German Consortium Counts Air Savings

<H1>German Consortium Counts Air Savings</H1><H2>Gives Up On Hotels</H2><H3>By Paul Needham</H3><I>Frankfurt </I>- A bold attempt to establish a purchasing consolidation plan for medium-sized companies in Germany is starting to pay off for air travel but has failed in the hotel sector.

The German travel management association, VDR, which manages the program, expects to pay out well over DM230,000 in airline refunds to companies that took part the first year.

This is effectively new money for the participating companies because their individual travel budgets are often too small to qualify for rebates from airlines.

The next priority for VDR, which has 160 corporate and supplier members, is to increase the number of participants in its airline purchasing program from the current 68. Moves to launch a similar purchasing consortium for room nights have been dropped, however, after an insufficient number of members were ready to invest in new software and training.

U.S. corporate buyers who belong to the Business Travel Contractors Corp. might look at VDR's success in leveraging their combined air volume with some jealousy, but the Germans merely sought deeper discounts. The BTCC set out to redefine airline pricing through the creation of mileage-based net or contract fares, but after a lengthy process that just recently concluded, short-haul carrier Southwest Airlines is the only taker.

Under the VDR consolidation program, which launched modestly with car rental and then made a spectacular move into the air travel world last year (BTN, May 1, 1995), the association effectively runs a purchasing consortium in which bookings are directed toward suppliers who offer refunds ranging from 5 to 25 percent. Individual companies book directly with suppliers using their Lufthansa AirPlus or American Express corporate cards, and use the Lufthansa PC Netto or Amex Air Power travel management software programs to send a quarterly statement of the relevant bookings to VDR.

VDR then combines all bookings for each participating airline, forwards the total to the vendors, is paid the appropriate refund by the suppliers and distributes the cash to members on the basis of bookings volume.

According to Stephan Westphal, Germany key accounts manager for United Airlines, the system is functioning smoothly and has not generated problems since its launch last spring. "It has been very successful for us; we have certainly generated more business through it," he said.

"The airlines are very happy about the scheme," said VDR president Michael Kirnberger. "The fact that the computer software is not in all companies is slowing progress, but that will come."

<H4>Hoping Sales Will Skyrocket</H4>The VDR program generated air travel sales of more than DM8.5 million last year, a sum the association is hoping to increase by up to 100 percent this year, Kirnberger said.

In its first refund payment in January, covering the first half of 1995, the VDR distributed DM115,560 to participating members, a sum likely to be easily exceeded for the second half of the year. The next payment, scheduled for the end of April, was expected to exceed the first payment, said Peter Hoefler, manager of VDR Travel Service, the subsidiary set up to run the program.

The number of VDR members joining the program is gradually rising, from 50 last summer to 58 at the end of 1995 to the current 68. USAir and Malev recently joined founding participants Air France, All Nippon Airways, Emirates, Finnair, Singapore Airlines, United Airlines and Varig. Hoefler said he expected more members to join after the VDR annual meeting at the end of April and was confident that all the airlines would renew their agreements this September.

"We are satisfied with the scheme so far," he said. "The computer programs are easy to use, and we are pleased with what we have achieved."

Hoefler said Lufthansa has maintained its stance that it will not join the alliance, and SAS dropped out at the start of the year following its alliance with Lufthansa. But Hoefler praised United Airlines, another Lufthansa partner, for having "recognized market needs" by deciding to stay in the program. "We have a good network now," he said. He noted, however, that Africa is a "gap on the map" and is difficult to include because South African Airways also is a Lufthansa partner.

However, VDR decided to drop its planned parallel hotel consolidation scheme at the start of 1996 after both VDR members and hoteliers proved reluctant to commit themselves.

Hans Lehrburger, the second director of VDR Travel Service, said only a handful of 150 VDR members contacted said they would use it, while more than 80 percent either did not reply or turned the idea down. Software and training costs for members would have come to DM1,300 a month, but neither hoteliers nor firms were prepared to put up the funds.

Only 14 of the 28 hotel chains that are associate VDR members decided to join and offer discounts of 9 percent off rack rates, although these included top names such as Steigenberger, Maritim and Dorint. The program would have enabled hotels to offer rooms in the DM150-to-170 price range, which would have meant a corporate saving of DM10 per night, Lehrburger claimed.

"Twenty-five participants would have been enough to start it, and it would have broken even for members after 80 room nights," Lehrburger said. Nevertheless, the hotel plan failed to launch due to a combination of its complexity, investment costs and perhaps being too early for the market, he said.

<H4>Europe Not Following Suit </H4>Meanwhile, the current success of the Germany air travel consolidation program does not look as though it will generate a similar program among its European neighbors.

"The concept does not convince me," said Freddy Glaser, president of the Swiss business travel association SVFR. "There are hardly any large airlines; they are small niche carriers."

The SVFR will discuss joining the air consolidation program at its June conference. But most members surveyed two years ago to see if there was interest in a similar scheme responded that they would not be prepared to reveal their turnover, Glaser pointed out.

"I do not think anything will happen in Switzerland in this direction for the next two to three years," Glaser said. "As long as firms do not know what they spend, we cannot go to the suppliers."

The Swiss organization will instead focus on purchasing strategies for small companies with an air travel budget of up to SF3 million, according to Glaser.