Strand: SAS, Star Target Buyers

By BTN / October 31, 1999

Strand: SAS, Star Target Buyers

Scandinavian Airlines System senior vice president for marketing and sales Erik Strand spoke with BTN contributing editor Amon Cohen about plans to improve Star Alliance corporate deals and why SAS has raised commissions and overhauled agent incentives.

BTN: How is the Star Alliance faring in making deals with corporate clients? There have been complaints that it has been slow getting agreements across the whole alliance.

Erik Strand: We can't have deals across the whole alliance because only four of us have antitrust immunity: Air Canada, United Airlines, Lufthansa and SAS. The four of us have some agreements on a global basis and there are a lot more on the way. Yes, maybe you could say it has been a little bit slow, but developments are going in the right direction.

BTN: Why has it been slow and why do you think it is going to get quicker?

Strand: Both corporates and the alliance are not used to working this way. Corporates find there are problems when the travel manager in one country has to follow what the global travel manager in the head office does, and within the alliance we were not prepared at the beginning to have a lot of people working on it because everyone was focused on their local market. I think there is room for improvement on both sides.

BTN: Travel managers say they have one deal with Lufthansa and one with SAS and maybe one with United, but to tie all three of them together has been difficult.

Strand: One technical reason--and I think this has been the same problem with other alliances--is that the tracking system you need to do deals hasn't been in place.

BTN: Are they in place now?

Strand: We are very close to that.

BTN: How close?

Strand: At the beginning of next year the four of us with antitrust immunity will have a common tracking system.

BTN: How has the North Atlantic market been this year and what will happen to it next year?

Strand: The North Atlantic market has continued to grow at the same rate as last year. However, there has been more competition, so prices are going down. There is a price war. Historically, these come and go, but the only thing I can say for sure is that supply will grow faster than demand.

BTN: You are announcing a new program for corporate clients. What are the details?

Strand: We are finding that corporations want to see the real price up front instead of a bonus afterwards, so we are developing a system that will let us do that. We will conduct some tests together with travel agencies during the next couple of months.

BTN: You currently offer travel agents within Scandinavia the lowest commission rates in the world--4 percent plus a cap. Now you have decided to put commissions up again. Why?

Strand: We brought in two commission cuts, the first in January 1997 and the second in 1999. When we did it, we thought that the trade was going in this direction. We now know that the trade has not gone this way in all markets. British Airways, for instance, has raised its commission in the U.K. to seven plus an extra three for fulfilling various administrative functions.

At the same time, the European Commission has started interpreting competition laws in a different way and came out in July with a set of principles following a complaint by Virgin against BA (BTN, Sept. 6). It means you can no longer have volume bonuses based on last year's sales. We also noticed that the system we have today has been a little bit difficult to explain to travel agencies. So we will have a new system that is much simpler, with commission based on the same level for all agencies.

We will raise commissions on international and European flights to 7 percent but keep it at 4 percent on intra-Scandinavian flights. We also will be taking away the cap but keeping the floor--a minimum commission payment for very cheap tickets. And we will define an activity plan based on the needs of the individual travel agency. For some, it may be that they will need help with their IT and distribution if they are to sell more of our tickets. For others, it may be better to have programs for the leisure markets. These discussions will continue during the last two months of the year and the new system will start Jan. 1, 2000.

We also will continue to develop specific city-pair bonuses and those will be available to everybody. In addition, we are developing more products that will save distribution costs for everyone and again there will be special bonuses for using these that will be open to all agencies.

BTN: How much can all this potentially add up to on top of the 7 percent?

Strand: We haven't said anything about that.

BTN: Some people would suggest that the main reason you are raising commissions is because you have been losing market share over the past year.

Strand: We are losing some market share but mainly for other reasons than our relations with travel agencies. One of those reasons is that other airlines have raised their capacity more than we have.

BTN: Earlier this month, U.S. airlines cut commissions, yet you are bringing them back up again. How can you explain this difference?

Strand: Completely different markets. We are getting close to having a standard rate of 7 percent in Europe, so SAS is coming closer to that. The reaction could be that we are raising commission but in fact what we are doing is lowering our prices to our customers.

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