Simon Talling-Smith
British Airways chairman Martin Broughton recently told the U.K.'s Daily Telegraphthat antitrust immunity between BA and American Airlines "prevents the break-up" of the oneworld alliance, which the two carriers anchor. Meanwhile, the U.S. Department of Transportation in December asked the two airlines and oneworld partners Finnair, Iberia Airlines and Royal Jordanianto provide more details on the formation and effects of their proposed immunized alliance. BA executive vice president for the Americas Simon Talling-Smith in November spoke to The Transnationalabout the benefit of antitrust immunity and several other topics, including economic pressures facing both travel buyers and sellers. "Our corporate [clients] are reducing their volume of travel and that obviously affects us. Perhaps BA is a little more exposed to the banking sector than other carriers," Talling-Smith acknowledged, "but I think that is probably a short-term issue as the predominant underlying effects spread to businesses other than banking." He also noted that while BA is reducing costs wherever possible, it has "increased the focus" on frontline sales personnel working with corporate accounts in the United Kingdom and the United States. Excerpts of the conversation follow.
At this point in time, as DOT is mulling over its decision on oneworld's ATI request, what do you tell companies that seek alliance deals?
On the commercial side, a pretty extensive network of code share and frequent flyer link-ups enable us to have some kind of alliance benefit for travelers. It is pretty straightforward, and you can have more through-fares and better opportunities to earn and burn miles across the networks. At that point, without antitrust immunity, you cannot really go any farther than that because what you've got, essentially, is a number of competitors who are prepared to cooperate with each other largely outside their home markets. And we have to remember that, up until ATI approval, we are competitors, and that means we are governed by the rules of the key markets we work in regarding competition. What we absolutely cannot do is joint selling. If a corporate right now in the United States was to say, "I want a oneworld deal," really all we can do is send separate sales forces into that corporate to offer their own parts of a oneworld deal and a fairly limited toolkit of joined oneworld offers that largely exist in other, non-U.S. markets. So we might be able to offer them oneworld deals between Europe and the Pacific, for example. It is all fairly marginal. With ATI, we can do two or three very major advances. The first is, even before we get into the corporate, we can work together with the other airline partners to coordinate our schedules. And we can plan our schedules together so that we, for example, spread our frequencies out over a greater time period. There is no point to have an American and a BA aircraft leave the U.S. for the same destination at the same time, as happens right now. The second thing is that you can go in on a single visit and offer a corporate a proper alliance deal, because among the carriers you have been able to agree on how you will approach corporate pricing. That does not mean that you would offer the same pricing for both products, but it does mean you have agreed on the approach. That means you could offer a seamless, total package rather than two or three salespeople making independent offers. It is a much more coordinated approach that makes it easier for a corporate to deal with. A third thing, for the road warriors within the corporate, is that with the ATI application, we are proposing to introduce complete earn-and-burn [frequent flyer mileage] across the Atlantic between BA and AA.
Can you talk about trends in how companies are buying--given the involvement of procurement and finance--as well as the globalization of corporate travel programs and other developments?
Those are clearly well-established trends now, particularly in the U.S. and the U.K. We expect to be dealing with professional travel buyers. We expect the CFO of an organization to be incredibly interested or directly accountable for the content of the deal we do with them. An interesting thing, one that does tend to go in a pendulum movement as corporates discover what is good and what is bad in a supplier deal, is that quite quickly corporates will go through the cycle of striking very tough and prescriptive travel conditions for their employees, and then find after a few months or a year that it isn't really working. Asking employees to travel in economy across the Atlantic, arrive in London and be in any kind of state to do business straightaway is difficult. So we are starting to get into the other parts of the deal, and that's why they go back around with us to some of the more creative options in between. It is too simplistic to say that people are driving toward pure, finance-led deals. People do understand the balance between the quality of their road warrior lives and the purse strings they are trying to manage as hard as they can.
Do you see any room for direct corporate booking?
I would say it is marginal. Ultimately, that is the corporate's call. If a corporate comes to us and says, "Look, here is a bunch of traffic that we want to buy directly from you. Can we negotiate a price?" then it would be a pretty customer-unfriendly organization that says, "No, we are not going to talk to you about that." But we are not really plowing any of our energies into that particular route at the moment. We have a pretty established relationship with our travel trade partners. I don't see why we would want to rock the boat on that. It doesn't give us a huge amount of benefit, and I am not sure it gives the corporate a huge amount of benefit. The problem is that corporates want to manage their business in a holistic way, and I am not sure anybody yet has really perfected the art of purchasing travel through multiple channels and keeping track of it. There are people out there who try to do that, but it appears slightly imperfect at the moment.
On the other side, are you noticing more or fewer business travel clients using rates obtained by their travel management companies, either because the clients have less favorable directly negotiated rates or no directly negotiated rates?
That approach has tended to be smaller business or medium-size businesses that do not negotiate rates directly with us. But that is one of the things that may change in the next year. To date, it has been pretty small but as airlines compete more vigorously with each other, you are going to have to expect airlines to get the travel management companies more involved in their attempts to access that SME market, and, clearly, rate is going to be part of that. One of the conversations we have with the travel trade is, what are the tools they need to work with BA? There is clearly a sweet spot. At a certain point, your own sales force can't have the reach that a TMC network can give you. For the larger corporates, obviously there is value in the depth of the relationship. But after a while, there is an attraction to the TMCs. Absolutely.
What is the business climate in Latin America, and how are the Latin routes performing?
Latin America is fascinating. If you take the biggest of all, which is Brazil, it is one of the few markets in the world that is growing significantly. It has a real powerhouse economy that is emerging, and we have been increasing our service to Brazil in recent weeks and have seen a dramatic increase in capacity--30 percent. As you are shrinking capacity in some parts of the world, it is quite good to sink capacity back into other parts. Probably Brazil and India are the two major markets we'd be growing in. Of course, Latin America is always slightly uncertain. Argentina was probably stronger a few years ago than it is now, and you have to keep your fingers crossed on the Brazilian growth. Right now, we are pretty confident about that and are looking at a pretty steady program of growth. Obviously, those markets are more tightly controlled. Legislation is probably different than what we are used to in the U.K., the rest of Europe and the U.S. It is less open, more restricted. For example, if we considered changing our rules on baggage--which we have done a number of times recently--we are not actually able to do that in Brazil. That is already legislated. In South America, there have been quite a few changes to the national carriers. In Brazil, the quite dramatic demise of Varig and consequent growth of Tam have had quite an effect in that market. Lan is having quite a bit of success in the additional country markets it now operates in. The competitive landscape has changed. Generally, it is a positive market and it is growing, but it is more legislatively restricted. We just have to manage our way around that as best we can.