<B> Net Deals Gain Momentum</B>
<I>SAS Plots Net Fare innovation</I>
By Amon Cohen and Jay Campbell
SAS is planning a revolutionary net fare system for top corporate clients, a senior executive from the airline told Business Travel News last week.
Under a proposal being studied internally, the Swedish carrier would issue an airline membership card to travelers at client corporations, which they would then use to access the agreed net fares.
Under the program, reservations would have to be made through Resaid, the SAS proprietary booking system, and a single invoice for all flights made by all employees would be sent to the client at the end of each month.
The SAS program is designed, in part, to make nets more attractive to prospective clients. "This will enable us to offer very good rates," said the SAS source, who added that the airline would consider stripping frequent-flyer awards out of the deals to bring prices down even further.
Meanwhile, Vince Caminiti, senior vice president of sales and international for Delta Air Lines, said his carrier is "relentless" when it comes to net deals.
"There's been an incremental increase in net deals since last year, though our total number of net deals is still under 200," Caminiti said. "We're seeing more of our competitors getting aggressive, but it's the corporate travel managers who really have to drive the deal."
"Delta is probably more aggressive than the other airlines," agreed Andrew McGraw, vice president of sales and marketing for Travel One in Mt. Laurel, N.J. "They will look at it with you and see if the match works, even if you are talking about smaller volumes."
Gary Swanson, director and general sales manager for Delta, explained the carrier's theory: "Nets are a tactic within the partnership to drive more compliance. I'll do the math on a multi-year basis, if you can get the buy-in and want to pick your partnership and invest in it."
According to Dave Hilfman, vice president of national sales for Continental Airlines, that carrier has between 20 and 40 net deals on specific routes--and demand for net deals is increasing.
Industry experts at BTN's Corporate Travel World trade show in New York this month said there now appear to be between three and four hundred net fare deals between U.S. corporate buyers and airlines.
But three years after a significant number of large corporate buyers began negotiating arrangements net of commissions (BTN, Jan. 16, 1995), there still remains some hesitation because, depending on dozens of factors about an individual company's air travel program, nets are not always beneficial to the company.
"They look good on the surface, but you really have to look at the numbers," Travel One's McGraw said. He sums it up this way: "Actual mileage may vary."
John Heilner, a consultant with Stamford, Conn.-based Management Alternatives, said, "Quite a few of our clients have three or four apiece. I suspect that you're now talking about hundreds of net deals at this point. Frankly, in two or three years, that will be the way it's done."
McGraw balked at that notion, pointing out that in the current seller's market, carriers don't necessarily have an incentive to change things too much. Nor are the airlines willing to pass all their commission cut savings back to the customer. While some companies have managed to recover their commission losses by negotiating equivalent net arrangements, others have been compelled to sacrifice a point or two in order to hedge against the next drop in commissions.
Swanson said that a number of Delta's agreements not only net out commissions, but overrides as well--in so-called "net-net" deals.
Heilner predicted that as travel managers continue to gain control over their travelers, the desire to net out overrides will grow. "If you're carrying the weight of a travel agency's market share on a given carrier, you deserve an equivalent share of the override. I think we'll begin to see a lot of clients realizing they're only getting 'X' override because they're averaged in with the agency's other clients. Eventually, overrides will go back to the market for which they were originally intended, that is, leisure and small business."
McGraw was quick to note that travel management companies have more control of market share than the "jillions" of smaller buyers out there.
Taking things to the next level, CRS and credit card fees are also on the negotiating table in some triple or even quad net situations.
"We've seen very few triple nets, because the advantage of taking out CRS or credit card fees is much smaller than for commissions and overrides," said Heilner. "But a lot of people are working on the CRS part. My suspicion is that two years from now, we'll see a lot more of it, especially in non-hub cities where four-segment trips are costing the airlines a CRS fee of $3.50 times four legs."
For international travel, things get a bit more complicated, but there have been some net fare arrangements with multinational companies as well--particularly with those dealing with global airline alliances. But Heilner warned U.S. buyers that the level of discount can be different in different countries.
Kyle Davis, American Express' director of purchasing for Europe, said each airline has its own system of distributing net fares and may even vary its approach from country to country within Europe. "We could lose MIS as a result in some countries," said Davis. "Also, in some countries, the processing of net fares is much more complicated than for published fares--and that usually means more expense for the client. But the big one that turns many clients away is that net fares are restricted to one airline. If travelers cannot interline, that can put purchasing managers in a bad light with their companies."
Last year, SAS cut its commission payments within Scandinavia from 9 percent to 5, and piloted net fare arrangements with some large clients in Norway. It also promised to announce sometime in the next few months proposals for a complete overhaul of its distribution system.
Lego group travel manager Else Marie Madsen, based in Billund, Denmark, gave a qualified welcome to the news of SAS's latest proposals, especially if frequent-flyer points also are taken out of the pot.
"We have just renegotiated with SAS but it was still not prepared to give us net fares," she said. "This is what we badly want, but we do not want to book through the SAS system. If every airline made us do that, we would have to spend all our time switching between systems. However, if prices go down because of the savings to be made through SAS's IT, maybe we would accept that."
Removing frequent-flyer points may not be as attractive an idea as it initially sounds either. "It's the airlines you haven't done deals with that you don't want to be giving your travelers points," Davis said. "This would not encourage appropriate behaviour because it would make the preferred carrier less beneficial personally for the traveler than its competitors.