Midmarket Buyers Look To Skies

By BTN / June 01, 1999

Midmarket Buyers Look To Skies

BTN editors last month sat down with buyers and representatives from the travel agency and airline communities to discuss the airline negotiating environment for midsize corporate buyers. Participants included travel managers Alain Legault of Ottawa-based Canada Post Corp. ($9 million in air volume); Debbie McKay of Litton PRC Inc. in McLean, Va. ($10 million); Cindy Morse of Houston-based Pennzoil-Quaker State ($8 million); New York-based Advanced Travel Management's Dan Nevill, formerly of Continental Airlines; and Northwest/KLM manager of national sales Philip Stumpf.

BTN: How can buyers and airlines improve partnerships?

Morse: I think an airline needs to go into an agency or a company with realistic goals. I do have some airlines I know I can't do a deal with. I know I don't have the volume or I have deals that may prevent me from talking to another carrier because of the crossover market. And if I say I can't do a deal with them and they keep coming back, it gets pretty tedious.

Stumpf: I think from the airlines' standpoint, it would be beneficial if the customers had greater understanding of the benefits of the whole relationship rather than looking at single market discussions all the time. I think certain companies want to become your partner, but then they want to go back again into individual markets and say, "Well, we want to be your partner, but then we need this as an exception." Sometimes there just needs to be a better understanding of the overall benefit. People say, "The fare changed in this market yesterday, so we want to change the rate." From a relationship perspective things just can't change that quickly.

Legault: Why not? We do it.

Morse: Another thing that interests me is they made a big hoopla about e-ticketing, about how it's saving money for them and it's a big benefit for you, but what benefit is it to me? I haven't seen anything in contracts based on e-ticketing. We do probably 85 percent of our ticketing electronically and get nothing for it. Nobody's willing to help.

BTN: Now, you do save a little bit on the delivery, right?

Morse: We probably cut our delivery cost by about $6,000 a year.

McKay: We're probably closer to 90 to 95 percent and I'd say the other 5 or 10 percent is with airlines that don't have it yet. This is all because we told our agencies that they could start charging a delivery fee if e-ticketing is available and the traveler doesn't take it. So then the traveler's got to go back and talk to his manager and say,"Hey, I'm getting hit with a $20 delivery fee," and they don't want to do that.

BTN: So are you saving money on delivery charges?

McKay: Delivery charges we had rolled into our agreement, so we figured $20 a ticket. We don't have to worry about it anymore.

BTN: How are you tracking whether the tickets are used or unused? Are you using any type of software? Have you had to make an investment there?

Morse: Well, Sabre just came out with a new program that allows you to do a report online, but it's a 30-day wait. So we instituted our own in-house program where we do a queue-drop and go through and pull up electronic ticket records. That seems to work for us even though it's a manual operation.

McKay: For us it's the Sabre system. My main agency is responsible for tracking that.

BTN: So what are the benefits of e-ticketing you're seeing with Northwest?

Stumpf: It's a lower cost of distribution ticket. And even outside of that, it is a service provided to the customers. You have greater flexibility with it.

BTN: But what about when the airlines first came out and said, "Okay, it's going to lower our distribution cost and we can pass savings on to you?"

Stumpf: That's still true in the respect that the distribution cost doesn't necessarily come back to you in a straight negotiation price. That gets absorbed in the overall structure of all the airlines, and if that reduces the cost, then in other terms, the rates may not be increased as much to compensate for inflation or increased fuel costs. It's part of the big package. You cannot look at it as just an individual little thing.

Legault: The concept is absolutely fantastic, but it sort of burns me a little bit when they say it's good for the customer. In Canada, it forces me to do two BSP reports. Then what have airlines done about nonuse of the e-ticket? We talk about the agency systems, or Sabre comes up with a new package to trail and track and so forth. That's not a benefit for me, because I have to pay for that tracing and all of that. And the damn thing doesn't even interline!

BTN: An overall question is have e-tickets been beneficial to the customer?

McKay: Overall, I would say yes. But to take what Alain was saying a little bit further, I had a situation where a traveler had an e-ticket, and because the airline overbooked the flight, they took all the people who had paper tickets and boarded them first. And those that had e-tickets got boarded second. And this gentleman is even in one of their premier frequent flyer programs. So he should have had even more ability to get on the plane first.

