After finishing second or third in each of the past four years, Continental Airlines in 2003 took top honors in the sixth BTN Annual Airline Survey. The fifth-largest U.S. carrier unseated perennial champion American Airlines, which had secured the highest ranking in each of the previous five surveys but came in second this year.
Continental scored first in five of the 10 categories, garnering a 3.21 overall score (out of five)—well ahead of the pack. Southwest Airlines followed American in third place, propelled once again by a huge margin of victory in the overall price value category. United Airlines finished fourth, a much-improved performance compared with its seventh-place ranking one year ago.
Measured by responses from 551 North American corporate travel buyers, the survey asked respondents to rank carriers in various categories, ranging from flexibility in negotiating prices and amenities to the quality of sales rep visits and carrier communication. It also included overall price value, a category in which the industry at large improved dramatically from last year's findings.
As in years past, BTN excluded general inflight service questions and U.S. Department of Transportation operational data to focus specifically on carriers' performance in maintaining preferred corporate relationships. The survey, of course, could not be completed in a vacuum and a range of peripheral developments—consumer rankings, bankruptcies or near-bankruptcies and other well-documented airline and industry news items—undoubtedly impacted respondent perceptions.
The survey ranked Alaska Airlines fifth, followed in close formation by Delta, US Airways and Northwest airlines. America West, which has transitioned from a typical major carrier into more of a low-cost carrier, finished ninth.
Meanwhile, JetBlue Airways finished with the highest overall score among smaller carriers, narrowly beating out three-time winner Midwest Airlines. Both AirTran and Frontier improved their overall scores, but ATA Airlines was given lower marks and languished at the bottom of the pack
(see story). In terms of international operations, Lufthansa German Airlines again finished first, taking top marks among the six carriers with at least 10 percent usage among survey respondents.
Overall, the industrywide score for the 14 airlines covered by the survey was 3.03, up marginally from the 2.98 recorded last year. Eleven of the 14 finished with higher overall scores, while overall industry scores improved in seven of 10 categories.
"People again are focused on business and not survivability," said Lee Macenczak, Delta senior vice president of sales and distribution. "They are thinking about structures of deals, performance and engaging client needs."
"Some corporate travel managers are starting to understand the challenges we face and that we understand their challenges," added Jeff Cacy, assistant vice president for sales and reservations at Alaska Airlines. "Some of the frustration had come from the Machiavellian way of approaching corporate contracts and now some of that attitude has left the process."
Specifically, the industry as a whole garnered a higher aggregate score for flexibility in negotiating transient pricing versus last year, but buyer perceptions on fares and negotiated discounts told two stories. On the one hand, the absolute score increased to 2.98 from 2.89 a year ago. "Airline negotiations have gotten easier," said Kathy Stuart, manager of corporate business operations for Itron, a Spokane, Wash.-based utilities technology company. "They are willing to work with the business as a business instead of just on power plays. They don't have the power they used to, and travel managers are a little smarter now."
On the other hand, fare levels—published and negotiated—and the fare structure in general drew more criticism from survey respondents than any other area. Of the more than 300 buyers who responded to an open-ended question asking upon which element carriers could most improve, 87 mentioned fares and discount levels. Certainly any buyer prefers a lower price, regardless of the product or service in question, but respondents specifically asked for clearer pricing guidelines, predictability and stability in the published structure.
Others asked for more competitive flat fares and/or discounts based on volume, marketshare and channel, such as airline Web sites. Some also still were irked that corporate discounts had been pulled from lower bucket fares, including cheaper, nonrefundable tickets increasingly popular with cost-conscious business travelers. "The airlines represent the only industry that penalizes its most loyal customers," bemoaned one respondent.
Meanwhile, buyers gave the airlines higher marks for availability and accuracy of data, pushing the aggregate score from 3.01 to 3.19. "Due to the efficiency and accuracy of data required through a third party, corporations and suppliers seem to be working much more closely together," said Dave Hilfman, Continental vice president of sales. "Travel management companies also are really stepping up to the plate."
