Global Air Puzzle Still In Pieces

<B> Global Air Puzzle Still In Pieces</B>
<I>Net Fares Rarely Spread Beyond U.S. Point Of Sale</I>

By Jay Campbell

The global air deal remains an elusive goal rather than a reality even for the largest U.S. corporate travel departments, despite years of hype and effort by vendors and buyers.

Notwithstanding the progress that some of the biggest and brightest business travel buyers have made in America in landing hundreds of net fares during the past three years--and the inroads that some have made in extending those arrangements to some countries or regions--none have established truly global air deals.

Hewlett-Packard, a major proponent of net fares since it first began experimenting with them (<I>BTN,</I> Jan. 16, 1995), now is faring 75 percent of North American tickets on a net basis. H-P also has brought them to Australia and some of Europe.

"Net fares are becoming more of a global negotiating tool," said Fred Swaffer, who manages Hewlett-Packard's Asia/Pacific travel program. "But there are still a significant number of folks out there who are pretending to be a profit center, even at H-P."

Swaffer's colleague at H-P, air and car supply manager Kevin Iwamoto, observed that internal limitations are not the only ones slowing the progress of foreign-based net fares. Some of the European carriers and travel agencies, he said, still are not open to the idea or don't truly understand it, and Galileo's Private Fares function--which loads negotiated fares into the CRS--is not available to H-P's European agents, though Galileo insists it is. Without the system, agents attempting to price a net fare have to calculate it themselves, making errors more likely.

"Net fares are the norm domestically for H-P," said Iwamoto. "But going to Europe is like going back in time. It's not just the technological and cultural stuff--it's also the Y2K problem and the euro. I just get the impression this isn't on everybody's front burner over there."

Other big proponents of net fares also are finding it difficult to expand them beyond North America. National Semiconductor, based in Sunnyvale, Calif., has saved 10 percent on its air volume for international fares ticketed in the United States after moving more than 70 percent of those tickets to nets, said senior purchasing manager of travel services Mark Vilcsek. Domestically, the company has saved 3 to 4 percent on 65 percent nets. But Vilcsek is challenged by a number of difficulties "seemingly inherent to this aspect of globalization."

George Odom, travel manager for Eli Lilly & Co. in Indianapolis, said his company's airline deals are 90 percent net of commissions. Odom said the major benefit is that his compliance rate has reached 99 percent. But bringing these programs elsewhere has proved cumbersome.

"I have net fares in Europe, but I don't have net fares where I can take the North American deal to Europe," said Odom. "The terms aren't the same." Airlines argue that different markets dictate different pricing, but Odom believes "that's not an argument the travel management community should accept--it's a smoke screen for the airlines' own inefficiencies."

Lufthansa's manager of global corporate sales, Margit Napier, chalks up the uneven discounts to simple differences in economics from country to country. "The Czech Republic doesn't have the same cost structures as Germany or the United States or India, so these things present a problem and require that we ask for strong commitments to volume targets," she said.

Joseph Seagram & Sons' corporate travel operations manager Earl Foster, acknowledging that he also has net fares at foreign points of sale, said "this is an emerging faring technique. It's not real easy, and you have to keep after it. There are European and U.S. carriers who can deal with it if you have the structure. But Asia's different--they're hardly ready for upfront discounting over there."

These and other sources identified additional reasons why progress is slow on foreign-based net fares as well as "global" programs. Some of the reasons fall into the category of outdated structures and regulations. Italy's Billing Settlement Plan, for example, doesn't allow net fares at all. In other countries, Napier said, front-end discounted corporate fares cannot be published because if they are, they become the market fare.

"Fares in general, never mind nets, are very complicated as all different government regimes are in different stages of deregulation, so you have protectionism," said Daniel Tappan, director of consulting services for American Express. "On the unpublished side, you still have some vast gray areas. So travel managers hear a lot of 'you can't do that in this country' and have to determine whether that means 'we won't' or 'we don't want to' do it."