Nevill: One positive spin on it, I know one company that happens to be a CTD and it used e-ticketing to help consolidate the travel process. They had agents in the U.S., and also agents in the U.K. What they did was use the e-mail system to request tickets, and then do e-ticketing so you consolidate it into one. So in a way it benefits the company not just the airline.

BTN: Do you foresee the airlines opening up their negotiations in some of the dominant areas?

McKay: Here in Washington, D.C., we're sort of lucky because we've got the three airports that are within a decent drive of each other, so depending on how much you want to save, you've got pretty good coverage. I'm talking specifically of markets like Detroit, down in Texas, St. Louis. I've got an office in St. Louis, and I don't have to tell you which airline I'm stuck using. There's not really much I can do for my poor folks in St. Louis.

Morse: We have a dominant airline in Houston, and the other carriers were coming in and making deals I never thought they would have made years ago. I mean advanced purchase waivers, Saturday stays, etc.

BTN: Has there been more waiving of Saturday night stays?

Morse: Yes, I just have one agreement and it's not anything written. There's probably a chance it will go away, because we're using it quite a bit. That's something that would be useful in a written contract, something about waving nonrefundable penalties allowing name changes. A lot of carriers will let us do it, but it's such a hassle. You have to send an e-mail to this person or send a fax to that person.

Legault: We negotiated waivers with the airlines. It's nothing large-scale, but they give us a certain amount of waivers and we use them for whatever. Every second month we discuss with airline representatives how we use them. I don't want to abuse the situation and they don't want us to abuse it, but they want it to be a tool to work better together. We'll do that mostly for groups, like when we have meetings in an area that has a low-cost carrier, we might look at the fares and say to our partner, "Oh, you've got a Q fare or you've got a Saturday night stay fare that's pretty close to the low-cost carrier. Will you waive the restriction?" In some cases they will. And when they won't, that's fine, they've got the first pick.

Stumpf: In terms of whether the market's loosening, the marketplace in Asia has become tremendously open and competitive. The new U.S.-Japanese bilateral opened a floodgate. Combined with the Asian economic flu, you have a very competitive environment.

BTN: How do you cut costs?

Legault: We started saying it's okay for people to go to a destination on Saturday, and we'll pay for the extra hotel. We also do a little bit of back-to-back ticketing, depending where it fits.

BTN: Do you get flack from the airlines on back-to-back ticketing?

Legault: Yeah, back-to-back ticketing is quite an issue. But it's the airlines that brought it on. In fact, it's the airlines that showed us how to do it, so back-to-back ticketing to me is just taking advantage of what the airlines give us for tools. I mean it's not like 50 percent of our travel patterns are back-to-back. A couple of travelers always go from A to B constantly every week and it fits well.

McKay: I just received a contract where it talks about back-to-backs in hidden cities and how they can pull the contract if we're caught doing that. It's the first time I've seen that in a contract.

Legault: I've heard about it, but like anything else I think it's fair game, up to a point, if it's well applied.

Morse: We and the rest of the oil industry had a very rough fourth quarter, so senior management told us to cut travel down. But we're back up where we were before. I do a lot of pre and post reports and analyze the information. I have Vantage Point onsite so I can analyze the info and proactively look at the contracts we have. There's no point in doing a contract when nobody going's to use it, and at this point senior management's not mandating it.

Nevill: I've seen a lot of clients scramble to put in pre-trip authorization systems. Some are using really sophisticated software, others are doing it more manually. We have one client that doesn't have a really strong travel policy, but they use pre-trip data that's sent out to each department head. If they see a trip that's unnecessary, they can take it up with their employees. Another client, at the opposite extreme, has an automated system and every single trip has to have an authorization code from a manager. For exceptions to policy, a separate code goes in the record as well. A lot of companies, especially New York financial institutions, found in the fourth quarter that pre-trip authorization is a dramatic way to quickly reduce the travel spend. They've backed off of it since.

Legault: We found that the squabble around pre-authorization and stuff like that never works, never did, and I hope never will. It's just a pain in the butt.

BTN: Are companies coming through on their end of airline deals?