Despite lingering concerns by some buyers regarding airlines' data requirements and their own companies' privacy policies, only one respondent mentioned data sensitivity as the area in which carriers could most improve.
Other higher year-over-year scores were recorded in the service and amenities categories, sales rep empowerment, quality of communication and overall price value. "Airline communication definitely has stepped up," said Christel Peterson, corporate travel manager for Teng & Associates in Chicago. "Overall, the airlines have done a better job, polished up a few things and are moving in the right direction."
The biggest declines came in complaint/problem resolution and value of sales rep visits. Buyer perception regarding the latter likely was impacted by airline decisions to trim their salesforces and move many smaller accounts into telesales programs. On the former, buyers asked most for flexibility with waivers and favors.
"If an error is made, if one of my counselors makes a mistake, I need more space to maneuver," said Yasuo Sonoda, travel manager at Macromedia in San Francisco. "I am not asking for favors, but there needs to be more flexibility for corporate customers."
Other requests from survey respondents included flexibility on revenue hurdles—given corporate travel freezes—opportunity to leverage cargo business into passenger deals, more creative back-end incentives, less restrictive capacity practices and advance notification of any new fees or ticket rule changes. As far as product, buyers asked for extra seating space, improved meal service, lower airport club rates, inflight e-mail and quicker checkin and boarding processes.
Individual Airline PerformanceAfter years of nipping at the heels of cross-state rival American, Continental finally assumed the top position in the BTN survey. While the margin of victory was not as large as AA's last year, it still represented a clear triumph for the Houston-based carrier. Continental increased its score in six of 10 categories to push overall score to 3.21, from 3.16 a year ago.
Significant improvements came in availability of special VIP services and quality of airline communication. Continental attributed its success on the latter to more in-person sales calls, focus groups, corporate advisory board meetings and increased communication in all channels. "We committed to expanding the corporate salesforce," Hilfman said. "We even re-directed some field sales executives to call on corporate customers."
Along with a top score for VIP services—tied with AA—Continental also received an industry-leading mark for service/amenities and a third-place rank for overall price value. "Many carriers pulled services and amenities after Sept. 11, 2001," said Monisa Cline, CO managing director of national corporate sales, "but we kept all our products in place." Continental pointed to its new planes, wider BusinessFirst seats and new airport facilities that include dedicated corporate checkin counters.
"They have become almost boutiquey on the mainline," said Michael Lynch, managing partner of airline procurement services for Eclipse Advisors.
The carrier did not earn best in class scores for all categories, however, and barely beat the industry average in flexibility in negotiating transient pricing. In fact, in both pricing categories—including flexibility in negotiating meetings pricing—the carrier garnered lower scores than last year and finished fourth. "Because of our size and structure as more of a local carrier than a flow carrier, it does not surprise me to see lower scores in pricing than the bigger, more flow-oriented carriers," Hilfman said. "We have lots of O&D markets—from Houston and New York—and in those markets you do not price as aggressively as in flow markets."
Said one survey respondent: "Continental's fares out of Houston are often too high, which means last-minute trips don't get taken." Respondents also gave Continental a lower score in value of sales rep visits. Nevertheless, that grade, a 2.99, was the highest among the 14 carriers in the survey.
In dropping to second, American still secured the highest score in four categories and finished at or above the industry average in all the others, except for an uncharacteristic fifth-place showing in overall price value. The airline again scored very well—versus the field—in pricing and special service categories.
"It is not just price," said Frank Morogiello, American vice president of global accounts. "It's also product and services and the whole package of items you can offer an account."
American, in avoiding third-party involvement, pulled out a first-place score in providing accurate and timely data to corporate accounts. Morogiello said it's "more than just the data but how you use it. We come in with reported and flown data and synthesize it." Respondents, as in years past, also praised AA for the preparedness of its salesforce.
"American has a history of professionalism with its sales reps, and it shows again this year," said John Heilner, vice president of Management Alternatives in Princeton, N.J.
