<B> Zones Go Net-Net</B>
By Chris Davis
Taking the net fare concept to the group arena, some corporate travel and meeting managers are customizing the zone fare programs of the major airlines by negotiating fares that are net of commissions and overrides, either systemwide or on specific routes.
The discounts a corporation can receive by going net-net on group fares does not compare to those possible in transient travel, because zone fares already are discounted. But air travel buyers who are already in the net-net mode are finding it relatively simple to expand their approach to include their group movements.
"We have net-net deals for transient corporate travel with both of our two primary carriers in the area, so it just made sense that we should move ahead to net-net zones," said Shaun Malay, director of corporate travel for New York Life Insurance Co. of New York. "We were taking advantage of zone fares anyway for our meetings by setting up multi-meeting, year-long group contracts. We decided to take it in the net-net direction and get everything at the point of sale."
New York Life every year holds between 200 and 350 meetings, with between 10 and 200 attendees each, spending "millions and millions of dollars" on group air, Malay said. He was able to negotiate net-net zone fares systemwide first with a carrier that was not part of New York Life's corporate travel program, and then with his preferred carriers. He declined to name any of the airlines that were involved.
"I suggested the possibility of net-net zone fares to the airlines," he said. "One of them is really using it as an entrée into our account. I suggested maybe this could be a way we could start doing more business together, and three days later they had it."
Armed with that agreement, Malay requested the same from his preferred carriers, and they too responded. "I have a very good relationship with the carriers, and I think it would have gotten done in time. But I think the competition prodded them along," he said.
In the end, Malay said, "the airlines probably netted out zone fares by 7 or 8 percent." Going forward, he will "decide which is the lowest option meeting by meeting. If the zone fares are the best fare, we'll book that; if we can get a better deal with our net-net transient deal, then that's what we'll do."
While net zone fare deals aren't a totally unique idea, they remain unusual, and the domain of large and developed travel programs, said Carol Salcito, president of Stamford, Conn.-based consultancy Management Alternatives Inc.
"It's a creative approach, and it would occur in a mature travel management program," she said. "Travel managers would need a good handle on their volume and how they can direct their traffic. They would have to have a traceable history with the carriers."
Salcito said there is no set air volume that would lead a carrier to be more amenable to such a deal--and as with many airline negotiations, it often would come down to volume on particular city pairs where the carrier is trying to build market share. "It could be $1 million in one market, and $7 million in another market," she said. "It's difficult to even guess."
Some airlines acknowledged that they will consider net-net zone fare contracts, but added that they are not particularly popular and are rarely implemented system-wide. "There are some out there, but there aren't that many corporate customers that have come forward and requested this," said George Coyle, American Airlines' product manager for group and meeting travel. "I'm confused by that. I would think it would be something that was growing in popularity, but it hasn't happened."
The advanatge of all net fares, according to Coyle, is that they lend a higher degree of cost certainty to the travel planning process. "Customers can budget better because they see exactly what they're paying for their tickets, and they know the prices are set for the length of their contract period," he said. "They have better control over their numbers."
There is no threshold of meetings volume or total volume that would qualify a corporate account for net-net zone fares, because the demand hasn't been high enough for AA to consider establishing one. "If we started getting flooded with calls, we'd evaluate it," Coyle said. "We wouldn't want a client who does one meeting of 20 people a year to get a program like that because it wouldn't be cost effective for us to implement."
From the airline's perspective, Coyle said, "we do not approach corporations with that possibility, and there's a good reason for that: We don't want to alienate any distributor. If an agency is working well with a corporate client, we're happy with that scenario."
Continental Airlines also negotiates net-net zone fares on specific routes between two zones, but far less so systemwide, said director of specialty sales Tracy Sweeney. "We don't really have custom systemwide zone fares negotiated with our corporate clients out there right now because we have gone in with a pretty aggressive overall zone fare package," she said. "But we will absolutely consider it."
Far more customization can be found on specific routes between zones, she said. "If it's just a particular corridor of travel, we have done some custom fares for our corporate clients. Sometimes it even involves triple-net fares. We're open to a lot of different things."
Delta Airlines has negotiated some net deals on zone fares, confirmed spokesperson Jackie Pate, though she declined any further comment on the concept. United Airlines director of association sales Joann Bedrosian Ryan declined to comment at all on the carrier's stance.
Malay, though, thinks it's just a question of time until other meeting and travel buyers hear about net-net zone fares and approach the airlines with a plan that can clearly make sense for both sides. Once they begin to consider that such a thing is possible, he said, "I think other people will be very interested.