<B> European Rates Soften</B>
By Amon Cohen
After four years of continuous airfare and hotel rate rises, the power pendulum finally is swinging back toward corporate clients in Europe. The latest surveys show price increases tailing off. And corporate buyers report more willingness from suppliers to deal, especially from airlines suffering drops in premium cabin business.
At the same time, corporations are taking a renewed look at their travel budgets after a period of relative laxity. Some are tightening policy; others feel they have done all they can on that score and instead are putting more energy into ways of buying smarter.
Latest figures from American Express show business class fares from Western Europe fell 1 percent in the fourth quarter of 1998--the first time they have failed to rise in two years. First class fell 3 percent and full economy was flat.
The flattening of demand is an especially dramatic development for the North Atlantic market, where business class fares from Europe had risen 24 percent over the previous two years. The high price of transatlantic trips means that some European companies that previously allowed business class to the United States have raised the bar in their policies to allow business class only to ultra-long-haul destinations, such as the Far East.
Although fares may be leveling out, Amex purchasing management group manager Matthew Davis pointed out that they are doing so at record levels and may not fall significantly.
"We are not expecting published fares to go down by an incredible amount," he said. "What has changed is that airlines are now much more receptive to client requests for deals. They want to tie in clients while the bottom drops out of the market, so corporations are in a strong bargaining position as the airlines attempt to maintain their front-of-cabin revenue."
<CENTER><B>Net Fares On The Table</B></CENTER>
Carriers are showing movement on deal structures as well as price, according to Davis and colleague Alan Coles, head of Amex Europe's airline relations group. Net fares are being put on the table more readily, with onerous conditions, such as cancellation charges, being waived.
"We are seeing net fares on routes where there is significant competition," Davis said. "On other routes, it is still a case of giving rebates at the end of the year."
This is one example of airlines, like clients, being smarter and more targeted. Although prepared to concede more than they did a few months ago, they are making more demands of corporate customers in other ways. "They are telling clients that if the deal is not working after the first quarter, they will pull it," Davis said.
That helps explain why travel buyers have noticed a considerable tightening up of policy recently by corporations. This is partly to ensure that travelers fly in the class to which they are entitled. But more importantly, managers are cracking the whip if travelers attempt to book flights on non-preferred carriers.
In turn, travel managers require better information to track deals. Davis said European clients are demanding more sophisticated data, such as prorated fares on multiple-sector journeys.
Richard Plummer, travel manager for British company Glaxo Wellcome, the world's largest pharmaceuticals manufacturer, also has found improved management information on the part of both airline and client helping to drive deals.
"The major airlines have better data than before and are being much more aggressive in their discounting to those clients with ability to control their business," he said.
No-frills airlines, which are especially strong in the United Kingdom, also are being used more frequently by European corporate clients. A recent survey of 1,008 passengers by British Airways' new low-cost carrier Go found 25 percent of respondents were traveling on business.
Consequently, Go is considering reversing its policy of not working with travel agents. It has set up access to its reservations system on a trial basis with Amex customer implants.
"We are getting to understand more how we can fit no-frills airlines into client portfolios," said Amex's Coles. "We are analyzing not only the fares but total trip times (many of the carriers use secondary airports), booking cost (which is higher because it cannot be done via computer reservations systems) and the likelihood of missing the flight, which is a problem if frequencies are low. There is also the difficulty of loss of control over management information. We can get the MI but it is not automated. Our role is to demystify no-frills airlines and help our clients make a judgment."
The hotel market also is loosening up for European buyers. Rates in business properties are slowing down or decreasing almost everywhere except in the United States, according to the lodging figures in the Amex index. Paris and London also are showing signs of slowing for the first time in years.
Said Amex European hotel relations group vice president Borge Ellgaard, "The worldwide economic downturn has put the brakes on increasing rates as occupancy levels fall. For the first time, we are seeing last-minute availability in popular business cities. Corporations should be regularly reviewing their negotiated rates to take advantage of increased competition and falling prices. In some instances, hotels are offering published promotional rates that are cheaper than negotiated corporate rates."
The economic downturn not only is prompting travel buyers to seek better prices from softening suppliers, but also persuading them to review their entire travel management strategies. Many are discovering that belt-tightening is not the only route to cost reduction.
"Volumes are holding up even if growth is not what it was a year ago," said Coles. "What we are seeing an impact on is average ticket price. Clients are being more canny and they are coming to us to ask what we can do to help reduce costs. They are also trying to change habits, such as by getting travelers to see if they can visit two destinations in one trip or setting up back-to-back ticketing arrangements," which are perfectly legitimate in Europe.
Glaxo Wellcome's Plummer reported an identical experience from his internal customers. "I do not see us changing our travel policy," he said, "but I do see us considering our options. I am noticing a much greater desire from customers to have the options put in front of them. We are trying to buy smarter and to get people to act smarter."
<B><CENTER>Glaxo Wellcome Cures High Costs</CENTER></B>
There are numerous examples of Plummer doing precisely that. Use of chauffeur-driven cars declined dramatically once charges were switched from a single cost center to the charge cards of individual executives. Meanwhile, personnel based in northern England have been flying to the Far East from Manchester via Vienna on Austrian Airlines at far lower cost than with carriers direct from London Heathrow.
Much of the company's travel budget is spent on employees meeting colleagues in other countries, and these arrangements also have been reviewed. For instance, the daily flight from London Gatwick to Raleigh/Durham, where Glaxo Wellcome has a major location, is at 1:30 p.m. On the day that U.S.-based visitors return home, they are encouraged to hold meetings with colleagues at Gatwick, ensuring that they get in a good half-day's work before taking off. That also means they may be able to spend one less night in London, reducing hotel costs as well.
Rotated meetings between colleagues in different countries also have been scrapped. Instead of team members taking turns to host the meeting, it now always is held at the most cost-effective location in terms of flights and accommodations.