The carrier, however, did suffer from lower year-over-year scores in value of sales rep visits and empowerment. Said one respondent: "Southwest is our primary and they do fine as they are. American is second and they could be more flexible in empowering their employees to assist us and do things out of the box."
Southwest Airlines, which previously had never cracked the top three, pulled out a third-place finish this year. That placement represented a fourth consecutive year in which Southwest improved its overall ranking, mirroring the carrier's growth, increasing relevance to the corporate community and unbeatable value proposition. Its score for overall price value, a 3.94, once again easily was the highest by any major carrier in any category.
Yet, Southwest's success in the survey likely is partly a product of perception. The carrier, for example, beat the industry average in both categories related to price negotiations, but does not ever negotiate fares. Other relatively high scores are more reasonable, including an above-average mark for providing data that undoubtedly was driven by growing usage of the Swabiz online corporate booking portal. It also continued to beat the industry average in such customer service categories as complaint/problem resolution—for which it attained the top score—and quality of communication.
After a brutal showing in last year's survey—a seventh place finish after a third place ranking in 2001—United Airlines rebounded to improve in eight categories and finish fourth with an overall score ahead of the average.
The carrier secured higher scores in both pricing categories, despite numerous travel managers telling BTN that United has been playing hardball at the negotiating table. "They just walked away from our business, which was rather surprising," said one midmarket travel manager. "I guess it was part of their recovery. If they couldn't be our top preferred, they would not want to play."
Dan Walsh, United vice president of sales, acknowledged "that there are occasions when, if we can't secure the primary position, it is an appropriate course of action to not have a relationship." He noted such decisions obviously are dependent on specific market conditions and a given corporation's travel patterns. Walsh also acknowledged exclusivity clauses in United's corporate contracts, particularly when the airline offers a client "the best products and the most robust deals. We want a return on our investment and to be protected."
Among United's other areas of improvement were service/amenities and VIP services, availability of data and quality of airline communication. United, like several of its peers, suffered a lower score in value of sales rep visits. "Any time fundamental change takes place, there is a period of transition," Walsh explained, referring to an early-year reorganization of the sales department. "But we have not pulled back on the frontline salesforce nor reduced the number of customers we reach."
Alaska Airlines rose through the ranks this year to grab the fifth spot, marginally below the industry average. The Seattle-based carrier, the smallest of the majors with easily the lowest penetration among survey respondents, has expanded its scope to include transcontinental services and become more of a relevant player for many corporate buyers. "Previously, many corporations did not invite us to bid because we did not have a national network. When we did bid, the discounts were not huge because in most of our markets, on the West Coast, the fares already were low," Cacy said. "But with our transcon growth, the whole story has changed."
Alaska beat the industry average in services/amenities, perhaps driven partly by its decision to maintain a first class product. "Where do we take costs out?" Cacy asked. "The answer is not in the things for which customers recognize us. We are a full service airline."
Though the carrier finished well below the industry average in availability of timely and accurate revenue data, its score still far surpassed last year's performance. Cacy cited Alaska's EasyBiz product—which provides various data reporting functions and has swelled to now include more than 1,000 accounts—and data mining accomplished by a sales information systems group aided by Shepard Systems. Alaska still lagged in the sales rep categories, perhaps a result of a thinly spread salesforce trying to cover a wider network.
Delta, US Airways and Northwest finished in a virtual dead-heat, occupying the sixth through eighth positions. Delta nosed out the other two with a 2.95 score, marginally up from last year.
Though its score for meeting pricing flexibility dropped noticeably from last year, Delta garnered a slightly higher score for transient pricing flexibility, though it still fell well below the average. "We have taken some risk with a few people and worked with our pricing department to put in place some programs that are not traditional," Macenczak said, without giving details. Some buyer and agency sources, however, suggested Delta's contracts still are too complex. "If our agreements are complicated, it is because we need to protect our revenue and also provide value to the account," he responded.
