EU Buyers: Fares Still Stiff

European travel managers have given only a partial welcome to the restructuring of short-haul airfares in the United Kingdom, Scandinavia and Germany. They have applauded a willingness to dismantle long-standing barriers, such as Saturday night stay requirements, but said the new fares still are too restrictive for business travelers.

However, travel managers in Scandinavia have endorsed another major structural innovation—a move by SAS to zero commission for travel agents, effective Jan. 1, 2003.

SAS, along with British Airways, BMI British Midland and Lufthansa, all have made fare changes since June 1 that will bring down the price of midweek, short-haul travel in certain instances. They are responding to increasing competition from budget carriers, which continue to win marketshare and notch up record profits even as losses intensify for the mainstream airlines.

BA and BMI have abandoned the Saturday night rule and advance purchase restrictions on most departures on their European and domestic routes. Instead, they have adopted the no-frills model of selling inventory in blocks of incremental pricing, the cheapest seats being the first to be sold.

SAS has taken a different path, moving to a one-class service on intra-Scandinavian and other key routes. It offers discounts on the full fare by 10 percent, 20 percent or 30 percent, according to advance purchase and other restrictions. Lufthansa, meanwhile, has reduced off-peak economy fares on domestic routes by up to 63 percent for travel between 10 a.m. and 3 p.m. or after 8:30 p.m. Tickets cannot be changed and must be booked at least two days in advance.

A spot-check of fares on two routes from London shows why travel managers have shown less enthusiasm than might be anticipated for the historic abandonment of the Saturday night rule by BA and BMI. In both cases, the fares quoted by the two carriers only look like real bargains if booked 30 days before departure. They are also still largely more expensive than their no-frills rivals.

However, the comparison shows BA and BMI have made genuine reductions when compared with conventional rivals, such as Alitalia and ScotAirways. The search also reveals further discounts for travelers prepared to fly off-peak. For instance, on London-Edinburgh, a day-trip with BMI dropped $108, to $210, for a return flight at 8:50 p.m. instead of 6:40 p.m. There were similar reductions for midday departures.

The fare changes are not enough to impress Celia Allbut, category manager for travel and corporate services at the mobile telecommunications company Orange. "If there is no access to the fares at peak times, then they are not really there for us," she said. "Our travelers can't leave at 11 a.m. and return at 3 p.m. The fares are cheaper if bought in advance, and although I wish our travelers would book well in advance, in reality they don't."

Thomas Faller, ABB group travel manager, delivered a similar verdict on Lufthansa's offering. "They have very limited use for us," he said. "We can't tell customers that we can fly cheaper if we travel at different times."

Faller predicted that traditional carriers will impose deeper price cuts as they realize they need to respond more profoundly to competition from no-frills airlines. "Off-peak fares are not enough. They will have to come up with a more radical restructure. My travelers are more cost-conscious than they used to be and they want to use the low-cost airlines."

Travel experts in Sweden also said SAS will have to do more. Brigitte Ringdahl, Ericsson director of corporate travel management, sees little difference in the new SAS fares; She wants the Scandinavian market leader to remove its Saturday night restrictions. Cathrine Wickerts, former Skanska travel manager and now senior consultant of travel management consultancy CMM Consulting, said: "The new fares should be more flexible. We hope that after they have taken feedback from travel managers and travelers, they will change some of their rules."

Richard Lovell, Carlson Wagonlit Travel executive vice president for Europe, has a more benign view of the changes across the continent. Forecasting that more airlines will cut fares in the near future, he said: "We are seeing a considerable amount of interest because customers are getting a better product for a lower price. Those extra frills are now looking more attractive. However, the future for corporations still lies mainly in negotiated deals. We find that negotiated fares are better than the best available published fare from either conventional or low-cost carriers in 70 percent of cases."

Lovell believes the no-frills model will become almost universal on European short-haul routes, albeit with different airlines settling on different tradeoffs between price and service. He also said agency commission is on borrowed time in Europe, although so far only SAS in Scandinavia has followed last year's lead by BA in the United Kingdom. SAS consulted with Scandinavian corporations before announcing its abolition of commission, and the move was well-received because most companies in the region now pay transaction fees to their agents.

However, corporations said they would only be happy if SAS sticks to its promise to reduce fares by the amount it will gain from eliminating commission. They are wary of the U.K. experience, where BA honored a commitment to cut fares on the day of abolition but introduced significant fare increases shortly before and after that date.

"My BA account manager told me I could shoot him if the airline put up fares within three months and, in fact, it did happen almost three months later to the day," Allbut said. "As a result, I now negotiate fixed fares for a year rather than percentage discounts."

SAS head of world sales Soren Jespersen said the fare cuts would be lasting "in principle, but it is difficult to give guarantees. There could, for instance, be an oil price increase."