<H1> Delta Pushes Net Fares</H1>By Jay Campbell andDavid Meyer
Atlanta - Delta executives are pursuing an aggressive strategy of offering net fares that they say save corporate buyers 2 to 3 percent of their air travel costs.
For buyers who pay for agency services on a fee basis, the advantages of net fares come from eliminating commissions, overrides, credit card fees and taxes.
The advantages for Delta, said executive vice president of marketing Robert Coggin, are that net fares eliminate speculation, help win market share and shave off more distribution costs as the airline pursues its goal of reducing costs to 7.5 cents per seat mile.
Coggin said this approach is a win for both buyer and seller because "2 to 3 percent savings for a business really adds up. Meanwhile, we're looking at every one-tenth of a percent in cost reductions that we can get."
Delta vice president of sales Vince Caminiti said the airline currently has many net fare deals-some on a total-volume basis and others for specific segments-but would only characterize the number as being "under 100." Clearly, however, Delta sees this as only the beginning. When asked how many more such deals Delta is willing to make, Coggin said, "We'd like this to be as big as it could be."
While asserting that Delta has declined to participate in the Business Travel Contractors Corp.'s proposed scenario, Coggin said BTCC president Kevin Mitchell "was on the right track" in seeking a formula for stripping out unnecessary costs and giving buyers and sellers of air services clear and predictable rates.
Mitchell had similar comments for Delta's program, but he went a little further. "Delta has a start in the right direction with net fares, but it still leaves the problem of complicated fare structures," he said. "As soon as the deal is inked, the airline walks out laughing because not only has it relieved itself of the responsibility of compensating travel agencies, but it also retains price control because the deal is tied to a percent off Y-fares, and the airline can just raise the base fares. The only solution is fixed fares."
Danny Hood, executive vice president of World Travel Partners, said he thinks net deals help to stabilize the travel agency business. "Travel agents have misconceptions about net fares," said Hood. "For large corporations, we've seen that the revenue-share structure can result in wild swings of business where you make a lot in October but lose in December. With net fares, you're on a fee that covers your costs and your profit margin-in this way, net fare deals are much more stable."
While Coggin said the net fare he described is the only type of direct deal that Delta is making with corporate buyers-that is, net of commissions, overrides, credit card fees and taxes-some airlines are negotiating different types of net deals.
While no other airlines would comment at press time, Hood said that there is "one airline in the top five" that will not strike deals net of overrides because it doesn't want to give up the travel agency's incentive to push market share.
In cases where overrides are not netted out, some say the corporation can be taken for a ride. Michael Whitesage, president of Prism Group, an Albuquerque, N.M., consulting firm, called for airlines not netting overrides to "quit the charade."
"If the carriers don't come out with true net-net deals-including net of overrides-they're not doing anyone a favor," said Whitesage. "And if that doesn't happen, unless the corporation can audit the travel agency's books, the corporation doesn't know if it's really sharing the agency's revenue or not."
Whitesage said he has seen situations where the travel agency is under-reporting its overrides to corporations. One agency, he said, was reporting to the corporation that it was receiving a 3.5 percent override when it was actually getting 5 percent.
Hood wasn't surprised. "The agency-customer relationship in a net deal has to be a partnership based on trust," he said. "If the agent is allowing audits of their books, then the overrides not being netted is a non-issue. But there have been agents that didn't put overrides on the table, building mistrust."
World Travel Partners was cited by Coggin, along with Carlson Wagonlit and Maritz, as travel management companies that have moved aggressively to convert their clients to fee-based deals.
Coggin said he was "pleasantly surprised at how the agency community has adjusted following the commission cap. There has not been massive attrition as predicted. Instead, agencies have figured out how to provide value-added services to their clients."
He believes that the resolution of the cap lawsuit won't lead to further commission cuts, as some have speculated. "Eighty percent of our business moves through agencies, and every remaining commission dollar is now seeing productivity gains over last year," he said.
Coggin also said that "by May, we'll have everything in place" to take an approach to overrides similar to American's. That approach enables the airlines to track traffic on specific routes and reward travel agencies for incremental market share shifts.