<B>Global Air Deals Fly</B>
<I>Buying Giants Push Consolidated Contracts</I>
By David Jonas
A few large corporations recently have completed global airline agreements, with many others working through the request for proposal process and scores more exploring such opportunities.
Alliance maturation, global thinking by the carriers, improved data consolidation technologies and corporations' push for cost savings and consistent service for their travelers have led such corporations as Dell and Oracle to far-reaching arrangements with their airline suppliers. Other purchasing giants, including Chevron, Medtronic and PricewaterhouseCoopers, also are close to inking global contracts.
Despite the push for such consolidated deals, buyers must weigh the financial benefits against sacrificing pre-existing deals in certain regions. And they must bring along an enforceable global travel policy and a sound global approach with multiple worldwide offices to pique supplier interest.
A global contract need not start from scratch. At first, it can extend to just a few countries from an existing domestic deal and then, depending on the size and scope of the corporation's travel patterns, grow to include more regions.
After a few years of laying the groundwork for a global travel program, including European agency consolidation, Dell Computer Corp. of Round Rock, Texas, saw its first global air deal as the next logical step. "We had American Airlines as our preferred for the Americas and United from Europe and Asia. That led to consistency problems and, of course, we were not leveraging our spending," said Julie Rabern, senior manager of global travel.
Rabern said many configurations were listed in the RFP, including the company's primary goal of net-net fares, fixed fares in certain markets, through-fares and various soft-dollar benefits. "We wanted to see if the airlines could step outside the box and offer a total value solution," she said.
Dell used Travel Analytics, a Cleveland-based company specializing in airline program analysis, to run "what-if" scenarios based on Dell's global spend from the past year and develop a short list of contending carriers. The end result was a single global primary airline supplier, and secondary and tertiary selections to fill in the gaps. The contracts were signed this fall and implementation nearly is complete.
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PWC Decision Pending</B>
At PwC in New York, a global RFP was sent out earlier this fall and responses have been received both from individual carriers and alliance groupings. A decision is expected shortly. "We are looking at whoever can get it accomplished. All alliances are moving in that direction, but antitrust immunity is not vital," said PwC's Americas travel leader Mark Williams. "It may make it easier, and at least we are at the point where you can get a systemwide or alliancewide offer, even if there are different levels of discount involved. It helps that alliances are en vogue and the airlines are looking at globalization more because the most lucrative routes are transatlantic."
The Star Alliance remains the leading global partnership in the industry. As such, it has secured more than 100 global corporate deals and now is willing centralize revenue crediting at any location the client chooses, rather than measuring contract performance country by country (BTN, Nov. 13). "The overwhelming majority of our corporate deals include a Star Alliance component," said Steve Praven, Chicago-based United Airlines director of strategic accounts and business developments. "More and more, North American deals will include a foreign point of sale, and will add other foreign points of sale to meet a client's needs."
Redwood Shores, Calif.-based Oracle, in completing the global portion of its airline portfolio earlier this fall, awarded a substantial portion of its business to the Star Alliance. But it also selected a few complementary carriers to complete the picture, creating what it considered an Oracle alliance. "We needed to split business in highly competitive markets to provide discounting in markets where there is little competition," said Val Cordell, Oracle director of corporate travel.
Implementation nearly is complete for that first tier of the program, which covers the company's top 200 markets.
Oracle's decision to go global this year stemmed largely from its completed data consolidation and the leverage it provided for supplier negotiations. "It was a combination of the data and the airlines' seemingly in a position to provide a global advantage," Cordell said. "But it was a whole lot more difficult than we had expected because the airlines, for all their ability to market their alliances, haven't made this easy from a technical standpoint. Even the difficulty in getting an airline to recognize the value of incremental business from other regions was enlightening."
Though the Star Alliance, in buyers' minds, has progressed the furthest in formulating global deals, achieving early success that other alliances likely will try to emulate does not mean an alliance solution is the best solution for certain corporations.
Minneapolis-based Medtronic, with a global booked air volume near $60 million, is probing carriers for global deals and expects to have at least one in place by year-end, though not necessarily with a global partnership. "I am looking for complete coverage at the right price," said Gerry Williams, Medtronic director of travel and expense reporting.
