Great Expectations: Corps. Give The Nod To The Euro

<B> Great Expectations: Corps. Give The Nod To The Euro</B>

By Amon Cohen

As European travel purchasers assess the opportunities presented by a single currency, the International Air Transport Association has announced it will adopt the euro worldwide effective Jan. 1, 1999.

''The IATA airlines are responding to a clear demand from their major corporate customers in Europe to have the choice of using the euro for their business from its introduction,'' said IATA director-general Pierre Jeanniot.

Observers expect that 11 of the 15 European Union member countries will adopt the euro upon its introduction. Those 11 will run both the new currency and their local currencies for a period of three years.

During that time, travelers will be able to choose whether they want to be ticketed in the local or the European currency, though physical limitations will make it impossible to display both.

Customers in countries that have rejected economic and monetary union--such as the United Kingdom--will not be able to opt for ticketing in euros.

IATA's decision will be welcome news to European-headquartered multinational companies, many of which have decided to move all their financial dealings to the euro from day one. These include Daimler-Benz, Philips and Siemens.

Andrew Douglas, European director of supply for Honeywell, forsees two major opportunities for travel managers arising from the euro. The first is that it will immediately expose pricing differentials among countries. Currently in Europe, the cost of a point-to-point flight may be more expensive from one city in a pair than the other. For instance, a Frankfurt-Paris ticket might be more costly than a Paris-Frankfurt one.

There also might be opportunities for cheaper purchasing of travel in a third country. That same Paris-Frankfurt city-pair could, for example, cost even less if it were purchased in Brussels.

Many global companies already have flexible buying strategies of this sort, usually through their agencies. Frequent European travelers to Asia now are exploiting the weak currencies of the region by buying one-ways to their destination and subsequently purchasing returns to Europe.

Within Europe, the euro simply will make it much easier to spot these price differentials. ''For the first time, we will be able to see that airline A is charging this and airline B is charging that,'' said Douglas. ''From a purchasing point of view, we will be looking to exploit this opportunity to bring pricing down."

Douglas also noted that Honewell ''will be able to compare prices without worrying about currency fluctuation. That will take out one element of purchasing, which is who assumes the currency risk--the vendor or the supplier?''

The window for companies to exploit price differentials on the same route, however, will not be open for long, according to IATA senior manager for insurance and currency Anita Macleod. ''The single currency will bring prices into line with each other, although maybe not from day one. Our aim is to be transparent,'' she said.

Nor, Douglas said, will the euro produce an equalization of all intra-European routes to the same price per kilometer. ''The key thing that brings down costs on a route is competition,'' Douglas said. The main determinant will therefore continue to be whether the route has up to or more than two carriers operating on it, as research from British Midland has shown there is little difference in price between monopolies and duopolies on intra-European routes.

The second opportunity Douglas has identified is for increased efficiencies in centralized pan-European purchasing and travel management. Honeywell, which retains Business Travel International as its consolidated agency for Europe, is considering the possibility of a single European call center for ordering and processing travel requirements.

Cross-border satellite ticket printing in the short term and electronic ticketing in the medium term make this feasible. But ''it is something we are still some way from, although the euro does give us more impetus to look at it," Douglas noted.

Honeywell even is assessing the idea of establishing the call center for more than just travel, though there could be logistical problems. ''If a supplier is taking orders across Europe at a single location, it still has to give sales support and be remunerated locally,'' he said.

Douglas's belief that the euro will be a good thing for travel purchasing is shared by Carlson Wagonlit Travel. In a new briefing document on the subject, the agency said clients will save money because transparency and simplified spending data will make it easier to negotiate cross-border deals with travel suppliers.

''At present, the vast majority of deals with airlines, hotels and car companies are on a country-by-country basis,'' the report said. ''Consolidating over a wider geographical area inevitably produces greater leverage and savings. Pan-European deals are possible today, but the euro will have psychological as well as economic advantages, acting as a catalyst for companies to shift their purchasing strategies on to a multinational basis.''

The removal of currency exchange also will eliminate the dangers of rate fluctuation and simplify expense reporting, while making it easier for large travel agencies to service their clients across Europe.

Carlson Wagonlit also suggested that the inevitable simplification of air fares will force an increase in net fare negotiations.

However, Carlson also warned that several factors will temper the potential benefits of the euro. The first and most important is that the euro is forecast to increase intra-European trade, which will add to an already heavy demand for seats and push prices upward.

Also, as Douglas noted, price decreases will partly depend on competition. But chronic slot congestion at key airports like London Heathrow and Frankfurt will keep opportunities for new entrants on major routes limited.

In any case, Carlson Wagonlit argued, additional factors such as variable labor costs will maintain price differentials for products such as hotels, in spite of the monetary transparency. As the briefing points out, ''even within the same country, companies today charge different prices for the same product. For example, the room rate at Forte Posthouse hotels in the U.K varies from about $110 to $175 according to the location of each property.''

Carlson Wagonlit also said that even though the use of the euro is expected to reduce transaction costs by an estimated 0.4 percent of GDP, companies are likely to lose 1 to 3 percent of turnover during the transition to the new currency. Airlines therefore will not be looking to give away bargains; even less so will agencies, which have to cope with the advent of commission cutting in Europe.

In spite of these potential difficulties, Carlson Wagonlit maintained that the euro will yield a net benefit for business travel buyers. ''Several factors point to business travel costs falling for corporate clients--although budgets will increase owing to a growth in volumes of travel,'' the report said. ''There are also circumstances which could potentially increase the cost of travel. However, Carlson Wagonlit says that on balance the euro is more likely to push prices down rather than up.