International Imbalance

<B>International Imbalance</B>
<I>Buyers Explore Purchasing Strategies To Ease Airfare Differential</I>

By David Jonas

Corporations and their agency partners are finding ways to level the imbalance in international airfaring, particularly across the Atlantic, where outbound U.S. business fares often are priced at double the inbound portion. That differential long has been an unfortunate fact of life for travel buyers, and likely will exist for the foreseeable future as carriers price their product at the highest level each particular market will bear. Still, certain purchasing strategies could make airlines take notice and possibly offer a few conciliatory crumbs.

The problem became particularly acute in the mid-'90s when European carriers kept their fares flat as U.S. and U.K. carriers responded to increased demand by raising them. Solutions that travel buyers increasingly are exploring include shifting the ticketing point of sale, split ticketing, using alternate connections and nonresident carriers, and offsetting the higher intermediate point fares at the negotiating table.

Several travel buyers report shifting the ticketing point of sale to other countries where fares are cheaper, including Cindy Heston, manager of corporate travel worldwide at Thomson Consumer Electronics in Indianapolis. "Our main strategy is to always keep the ticketing in the local region, if possible, by presenting to the carriers alternative pricing where the discount levels may be much higher, but equal the other countries' discount based on published pricing," she said. "Of course, this is Nirvana, and doesn't always happen."

As a result, Thomson in several instances, and with more than one carrier, has moved volume out of the overpriced country to the one with the better fare. "We have found that it is a good wake-up call," Heston said. "If you take their volume out of the region, the local representatives start to move very quickly to remedy the situation and ensure that local ticketing is competitive with other markets."

Heston added that Thomson's GTM agencies, members of the international agency network affiliated with Maritz, work on incentives to coordinate with offices around the world to reach savings levels in other regions. "This highlights to me any market discrepancies in the different regions and also validates continuing to work with a worldwide agency network," she said.

Others have used a similar tactic on a single-route basis. Bookings for New York-London-New York itineraries oftentimes are made in the United Kingdom and the ticket is sent over to the traveler in the United States. The proliferation of e-ticketing has helped facilitate the practice by eliminating shipping fees (<I>BTN,</I> Oct. 26, 1998).

Split ticketing is another method of relieving inordinately high fares. "On a New York-Rome-New York itinerary, it may be cheaper to buy New York-Rome and then the return trip over there, since fluctuations in currency will make it cheaper," said Mary Duran, supervisor of the international rate desk at WorldTravel Partners.

Joe Broessler, vice president of international rates and tariffs at Hickory Travel Systems, Saddle Brook, N.J., takes the idea a step further for frequent travel on a certain international city pair. "On a New York-Zurich business fare, Swissair wants $2,744. If you book two separate tickets, the Zurich-New York return portion only is $1,754. That's basic split ticketing. But the roundtrip Zurich-New York-Zurich is $2,044," he explained. "Buy the tickets beforehand. There's more to beating the system than just purchasing two one-ways."

Such a strategy then leads to cheaper trips to other European destinations, departing from Zurich instead of flying direct from the U.S. departure point. "It's all legal, just never promoted," Broessler added.

Broessler also suggested a close look at routing and alternate connections, a strategy often employed on domestic flights but rarely considered for international trips. "The one-way business fare between Nashville and London, for example, connecting in New York or Washington on American is $2,781," he said. "But if you use Air Canada and connect through Toronto, it's only $2,100. No one in Nashville thinks of using Air Canada."

Another wrinkle in the international pricing arena is the concept of higher intermediate point fares. An example would be a New York-Frankfurt trip, connecting through London. If the route is priced at $2,000, but New York-London is $3,000, airlines will ask for the higher fare. Similar circumstances occur domestically, where New York-Seattle, connecting through Denver, for example, is cheaper than a New York-Denver fare. Travelers many times will use hidden-city ticketing, a ploy deemed illegal by the airlines, to get around the fare differential.