Delta achieved higher scores in the service and amenities categories, as well as for communication quality. Its biggest improvement came in providing timely and accurate data back to clients, driven both by the transition to the Prism data aggregation and decision support system and a new revenue accounting pipeline designed internally. "I have been impressed with their Prism system because the reporting is online, and I can get in every day to see where we are," Macromedia's Sonoda said.
Delta's scores declined in a few areas, including both sales rep categories. The carrier acknowledged that the realignment of its sales organization earlier this year likely played a role. "It took us a while to get on our feet," Macenczak said. "We knew it would be tough in the first part of the year, but we had to do it."
Driven partly by lower scores in the pricing categories, Northwest Airlines dropped from sixth to a seventh-place tie among major carriers, despite a higher overall score versus last year's survey. "They are predominantly in noncompetitive markets," said one travel agency source. "You can see it in the pricing." Said a buyer: "Northwest is very picky on where it discounts."
Fay Beauchine, the carrier's vice president of sales and customer relations, countered those assessments. "We create a lot of value in our hubs for our corporate clients, and they have made it clear to us that they do have choice," she said. "Also, picky can be substituted with precise." Other sources suggested Northwest has become much more aggressive than in the past. "We are seeing it in Europe and Asia/Pacific," Eclipse's Lynch noted, "which positions them to win more domestic business than previously."
Beauchine added that Northwest's emphasis on contract compliance could explain a lower score on pricing flexibility. Meanwhile, a 25 percent reduction in salesforce may have manifested itself in a lower score for value of sales rep visits.
On the positive side, the carrier improved its showing in both service categories, availability of data, sales rep empowerment and overall price value. Its biggest positive jump came in quality of communication. The carrier cited a more robust sales intranet that provides the salesforce with real-time data that can be shared with corporate accounts, as well as e-mail messaging to individual travelers and their managers, and a more mature corporate services desk. Beauchine also noted new inconvenience reporting that allows salespeople to convey on-time performance numbers on an account-by-account basis.
Meanwhile, after several years of rising through the ranks, US Airways this year slid from third to seventh after obtaining lower scores versus last year in nine of 10 categories.
"US Airways has been honing in on targets and being more specific than the past few years," Management Alternative's Heilner said. "The net result for buyers is a negative in that it is harder to get larger discounts."
Eclipse's Lynch agreed US Airways in the past year "has taken more of a hard-line approach" in search of incremental revenue, but suggested the salesforce "is pretty much empowered," especially when clients can build a strong business proposition for a favorable deal. In fact, sales rep empowerment was the one category in which US Airways finished with a higher score than in 2002.
America West Airlines finished last among major carriers with a 2.88 score. It was the fourth consecutive year that the carrier finished at or near the bottom. To be fair, AWA in the past two years reinvented itself as a low-cost airline by changing much of its business plan and still managed to garner higher scores, versus last year, in nine of 10 categories. Furthermore, many travel managers praised the carrier for forcing down fares in many key markets. "On the San Francisco-New York JFK route, AWA definitely will lower our airfares with our preferred," said one travel manager.
Indeed, AWA's popular pricing philosophy led to strong showings in the transient pricing and overall price value categories. The carrier's new approach, however, did not help performance in the value-add categories—services/amenities and special VIP services—nor in various corporate salesforce metrics, such as value of sales rep visits, empowerment and complaint/problem resolution.
"America West has changed the model and brought in better pricing," said Steve Shook, vice president of strategic sourcing at Carlson Wagonlit Travel, "but to do that, there are some things you have to give up."
International OperationsAll Nippon Airways, Japan Airlines and Singapore Airlines finished with the three highest scores for international corporate contracting, but usage numbers among respondents were too low to consider the findings statistically significant. For the six airlines that had negotiated international contracts with at least 10 percent of those surveyed, the foreign carriers again beat out their U.S. counterparts. Specifically, Lufthansa received top marks with a 3.86 score, followed by British Airways' 3.65. Continental came in third, a fraction of a point behind BA. Continental cited a scope of service "far larger than many people perceive" and a strong multinational sales team. American, Delta and United finished fourth, fifth and sixth, respectively.