Littlewoods Net fare deal Slashes Travel Costs

<H1> Littlewoods Net fare deal Slashes Travel Costs</H1>By Amon Cohen

<I>London </I>- A corporate conglomerate here claims that it is saving 20 to 25 percent on business-class fares through the use of net fares with two major Far Eastern carriers.

Since signing the deals two years ago, Littlewoods, a Liverpool-based retail-to-gambling conglomerate, has hiked its market share for both carriers from 15 percent to 85 percent on its main routes.

The deals stripped out unwanted elements such as complimentary limousine transfers, plus a large part of the commission that the two carriers paid to Littlewood's principal agent, American Express.

Not only is the finance director at Littlewoods happy with these deals, but so are the managing directors of the organization's five operating divisions, who have autonomous control over their travel budgets. They can demonstrate savings to the board and also keep their travelers happy by using two of the world's top airlines, with all their attendant service and schedule benefits.

Travel manager Robert Daykin credits his attendance at the 1994 National Business Travel Association convention, and his meeting there with Business Travel Contractors Corp. president Kevin Mitchell, with giving him the knowledge necessary to cut the deals.

"I thought, 'these guys are light years ahead of what we are doing,' " Daykin said. "Most interesting of all was finding out about BTCC. I thought that this had to be the future. Here was this guy in the U.S. advocating that companies should sit down with airlines and say, 'this is what we think this route is worth. Do you want to sell it at that price?' "

Buzzing with revolutionary ideas, Daykin returned to a less than enthusiastic reception in the United Kingdom. "When I came back and talked to suppliers here about net fares, they looked at me as if I came from the planet Zog," he said. "I was also disappointed with the reaction of travel managers, who saw it as a threat because they could not bring a rebate check home to their boss. The trick for me was to identify what price we would have been paying for tickets if we hadn't done the deal. To their great credit, two major carriers to the Far East had minds open enough to sit down and talk about the concept."

Daykin-who said his annual travel budget is "several million pounds"-said the key to successful negotiation of the deals was complete honesty. "My opening gambit was to tell them that I couldn't promise them any volume of business at all. But they were happy because they knew what our historical performance was."

The key then was for both parties to identify as many elements of the ticket cost that could be taken out of the equation because they were of no use to either party. Daykin would like to see costs reduced still more. "Loyalty programs were part of the discussion, but the airlines say they are not capable of taking them out of the cost," he said. "There is no difference in the price of a flight whether or not a person is in a frequent flyer program. But there are so many other things that can be taken out, such as marketing and sales costs, that are not relevant once you have a supplier relationship. I firmly believe we can eventually strip out all non-essential elements, including overrides and commissions."

Frustratingly for Littlewoods, the apparent success of the Far East deals has not persuaded any other airlines to negotiate similar contracts with the company. "They just don't seem to be able to discuss it-certainly not at the level of regional and area management," said Daykin.

Perhaps North American carriers would be more sympathetic than most because they are accustomed to negotiating net fares in their domestic market. A senior U.K. sales executive at a major U.S. airline told BTN that he was sympathetic in principle to the idea of net fares and that demand was building among U.K. buyers. "We have had many inquiries, but we won't do it until British Airways does," he said. "We would also need to overhaul our systems."

In any case, the U.S. carriers are of little interest to Daykin-about half of Littlewoods' air travel is to the Far East, and only 3 percent is transatlantic. In the meantime, he takes a pragmatic approach and is focusing on alternative solutions to bringing down fares.

The great secret to low fares, as far as he is concerned, is not to use the national-flag carrier. In his two years at Littlewoods, BA's share of the company's flying has plunged from more than two-thirds to less than one-third.

Switching away from BA requires more ingenuity, but the rewards can be enormous. For example, to fly from Manchester-the nearest international airport with scheduled service to Liverpool-to Osaka via London would cost about $5,500 in business class. Instead, through Amex, Daykin negotiated a discounted fare with a continental European carrier via its home airport for about $3,000. What's more, the journey takes one hour less via Europe than via London.

The Littlewoods agency contract is up for grabs later this year, and Daykin is keeping an open mind on what type of contract he will negotiate. Old-fashioned commission and rebate, a management fee or even a rent-a-plate style of franchise are all possibilities.

"Somewhere between the two extremes of letting an agency do all the work for us and doing it ourselves is the right approach for Littlewoods," Daykin said.

At present, American Express has 90 percent of the business, up from 50 percent when Daykin joined Littlewoods and started to consolidate the huge number of agencies that were being used by different parts of the organization. That increase in business is one reason why Amex was content to receive reduced commission on the net-fare deals, Daykin said.