However, for international traffic, carriers may be willing to negotiate on the HIP fares. "Air France has special route fares to Africa through gateways," Broessler noted. "If the whole trip is booked on Air France, they may be willing to negotiate a discount to get around the HIP price."

Agencies also may help in this area. "We try to keep in very close contact with the major carriers, especially U.S. airlines, to see which HIP exceptions can be overlooked in order to get us the better rate," Duran said. Such issues will be addressed further when WTP rolls out its new pricing unit concept on June 1, she said.

Meanwhile, many corporate buyers wonder why they cannot attain uniform across-the-board discounts, regardless of point of sale. "The same issues that make split ticketing viable in the transatlantic market also make bilateral discounting very difficult," said Bill Patient, travel buyer for Elf Atochen in Philadelphia. "These 'bilateral' deals will happen, but care must be taken to make sure neither side of the ocean is giving away something just so the corporation can reduce two contracts to one." Patient added that the competitive environment lends itself to cutting separate transatlantic agreements.

Fay Beauchine, vice president of sales and customer relations for Northwest Airlines, said domestic and overseas agreements at times can be in conflict with one another. "The problem is that we have some people asking for a global deal but wanting to also keep all local deals in place," she said. "But the two are not necessarily congruent so corporations really need to take a close look."

Furthermore, buyers need to be very cognizant of which carriers need business in each region and how competitive forces impact corporate sales efforts. For example, many industry insiders suggested European carriers will offer better deals on traffic out of the United States, while U.S. carriers are more aggressive in offering deals on traffic coming back in. "If you are looking for a deal to Frankfurt, Lufthansa is not the one to talk to," Broessler said. "We look at the other carriers that are not as strong in that country. In Germany, Air France, British Airways and Swissair are fighting hard for market share."

Even in certain U.S. gateways, opportunities are available as new foreign carriers have moved in. John Smith, president of Tower Travel Management in Oakbrook Terrace, Ill., said Chicago is one such market. "A lot of people are doing something about the fare imbalance, especially in Chicago where there is a lot of nonstop service," he said. "Corporations here have a plethora of options and if they are willing to shift share, they will get substantial savings as a result. But can they save 50 percent or significantly reduce the inequity? Probably not."

From the airline perspective, carriers will price their product at the highest tolerable level. "Competition dictates the pricing scenario," said Dave Hilfman, vice president of multinational sales and revenue programs at Continental. "But we are willing to sit down with our top clients and talk about that kind of thing. It all varies depending on travel patterns, but the subject certainly comes up."

Beauchine echoed those sentiments, noting that the gap formed in the mid-'90s when European carriers "for whatever reason" kept their fares flat while U.S. and U.K. carriers raised prices in concert with growing demand. "If you look at the business class buckets, you will find fluidity between the carriers because each will extract the price according to the demand for their product," she said. "Discounting determined here in the United States should close some of the gap, but not all of it."

Meanwhile, the recent move toward premium cabin enhancements by many carriers has changed slightly the negotiating dynamic on the transatlantic as carriers with weaker products may elect to offer better deals to keep pace. "Some airlines may have to discount more aggressively, it might be their only way to compete and we have seen a bit of that," Broessler said. "As a buyer, you need to know which competing airlines have revamped before you enter negotiations."

British Airways, Continental, Delta, Sabena, Swissair, US Airways and Virgin Atlantic are a few of the carriers that either are in the process of or recently have enhanced their premium cabins on the transatlantic.

Overall, there are many factors impacting international pricing and several negotiating and purchasing maneuvers that can be used to offset the fare differentials that have plagued buyers.

"If you have a worldwide consolidated travel program, it is essential to have consistency in your pricing, regardless of the origination," Heston said. "Our travelers should expect to receive the same rates as their counterparts traveling in the opposite direction. And once you have the information, you can compare markets to ensure you have achieved the greatest savings for your company.