Lufthansa Seeks To Extend Pay As You Fly Program - 2001-07-16

Lufthansa is hoping to extend its ground-breaking Pay As You Fly scheme to international clients and destinations by year-end.

The German national carrier also has told corporations that it expects them to negotiate to recover the shortfall caused by the imminent introduction of 0 percent agency commission in Germany. In other initiatives, Lufthansa is helping to increase the number of global deals agreed upon by the Star Alliance and is introducing on-premises checkin for top corporate clients.

Lufthansa launched Pay As You Fly, whereby corporations do not pay for a ticket until the passenger boards the aircraft, two years ago after piloting the scheme with Siemens, one of its largest clients. There are now 34 clients using the service in conjunction with net fare agreements. Despite its success, Pay As You Fly has been confined to domestic routes thus far.

Vice president for corporate key accounts Wolfgang Schmidt told BTN this was for technical, rather than commercial, reasons related to the passenger name record for such bookings only being built up in the system the night before travel.

"We are reluctant to implement it internationally when the system has not yet been stabilized," he said. However, Lufthansa is working on the problem and would like to roll out Pay As You Fly to international routes and customers outside Germany--assuming they generate sufficient volume--as soon as possible.

"We hope it will be this year, but we are still not sure about it," Schmidt said. The chief benefits of Pay As You Fly are improved cash flow and process savings, thanks to the elimination both of ticket issuing and reclamation of refunds. However, it does not work for all companies, even if their volume is sufficient.

"There are clients for whom it does not offer a process advantage--if it is not appropriate for their accounting systems, for instance, if they require a receipt from their travelers," said Schmidt. "It works well for travelers who have their own corporate payment cards and it also requires the client to have well-organized travel management."

In another radical move, Lufthansa has given details of the flat booking payments it will introduce for agents in place of commission from Jan. 1, 2002 (BTN, May 21). Domestic tickets will carry a fee of E8-E16 (US$7-US$14), according to class of travel. Travel to the rest of Europe will cost E10-E40 (US$9-US$34) and long-haul will cost E30-E150 (US$25-US$127). There will be an extra E5 (US$4) if the booking is for an e-ticket, plus additional payments of E15 (US$13) for handling amendments and cancellations. However, E5 (US$4) will be deducted for bookings made online. There is, of course, no fee for net fares, including Pay As You Fly.

Some German travel managers have expressed concerns that the agency payment changes are effectively a price increase for the end-user, but Schmidt said he sympathized with their position and expected to hear from them about redressing the deficit. "They have to let us know what the implications are for them and then we will negotiate on it," he said.

Electrolux global travel manager Jo-Achim Hamburger said he was reassured by this statement.

Indeed, German travel managers may find that they end up with a better deal overall than their peers in the United Kingdom, where British Airways introduced a similar scheme in April.

BA promised to make good on its effective price increases by introducing cuts in published fares, but these were preceded by several months of stiff fare rises (BTN, June 25). Only a small number of BA's more powerful corporate clients are believed to have negotiated back their shortfall directly.

Lufthansa also is talking to a growing number of clients about worldwide deals with Star Alliance, in which it plays a leading role. Schmidt said the number of corporate alliance deals has increased to 34 this year, from 19 last year, with a target of 50 by year-end. He asserted that clients who signed up benefited from dealing with the alliance members as a unified entity instead of on an airline-by-airline basis.

"In each global offering, the deal has to be at least as good as a local deal would be in each market, and sometimes it is better," he said.

Star Alliance has been criticized in the past for failing to deal with corporate clients in a consistent, coordinated manner, but Schmidt said this had improved greatly.

There is now a corporate client strategy group, and a series of standardized procedures has been implemented to respond to global bids. In addition, a lead carrier is assigned to each request for proposals and is responsible for coordinating the proposals.

"It is not perfect, but we have made a move in the right direction," he said. Schmidt added that there was room for improvement both by the Star Alliance and potential global corporate customers in sourcing consolidated data to aid negotiations.

As well as management information, Star Alliance expects clients to have a centralized travel management program, a centralized travel policy and a demonstrable ability to control travelers' selection of airline.

Back on the domestic front, Lufthansa has installed self-service checkin machines on the premises of four major corporate clients. The machines allow travelers with ATB tickets or e-tickets to print their own boarding card as much as 24 hours in advance. Assuming the pilot is successful--and early signs have been encouraging--Lufthansa intends to extend the facility to around 25 top clients by year-end.