relations at Northwest Airlines. "It is part of the education process on what airlines can and can't guarantee."

While many factors, particularly those affecting on-time performance, simply are out of the airlines' hands, Ellison said the disconnect between service and airline contracts is unacceptable. "The perception that airlines never agree to these things is exactly what we are battling against," he said.

Meanwhile, Biztravel.com, an online booking site geared toward unmanaged business travelers and part of the Rosenbluth Interactive group, last spring launched a guarantee program. Travelers are compensated for such inconveniences as flight cancellations and delays for reasons other than mechanical problems, seat assignment and meal service problems, and lost baggage. Compensation ranges between $25 and $200, or the full value of the ticket in some cases. Air France, American, British Airways, Continental, Japan Airlines and US Airways participate in the guarantee program. Biztravel.com to date has dished out about $930,000 on more than 3,500 claims, primarily related to delays and cancellations.