Atlanta-based Delta Air Lines, for example, has an extensive global network that industry insiders said is not marketed effectively to corporate buyers. Also, Delta's alliance with Air France still is relatively new and has not yet entrenched itself as a global competitor in the minds of many.
Indeed, Delta said only 10 of its larger corporate clients have structured arrangements such that multiple offices in different countries jointly negotiate.
"Many companies ask, but in reality, once you get down to what a global deal is, it gets quite complex," said Keith Rogers, Delta director of sales development, noting complications not at the negotiating table, but internally for corporations trying to link travel policy, communication and data collection. "But if we can find a corporation that is strong enough to enforce a policy worldwide and can find common ground in multiple regions, we are more than willing to structure global deals."
American Airlines, however, has been more successful in marketing and hammering out global deals. In fact, its new sales structure includes various global account managers around the world reporting up to Frank Morogiello, vice president of global accounts for the Dallas-based carrier.
"We have programs that span all over the world, with our Oneworld friends and even those who aren't part of the alliance," Morogiello said. "We have been trying to get smarter and more organized and to respond in one voice and in that way, we have an edge on the competition."
Morogiello added that American's fairly new antitrust-immunized partnership with Swissair/Sabena has not yielded very many new corporate accounts, but has served to further secure existing ones. "We are more entrenched, have five hubs, including the two in Europe, and offer a broader network," he said. "That means more comfort for our global accounts."
Meanwhile, carriers maintain that cost structures, and therefore yields, are different from country to country, so across-the-board discounting remains elusive for most buyers. Buyers themselves may not even want uniform discounting since fares used in other regions are structured much differently than those on outbound U.S. segments.
"Products are priced differently depending on the point of sale," Morogiello said. "Many buyers may want a single price point that they perceive is easier, but that scenario is logical only when you are dealing with a single global agency." Instead, in isolated instances, American will offer discounts on through-fares, even with competitors, and "eat the pro-rate."
Steve Shook, vice president of strategic sourcing for Carlson Wagonlit Travel's solutions group, said the practice of through-faring, while not widespread, is increasing. "Some alliances are better than others, and the ability to offer these arrangements to customers proves the strength of the alliance," he said. "But buyers need to see if through-fares are valuable in terms of savings. Why go for a discount on a through-fare if you can get a better deal directly from that foreign carrier?"
Houston-based Continental Airlines, too, said unique pricing structures around the world make a flat discount uncompetitive in some areas. "It is harder to manage multiple discount levels, but it is in the customer's best interest," said Dave Hilfman, Continental vice president of multinational sales and revenue programs.
But in some cases, like at Dell, it can work. "We now have a fairly uniform discount in most areas," Rabern said. "It is not 100 percent across the board, but it certainly is equitable across the entire agreement."
Continental, meanwhile, which started focusing on multinational accounts about four years ago, said it has between 50 and 100 such deals in place, some with alliance partners and some without. "The trend toward globalizing air deals certainly is accelerating as every corporate travel department tries to get its arms around expenses," Hilfman said.
"We recognize that we increasingly are doing business on a global basis and our operations overseas are relying on us and are grateful for the volume leverage we have here in the United States," said Medtronic's Williams. "And from the carriers' view, they are recognizing that there is a better chance to strengthen the relationship and move market share if we can link up globally."
That recognition also is coming from foreign flag carriers. Whether working in conjunction with alliance partners or identifying their own opportunities, several recently have stepped up global contacting efforts, including British Airways (BTN, Jan. 24), KLM and Lufthansa (BTN, Nov. 13).
Nevertheless, global deals may not be the answer, even for the largest travel programs. For buyers in the United States, it may be attractive to tie in travel spend from other offices overseas, but their foreign counterparts may not want to risk existing deals.
"Various airline alliances and partnerships really have made progress in regard to simplifying and standardizing pricing," said Jack O'Neill, president of corporate travel for Maritz Travel Co. in St. Louis. "But the tradeoff is whether a more comprehensive and simplified discount agreement is economically stronger than the sum of the parts.