Consolidator fares also further complicate the market. "Companies had enough difficulty consolidating here while fighting local autonomy with the local travel agent," said John Smith, vice president of Tower Travel Management in Oak Brook, Ill. "But that was service-driven, not price-driven. Overseas, the whole consolidator thing throws a wrench into any kind of air program on a price basis, because the fares are still lower than what might be negotiated. It's difficult to argue with that."

Along with these technical issues, a broader issue of communication--perhaps getting to the heart of the confusion--appears to have mismatched perception with reality. Airline alliances, for example, are nowhere near where they need to be in terms of corporate negotiating on a global or even regional level. The smart money, in fact, is on doing deals with the airlines individually rather than as an alliance.

"When you say 'global' to airlines, they start talking about frequent flyer miles and code sharing," said Odom at Eli Lilly. "That makes it very difficult to make a global agreement. What's the definition of globalization? It's really U.S.-Europe, and for a very, very small number of companies, it's U.S.-Asia."

Even if an airline deal is negotiated, getting it implemented through the travel management company is another story altogether. Many agencies now are under fire for espousing global-type services that do not exist.

"You'd like to have any traveler walk into your travel management company anywhere and make changes to a ticket, but they aren't even at that point yet," said Vilcsek, noting that an agency's having offices in a lot of countries isn't enough. "I'd like to see our travel management company treat our volume of business the same in Singapore as they treat it here, with the same service levels."

Agreed Tower's Smith, "To some degree, corporations have made decisions with regard to travel agencies on the basis that they can pull off a globalization for them, and the megas won a lot of business on that. But no one wants to say it isn't working. No one wants to admit that 'globalization' is the biggest piece of vaporware the travel business has seen in ten years."

The gap between expectation and reality, however, is not deterring some travel buyers from forging ahead. In fact, most industry observers continue to be optimistic that globalization can be more global. Even Smith agreed that, eventually, globalization will become reality. "Sooner or later, American-style travel management is going to sweep the globe," he said, though he acknowledged that "maybe it takes a worldwide recession" to do that.

Still, "a global travel program is not smoke and mirrors," argued Steven Schoen, the former president of The Global Group consultancy who recently became travel management director for Coca Cola. "I think of it as a program that is managed from a global perspective. That doesn't necessarily mean you're doing the same things in the same ways with the same vendors around the world. It can result in that, and in my view that's very doable, but it's not a requirement. What is a requirement is that local, national and regional needs are met."

Lufthansa's Napier agreed that now that the globalization hype has calmed, people are really getting down to business. "We all knew the challenges, it's just that we wanted this global idea so much, we went a bit too fast," she said. "In the last year or so, I've seen more detailed and together RFPs. People aren't approaching this stuff as starry-eyed any more and they're doing their homework now. There is a new seriousness about having correct data, for example. So I see an overall trend of improvement."

Clearly, airlines and agencies aren't the only ones to blame for the slow progress. Buyers themselves have a lot of work to do internally to get their houses in order, and consultants and others continue to recommend a number of steps that corporations must take before accomplishing something as rare as net fares originating on foreign soil.

Broadly, they encourage corporations to organize from the bottom up, and/or on a parallel basis. For example, after domestic travel is consolidated, move on to continental North America, then perhaps Europe. Or organize Europe and North America at the same time. Following that, join the European and North American programs, as long as both of them have proven themselves worthy of the airlines' attention--in other words, if they move market share.

Even getting to this point requires that travel management personnel in different regions have a clear understanding of their roles (who reports to whom) and internal controls (which stem from culture). Some companies have encountered difficulties when one region doesn't devote equal resources to travel management, doesn't offer the same expertise, or doesn't treat financial and/or accounting issues in the same way. If travel personnel are on the same page on all of these issues, issues of data collection can be addressed and solved.

But insiders warn that no few lines of advice can be applicable to all companies. If it were a simple, cookie-cutter solution, said Schoen, "all my former colleagues in the consulting world would have no business.