Carriers More Receptive To Group Net-Net Zone Fares
<B>Carriers More Receptive To Group Net-Net Zone Fares</B>
By Chris Davis
Now that all major airlines have developed zone fare programs that include all domestic destinations, many meeting buyers are exploring the possibility of negotiating those fares net of all travel agency commissions and overrides. The carriers, once somewhat resistant to the notion, have become more accepting, offering fares significantly under published zone fare rates.
Net-net zone fares first were broached early in 1999, when a few savvy meeting buyers approached major carriers. Amidst the four commission cuts since 1995, many corporations gravitated to net-net deals for transient travel. Many more considered the possibility of systemwide net-net deals, particularly companies with consolidated meeting programs or those that were merged with transient travel departments.
Net-net zone fares are just one example of the maturation of group air negotiations. Airline insiders said some corporations are hoping to eradicate traditional back-end discounts offered in group and meeting packages, such as free future-use tickets. While some travel and meetings managers agreed, others stressed the value of those discounts.
One of the first corporate practitioners of net-net zone fare negotiation was Shaun Malay, director of corporate travel for New York Life Insurance Co., who has been purchasing such fares for about 18 months. Malay since has expanded his program to include all three of his preferred carriers, and generally receives zone fares of about 9 percent off published zone fare rates.
"It was new stuff back then, but it's caught on quickly, which doesn't surprise me," Malay said. "There's obvious benefits, as it saves money on the particular meeting and can drive down overall air spending."
New York Life has a consolidated meetings program, and Malay is able to break out annual group spending, in addition to transient spending, to present to carriers. "Our airline agreements are the closest to one piece of paper that I can imagine," Malay said. While major carriers are willing to negotiate net-net zone fares today, Malay said that wasn't the case when he broached the topic last year (Meetings Today, May 17, 1999). "They really took a leap of faith, but we had so many more small meetings than we expected that it worked out to everyone's advantage," he said.
Given New York Life's sophisticated and consolidated travel and meeting environment, it is not surprising that Malay has been able to leverage his combined volume for deeper discounts. Other buyers found these types of corporations have the most success in negotiating net-net zone fares.
"It really has become one of the options to consider when discussing group travel buying," said Scott Graf, vice president and general manager of group travel services of Chicago-based McCord Travel Management. "I can't say we've seen a lot of it, but those that do tend to be Fortune 300 companies with sophisticated group travel programs that often do their group purchasing through the corporate travel department, and are therefore familiar with net-net pricing."
The airlines, by and large, have been supportive of the developments in group air negotiating. Northwest Airlines, for example, has seen so many requests for net-net zone fares that it has a set product, in addition to its standard published zone fare grid, that any corporation can use. "Interest in net-net zone fares have evolved quickly," said senior manager of meeting and incentive sales Gail Bill. "We see it as a big trend that can affect any kind of corporate meeting."
It's also not a trend that shows any signs of abating. "Most of these corporations have net-net agreements for their transient travel and assume they could get the same for their zone or multi-meeting agreements," said Jeffrey Lang, solutions group director for Carlson Wagonlit Travel. "We've seen evidence of it in large, consolidated meeting programs that can prove their market share to the carriers." Given the advantages zone fares provide, particularly the lack of a Saturday-night stay requirement, airlines have seen more requests to adopt the net-net concept, he added.
"It's something that's discussed regularly among airline representatives, and if negotiating net-net zone fares offers an opportunity to grow their share in a particular market, it's in their best interest to do it," Lang said.
<B>Taking A Different Tact</B>
Other travel managers approach group air negotiating differently. Bruce Finch, travel administrator for Boston-based Gillette Co., doesn't currently negotiate zone fares net net, "though I prefer that we would. I'd rather not deal with commissions at all," he said. Instead, he has been focused on eliminating the carriers' back-end discounts in favor of lower fares. "I'd rather have as much up-front as possible," Finch said. "No freebies, no upgrades. Receiving one free ticket for every 30 booked has tangible benefits, especially for things like site visits, but they're not good indefinitely; I'd rather just have the set budget."
Several companies are in the same boat. "We're finding programs with many small meetings most interested in front-end discounts," said Graf. "Corporations with more larger meetings see more value in the freebies at the end."
Graf said many factors are included in an airline's decision to offer front-end instead of back-end discounts, including the load factor on a specific route and the overall volume and market share a corporation books with the carrier. "Front-end discounts are not the airlines' preferred m.o., since it requires more work than their standard back-end program, as they have to judge the value of the business on a case-by-case basis," said Graf. "They also find themselves setting new precedents, which could extend to complete customization for every large account. But they appreciate the risk that a company can take its business to another carrier."
Northwest's Bill argued that such discounts don't add up to much in the long run. "It really only amounts to a few dollars per head, if they want to go in that direction," said Bill. "But there's not much of a demand for it, so it's not something at which we'll take a real hard look."
The advantages of soft-dollar discounts, such as back-end free tickets, is that it gives the carriers leverage to fill flights that have room. If the flight is booked solid, corporations can't use their back-end ticket, but offering that discount on the front end, before the meeting, robs the airlines of that possibility.
"We'll only do it once in a while," Bill said. "But we will do a lot of different things for our corporate clients that we won't do for others." Instead of offering lower fares in lieu of back-end discounts, Bill said, Northwest fields more requests to alter meeting and zone fare requirements--specifically, reductions in minimum stay, minimum number of travelers and advance purchase requirements.
Malay also defended back-end discounts, calling free tickets "extremely valuable in the right situation.