Low-Fare Airlines Court Corporates

<H1> Low-Fare Airlines Court Corporates</H1>By Jay Campbell

Low-cost carriers are continuing to develop new ways to aggressively court corporate business, both by offering some frills rather than none, and by setting up completely new types of corporate agreements.

The success of such sales efforts depends entirely on the extent to which travel managers are willing-and able-to push traffic to low-cost competitors and away from the majors. While that varies from one corporation to another, some of these airlines have made headway in the corporate market.

Reno Air, which has more than 20 corporate deals on its key city pairs, is developing a system that enables corporate accounts to book outside of the CRSs. The program, similar to one being developed by America West (<I>BTN</I>, April 8), has attracted the interest of 15 to 20 firms, according to vice president of marketing and sales Steve Sarner.

"There is definitely an interest among corporate customers in saving money by booking directly," he said. "But we're looking for third-party technology providers to develop an interface that captures back-office data for the customer, and that should be another six months or so." Reno also offers a first-class cabin, advance seat selection and participation in American Airlines' frequent flyer program.

Eastwind Airlines, which flies from Trenton, N.J., to Boston, Atlanta and other cities, sells pre-paid bulk tickets to corporations which guarantee the lowest fare even for a last-minute booking.

This month, Denver-based Frontier Airlines initiated a new focus on the corporate market by signing direct volume-discount deals with companies in Denver, San Francisco and Omaha. Over the next few months, Frontier's sales staff will be pitching to corporate travel managers and agents the airline's full meal service and a frequent flyer program in which travelers earn one free segment with the purchase of ten. Frontier also participates in Continental's frequent flyer program.

In addition to stepping up their corporate focus, low-cost carriers are being equally aggressive about corporations honoring their volume agreements. "In my seven years here, some corporate travel managers have gone from being very customer service oriented and just wanting to please their travelers to, in many cases, really having some accountability and authority," said Dave Ridley, vice president of marketing and sales for Southwest. "Those are the companies we like to do business with. On the rare occasions where we feel market conditions merit some kind of deal, it is categorically only with those companies that have a proven track record of being able to mandate travel policies."

Sarner agreed. "Ninety percent of companies say they can enforce policy and move traffic, and I've found that only about 10 percent really can," he said. "But that's up from 5 percent a few years ago."

Both executives said it is large retail companies that most often use low-cost airlines because of their low margins. Ridley cited Wal-Mart and St. Louis-based Venture Stores as examples.

"These companies already have a cost-control culture," said Ridley. "They know they can get the same Southwest fare on another airline, but why take the chance? That lessens the administrative cost of managing travel for corporations-they don't have to get into arcane audit controls."

As an established carrier, Southwest may have it easy when it comes to being recognized by corporations. Some of Southwest's smaller copycats must battle perceptions about financial fitness, service levels and safety that the majors do not face.

According to the Department of Transportation, low-cost airlines as a group have a better safety record than the majors, but business travelers everywhere are concerned about flying start-up or low-cost airlines.

"Since the ValuJet accident, I've had to explain to my travelers that just because an airline is low-cost, that doesn't mean it skimps on safety," said Bob Lichtman, travel services manager for San Jose, Calif.-based Bay Networks Inc., which has used Kiwi, Midway, Reno, Southwest and ValuJet.

Terry Trippler, editor of <I>Airfare Report II</I>, a Minneapolis-based guide to low-cost airlines, attacked the idea that equates low costs with low safety. "There have been some righteous comments from travel managers and agents to the effect of, 'we're concerned about our travelers' safety,' but then they enforce a policy that says travelers have to rent a compact car."

However, as John Caldwell, president of Washington, D.C.-based consulting firm Caldwell Associates pointed out, "perceptions are reality in this industry."

Even if travel managers can enforce a policy that says travelers must fly low-cost airlines, there are legitimate concerns about striking deals with them. One concern was illustrated just last month when Kiwi International filed for Chapter 11 bankruptcy protection. According to Carol Salcito, president of Stamford, Conn.-based consultancy Management Alternatives, "one company sent a senior executive one way on Kiwi and when he tried to return, the flight was canceled. He was stranded at the airport for seven hours." While it's impossible for travel managers to identify when an airline is about to go out of business, they can be sure that it's less likely to suddenly happen to one of the majors.

In addition, travel managers must keep abreast of differing levels of service among low-cost airlines. Some participate in CRSs and interline with other carriers, some offer advance seat assignments, some specialize in high frequencies-and others don't.

"People often lump all the low-cost airlines into the 'no frills' category, " said Frontier's director of sales and marketing programs, Tom Allee. "Some of us do offer full service."

"With regard to frequencies, it often becomes an issue of the value of the time saved for the individual traveler versus the higher fare," Caldwell said. "But in some cases, the low-fare carrier is a better option because that extra service offered by the major carrier isn't worth the hundreds of dollars more that the major carrier charges."

Frequent flyer programs, of course, are a major driver of traveler decision making, and while some low-cost carriers have such programs, many do not. But some observers consider frequent flyer programs to be a non-issue in this case because, according to Trippler, "by having the employees fly low-cost airlines, the CEO could buy the employee and his family a trip to Disney World-and even go with them."

Another concern is the effect that dealing with low-cost airlines can have on the sometimes tenuous customer-airline relationship. "The real concern is how directing traffic to a low-cost airline affects your relationship with the major carriers, who you need in all markets," Salcito said.

One travel manager said he "got reamed" by the majors for acknowledging publicly that he directs traffic to a low-cost carrier. "The majors know we use the low-cost airlines-they just don't want us to be promoting them to other travel managers," he said.

Some travel managers say they need potential low-cost traffic to fulfill other arrangements. Ridley said they often tell him that they would like to use Southwest, but the volume discount they get from a major airline outweighs the benefit of flying Southwest.

Not all travel managers deal that way. "I'll never bundle my deals together," said Lichtman. "We tell the airlines, 'this is where you're looking for the business, so we'll give it to you for a discount,' but we won't give up our short-haul traffic for a long-haul discount because there are always better fares there."

That's true for many companies, and they're finding ways to shift share. One Minneapolis firm is sharing half of the savings it enjoys with travelers who use low-cost airlines. With that kind of incentive, it's easy to convince travelers to take a one-stop flight or wait an extra few hours for a departure.

Low fares are certainly the low-cost airlines' biggest frill. While Bay Networks' spend on Southwest since Jan. 1 was only 1.2 percent of its domestic air volume, the airline accounts for 4.6 percent of the company's traffic. Before Southwest entered the Bay Area-Seattle market, the company's average round-trip fare there was $750; now it's $150.

Trippler questions how some travel managers can avoid taking advantage of such savings, but then answers himself: "they'll negotiate a 12 percent discount up front from American and then get a 4 to 6 percent back-end rebate and say 'there, haven't I done a wonderful thing?' But meanwhile, Southwest is offering the equivalent of a 60 percent discount without even negotiating."

"Fares will only come down, and travel managers will only be able to manage travel costs, through low-cost competition," said consultant Tom Wilkinson, president of Travel Management Group in Alexandria, Va. "If we ever get to the point where the three majors are running all the service, we're dead.