Norwegians Would Leverage

<B> Norwegians Would Leverage</B>

By Amon Cohen

Norway's four largest travel spenders are forming a purchasing alliance to leverage better prices from suppliers in 15 key destinations. They also are working on a common corporate smart card for employees that will act as a payment card, an electronic ticket and an identification card.

The four companies--Kvaerner, Norsk Hydro, Statoil and Telnor--have a combined annual air spend of US$194 million (NKr1.5 billion).

The Customer Alliance, as it is provisionally named, will put each of its top 15 destinations out to tender as a route deal. Hotels and car hire companies at each destination will tender to win that city's business in a similar fashion. All four companies share more or less the same top destinations, which include Frankfurt, London, Milan, New York and Paris.

A formal memorandum of understanding was signed in October, following six months of initial discussion. It already is clear that a card will play a major role in the strategy, although the supplier has not yet been chosen. "All employees in the four companies will have one common card and it will carry all our logos," said Tor-Geir Engebretsen, vice president of human relations for Norsk Hydro and chairman of the alliance steering committee. "We have all been at the forefront when it comes to new technology, such as ticketless travel."

Many observers believe the Customer Alliance particularly is aimed at countering the power of dominant Scandinavian carrier Scandinavian Airlines System, which has become even more formidable in its local market since joining the Star Alliance. Corporations throughout Scandinavia have been looking for ways to gain more leverage with SAS, which has lost market share in recent months as clients shift their business to other airlines (<I>BTN</I>, Oct. 25).

"We think increased volume will give us increased bargaining power," Engebretsen said. "Something we have discussed is how we should meet the formation of alliances by suppliers, and we decided we would be stronger by working together. We have all had relationships with SAS for a long time, but the challenge for us has been how to deal with it going into an alliance with airlines that do not know us so well."

Annika Ortmark, senior partner of Ortmark & Consultants--Swedish member of the Management Solutions International Group--described the Customer Alliance as "a very big threat to SAS," but the airline's senior vice president for sales and marketing, Erik Strand, said he is happy to talk.

"We will have to start discussions with them," said Strand. "We don't have any fixed ideas about whether customers should treat us one by one or as a purchasing group. It is up to them, as long as we can develop a model for working."

Engebretsen said suppliers, "so far seem a little afraid but they are also interested in starting a dialogue."

Competition authorities could take a dim view of four powerful companies joining forces, but Engebretsen said the legality of the enterprise has been thoroughly checked. "According to Norwegian legislation, a customer can always talk to another customer," he said.

Even so, there is concern that others may suffer as a result. "Will competition authorities block this because if the alliance gets lower fares, someone else might have to pay?" asked Bjorn Ostbye, director of Nordic account management for Bennett BTI Nordic. "It would mean that the difference between large and small clients would get even bigger." Ostbye said the alliance will be able to influence not only price, but even aircraft type and schedules, and that it will trigger the formation of more purchasing consortia in Scandinavia.

Norway's Customer Alliance may remind some of the abortive Business Travel Contractors Corp., in which several major U.S. buyers attempted to pool spending power. Engebretsen said the Customer Alliance has a better chance because of greater homogeneity. "We are four companies who know each other well and share a basic philosophy of how to deal with suppliers, technology and ways of traveling," he said.

News of the alliance met with approval from Danish Travel Pool, a smaller buying consortium in Denmark. "We should have more like this," said DTP managing director Soren Schodt.

"It gets suppliers to think differently and when they do that, you can have better deals," he said. "You can also get more understanding of pricing and more professional agreements.