H-P Inks Air Alliance Pact

<B> H-P Inks Air Alliance Pact</B>

By Jay Campbell

<I>Palo Alto, Calif.</I> - Hewlett-Packard has signed one of the first corporate contracts with the three antitrust-immunized Star Alliance partners, Lufthansa, SAS and United, to get the same discount across the board.

The deal allows H-P to use a single ticket designator and a single net-net discount level on all international travel purchased from the three airlines.

Signed in October, the Star Alliance contract, in combination with a separate agreement H-P has with Air Canada, covers more than 60 percent of the company's travel originating from North America.

The arrangement is a product of several factors coming into play at about the same time. First, as the heir to a largely mature air travel program, H-P airline and car travel supplier manager Kevin Iwamoto spent his first few months at the company seeking new opportunities to move forward.

After joining H-P in February 1998, Iwamoto determined that the company needed to further reduce its field of airline contracts in order to reduce mistakes, unclaimed discounts and "general confusion" among its three travel management suppliers. Reducing the number of preferred airlines always makes an account more attractive to the vendors that remain.

Secondly, the formation of the Star Alliance itself--and the U.S. government's approval of antitrust immunity for United-Lufthansa-SAS and for United-Air Canada--prompted Iwamoto to ask, "What's the point of an alliance without corporate contracts?" He figured that if he could get Star to sign such a deal, it would bring him a couple notches closer to globalization, an elusive yet priority goal in many corporate travel organizations.

Iwamoto's interest prompted Lufthansa and United to square away what had long been a stumbling block to Star corporate contracts--determining which participating airlines would sell the tickets.

"United wanted everything plated on United because they had taken the lead on tracking, and Lufthansa had a problem with that," said Iwamoto. "At that point, I asked the carriers to come up with a solution they could both live with and get back to me."

The partner carriers emerged six weeks later with an agreement that streamlined their contractual terms and conditions and enabled H-P to use its United Airlines net-net discount on the other carriers and book everything on 016, United's plate.

Once the plating issue was cleared up, the Star Alliance targeted a number of accounts--more than 250, according to sources--sending them a letter in December indicating Lufthansa and SAS now were part of the United corporate volume agreement. This offering is not yet available to all companies, one source cautioned, as several undisclosed factors determine a given company's attractiveness to Star.

"They are aggressively courting certain business," said Michael Boult, vice president of supplier relations at Rosenbluth International. "For many U.S. companies, there isn't enough significant business on SAS and Lufthansa to warrant such an agreement. For them, this would only save a couple of bucks. But for others, the two European carriers are being very aggressive and coming up to United's level in discounts. It's similar with Air Canada and United in North America."

Even H-P, as sophisticated as its travel program is, "had to make some significant commitments" in order to earn the contract, said Iwamoto. For one thing, "I told them I was reducing the total number of airline contracts," he said. "We were notorious for having a lot of contracts, so now we have half as many as before. That's a clear signal to an airline that you're serious about honoring a new deal. The way I see it, if I can get a discount on 80 percent of my business, the other 20 is negligible."

Iwamoto spent time improving H-P's communication to travelers about the importance of using preferred carriers. In this area, he said, the help of H-P's regional travel managers was invaluable.

A policy change requiring the "lowest proposed fare" instead of "lowest logical" also helped to sell the alliance on H-P's ability to commit. That parameter is more specific, Iwamoto said, whereas "logical" is subjective. Any refusals of the fare proposed by the booking agent are documented and reported to the traveler's manager.

Iwamoto consolidated all contracts in his own office, taking over the Private Fares function in Apollo with help from one of his agencies on scripting. In the past, agreements were separately sent to the company's three agencies--American Express, Carlson Wagonlit and WTP-BTI Americas--which led to inconsistent interpretation of booking and ticketing instructions.

"Contracts are so complex these days, we were ending up with three interpretations of what part of such and such a discount applies to what," said Iwamoto, who also chairs the NBTA airline committee.

To help clear up the confusion, Iwamoto created a formulaic grid offering all discount information on all airlines and sent it by e-mail to all res agents. The grid can be updated and sent electronically as changes occur. In the end, reducing the time spent trying to interpret ticketing instructions helps with efficiency and keeps fees down.

Iwamoto said H-P's European division cannot fully participate in the North American air program due to trade restrictions and ticketing rules. That division--which accounts for about a third of H-P's air volume while North America represents about two-thirds--has an alliance deal of its own, with the Atlantic Excellence group of Austrian, Delta, Sabena and Swissair.