Stumpf: I would say about 75 to 80 percent of companies do reach their goal, and I think that's been increasing up and down over the past few years, still stemming from the value pricing days. I think these agreements change to take advantage of what the marketplace can bear, both from the supplier's and buyer's sides. If there are reasons why it's not working or why it's overachieving or underachieving goals, those goals are quite often readjusted.

Nevill: I think some airlines are getting smarter at setting goals because they have better information these days. Some airlines may set goals that are unrealistic and some may be setting them very realistically and saying just that we're going to hold you exactly to those goals. Formal discount agreements have been going on about 10 years now, and so airlines know the telltale signs of companies that don't have strong policies with teeth, and the days of doing agreements with five or six airlines are over.

Stumpf: Just a few months ago we initiated a new system we're calling QuickStart, in which we will analyze new corporate programs over a shorter-term period to determine if they should be treated as long-term programs. It gives us the opportunity to go out there and say we want to work with a customer, even if they may not have all the data we need to put in a formalized program. Because that data's not there, it is a gamble by both the airline and buyer. But a lot of companies don't have the resources for the data. And why should we lose a potentially good relationship with the company that's willing to work with us just because they don't have it? Maybe their agency can't provide them with everything we need or it may not be within the client's cost structure to pay for data at this point.

BTN: How long are the contracts and how big are the companies?

Stumpf: It's a short term. It could be three to six months, one or two quarters. There's not necessarily a volume level set up front. It's a program that allows us to get in a relationship and at the end of the trial period, evaluate where the goals need to be for going forward.

BTN: British Airways recently told us they have extranet links to about a dozen of their clients.

Legault: Extranets for information are good but the next step is direct booking and you save all of those CRS fees.

BTN: Yes, but then you lose data.

Legault: Not necessarily. We're not there yet, so certainly it's not Utopia as far as I'm concerned, but we have to find ways to get away from front-end and back-end data. If you've got automated expense reporting, you can get that data and now you've got your data and a reduced fee. So that can be an advantage in your negotiations, in saying, "Well, hey, you're not paying $3, $2, or $0.50 a transaction, so let's share. You take $1.50 or $1.25 and I'll keep $1.25, but let's reduce some of these things."

McKay: We'll look at that probably down the road. Right now with our intranet, we have just the general links to the general Web sites. I call it modified online booking, where our folks can go in and take a look and say, "Okay, I want this flight, this car, this hotel," and then from there it goes to the agent. They don't really book it, the agency still makes sure they're within policy.

Nevill: We sit on the network of two of our major clients, which is a unique arrangement. It works great though, because a lot of the communication is through the intranet system. All the itineraries are done through the e-mail system and we have our ITN self-booking system, which also goes back to the agents for quality control.

BTN: Are we still waiting for alliances to come to travel managers with deals?

Morse: I haven't seen any benefit from the alliances at all. I'm sure it's great with frequent flyer points and reciprocity of travel clubs, but as far as negotiating contracts, nobody's come to me.

Legault: I haven't seen any deals. A little bit, you know, if you deal with Canadian they'll come up with American Airlines fares and stuff like that. I think it will be a year or two. The airlines marketed it, and now all of the sudden they're stuck with a problem--when they go and see their customers, they can't deliver the product. Even their back office systems are not aligned in some cases. So I think there's still a lot of work to be done to benefit the customer.

Stumpf: There are benefits to the traveler, in the miles and in the lounges. But some of the benefits don't come to mind as quickly. For example, schedules can be tightened. That's the importance of that luggage agreement. You used to fly to Europe, and then you'd have to sit four to five hours before the next connecting flight down to somewhere in Africa. But due to alliances, that connection may have been cut down to an hour or 90 minutes. That is a very strong benefit of the alliances.

Legault: Yes, there's been some synergy as far as some of the scheduling, I would agree with you. But now I have less people to negotiate with in some cases. Now I can't negotiate with five players, I have to negotiate just with one and that's not a negotiation in my book.

BTN: Dan, do you have clients with alliance contracts?

Nevill: No, we don't. One client has experienced such confusion with going to the right gates and that sort of stuff that they actually put out a policy saying they can't book on codeshares.

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