British Airways in recent weeks has made fundamental changes affecting relationships with corporate clients, including restructuring European fares and ceasing to absorb credit card merchant fees on U.K. corporate net fares. BTN editors David Jonas and David Meyer this month spoke with BA worldwide sales director Dale Moss about those changes, as well as transatlantic competition, the partnership with American Airlines and overall recovery.
BTN: Aside from American Express, has there been any pushback from other credit card companies against BA's decision to no longer absorb merchant fees on corporate net fares in the United Kingdom?
Dale Moss: There have been no others pushing back, only American Express. Corporate nets are the driver for carrier selection. The pricing has been negotiated down to such a point that we have to be as transparent as we can be and allocate cost and price as best we know how. As we have done that, we said, "Here is the price for the ticket." If, in fact, there are other things the client wants to do—collect data, use a credit card, etc.—they can, but they cannot do it with that price. It gives them and us the chance to separate the cost structures and evaluate where the value is coming from. For the past 30 years or so, we have been the guarantor of paying for how travel management data is assembled. That data does not come to us. It goes to the client, although we pay for it. At some point in time, especially at a time like this when very few airlines are on the positive side of the profit equation, you have to stand up and say, "This is not going to continue to work." We have already arranged something with the corporate net. If the company would like to have this payment mechanism in there, they certainly can. But here is the cost and they have to evaluate if the cost is worth the gain.
BTN: What is the current status with American Express?
Moss: They have said we are in breach of the merchant card agreement. We do not believe we are and are trying to get a legal resolution. As to where we go from there after a conclusion has been drawn by the authorities, I do not want to speculate. I have seen on some occasions in the past where American Express has said card and travel are separate entities, but recently I have seen some indication that they have said they are inexorably linked.
BTN: BA has said all along that the policy will not have exceptions, yet we have heard that some corporate clients can negotiate on this point. Can you clear up that disparity?
Moss: Our policy is one we have not moved on.
BTN: Tell us about the new fare structure in Europe, in terms of rationale and timing.
Moss: It's a changing marketplace with a cumulative impact of four or five years of no-frills carriers. Put that next to a deteriorating economic market and you get corporations that, when traveling short haul, are going to be making some different kinds of decisions. Our pricing is reflective of that. We need to be competitive and establish our brand for what it is and what it is going to become. We are using price and inventory in a more dynamic way than we have in the past. This is the way we used to do it 20 years ago. We have since become very sophisticated in using models and econometric plans and ways in which we put different fare buckets out there. We would try to manage yields in those fare buckets. Now, we are offering a price and just controlling the inventory we have at a variety of prices. The difference between the highest price and the lowest price is not one or two levels, but much more gradual and stair-stepped. That is not what we did as recent as six months or a year ago. We have significantly improved our volume, but obviously our yields still are down. Still, the mix between the increase in volume and the yield depreciation shows a positive spread for us, albeit a small one for now. The fare package we inaugurated is to 50 destinations out of London. We will continue to trial and test how effective they are for customers and how it works for our company, but it is an evolving board game. It is not only the moves we make, but also the moves that are happening inside the economy and the moves of our competitors.
BTN: What has been the response from corporate clients?
Moss: Our share remains very strong and the response we have received from corporate clients on this one has been very healthy and very good. They have appreciated it and seen essentially a reduction in fares. I am encouraged by what I have seen so far, but I will be happier when the market gets a little healthier.
BTN: How likely is it that the kind of pricing model you have been using in Europe will come across the Atlantic?
Moss: The domestic market in the United States is an entirely different beast than the short-haul market in the United Kingdom. Where they go in the future, I am not exactly sure, but customers have been saying universally that they want greater simplicity and greater transparency in the way things are priced. They want to understand what their choices are and have a more forthright relationship with service providers. The actions we have taken in the United Kingdom are actions we believe have addressed some of those issues. Maybe not all of them, but a good number.
BTN: In general, are corporate clients asking for things they had not asked for in the past?
Moss: There is an expression: The more things change, the more they stay the same. It is much more of a buyer's market now than it was two or three years ago. Clients have become demanding, although not just recently, and they have become very sophisticated, with strong travel management plans, good relations with their travel agency, quality data and how they use it, strong travel policies and high compliance. Those things help corporate clients to articulate their demands and also put significant substance behind the power of how they can move marketshare now. There are a lot of very informed travel managers out there who have great focus and, in these tough economic times, have put discipline into their travel policies.
BTN: Regarding distribution savings opportunities, do you have any specific ideas about lowering GDS costs that are plaguing all the airlines?
Moss: There is just a limited number of those guys. What caught me off guard was that a month or so after Sept. 11, they all raised their segment fees, which I thought was unconscionable. What GDSs have done to fund their own growth over time has been pretty poor. With the low-fare trackers and everything else that is in there, you are getting a lot of polling costs. All that is doing is dramatically raising our cost of distribution. Because of the pressure customers have put on us to reduce price, somewhere along the line the equation has to balance. The GDSs is an area that needs a lot of attention. Their price structure is out of line with the value they provide. In their own way, they will force airlines to use more Internet applications for their inventory, price and schedule, and, in many ways, bring on more difficulty than they would ever imagine.
BTN: Switching gears, what are your thoughts on transatlantic competition, as well as your efforts with corporate clients in that market?
Moss: The transatlantic market is a very good market for us, although right now does not happen to be a very good time. The medium- and long-term outlook for that market still is fantastic. Our sales teams in the United States and United Kingdom work virtually as one, so there is no parochialism, which existed five or six years ago. Years ago, people were talking about global deals, and we can do those kinds of things, but there are very few clients who can manage that short- and medium-term. What we see as most probable for awhile are transatlantic relationships that include not just the United Kingdom but the rest of Europe. The good news is that our marketshare remains reasonably strong and the strength of our product does prevail. The fact that we have the only flat bed in business class across the Atlantic and a preeminent first class does, very dramatically, position us as the leading premium product carrier across the Atlantic to Europe.
BTN: Regarding the transatlantic, we understand from American Airlines that you and they are working on further cooperation, even with the absence of antitrust immunity.
Moss: There are things we perhaps can do, two or three that I cannot even mention because they still are in the discussion phase, but we are always looking at opportunities inside the governmental provisions to provide better service, more comprehensive coverage and more customer convenience.
BTN: Overall, when will BA be back to "full strength" in terms of the network, and what are the prospects for recovery?
Moss: In terms of capacity, we are probably at full strength now, which is about 12 percent less than where we were a year ago. We have continually nipped and tucked our schedule over the past 18 months or so. I look for that to stabilize in the fall, and then I see a very slight increase, simply because we may change aircraft in one or two cities. That will probably be our strength for the 12 to 18 months following that. I was hopeful that by September or October we'd see the market perk up. While that may still happen, I do not have the same optimism as I had in February and March. All I know is that between now and Labor Day, we face difficult times.