Business And The Airlines Play Let's Make A DealMichael Oneal
Pity the poor business traveler who pays full fare for an airline ticket these days. The prices, up 15% since last August, can be shocking. Battered on all sides, airlines are trying to spur traffic with heavily restricted discount tickets. But if you have to fly tomorrow, forget about a discount seat.
Forget it, that is, unless your company has joined a growing number that have cut secret discount deals with the airlines. Most carriers are loath to talk about it. Even the most affable corporate travel managers clam up when the subject is raised. But travel agents, consultants, and former airline executives all say that corporate discounting is flourishing.
Caught between rising costs and slow traffic, airlines are hiking prices of unrestricted coach seats. Nevertheless, they're also cutting deals with companies on those same tickets to lock in their business. Travel agents say a record $2 billion in fourth-quarter losses didn't slow down the dealmaking. Douglas C. Birdsall, president of Travelmation Corp., explains that rising fares have "provided a higher base under which discounting can be done."
SHADOWY. Discounts spell relief to corporate travel managers. A recent survey by American Express Travel Related Services Co. notes that the average company spent $2,121 per employee on travel in 1990, compared with $900 in 1982. Still, getting companies to talk about their airline dealings is like chatting with the Central Intelligence Agency. "That's really none of anybody else's business," says David McMurray, purchasing financial control manager for Philip Morris Cos.' Kraft General Foods Inc.'s Chicago office.
Travel managers keep quiet because carriers have been known to yank lucrative contracts if word of the deals gets out. The reason: Airlines are desperately afraid of losing control. Most fares are public knowledge as soon as they enter computerized reservations systems. Not so in the shadowy world of corporate discounts. Airlines use the deals to boost market share along certain routes. They can't afford to bid against rivals or to meet demands by other companies for equal treatment. Such pressures would strip away the advantages in a hurry.
Airlines will admit cutting deals for what are known as "meeting fares"-- contracts that offer a lower fare for a guarantee that a certain number of employees will fly from point A to point B for a specific meeting. But the term is often just a euphemism, says Terry J. Casserly, director of consumer and agency marketing at Midway Airlines Inc. "They call them meeting fares," says Casserly. "But it's a wink and a nod and: `Do whatever you want with them.' " Midway is one of the few carriers that talk openly about the practice.
The savings from corporate deals can be substantial (table). Travel agents in various parts of the country agree that discounts range from 20% to 50% off the price of full coach. But airlines are demanding as well. Contracts are short-term--about six months--and usually only cover routes where a carrier feels it can boost market share.
A company often must guarantee that a large number of employees will fly the airline exclusively--a difficult proposition. Employees don't like to be herded. Fear of flying certain carriers, frequent-flyer programs, and basic brand loyalty are all important to passengers. Airlines have been known to accept frequent-flyer points from other programs to seal a deal. It's up to the company and its travel agency, however, to figure out how to ensure the traffic.
LEVERAGE. Who cuts deals with whom varies. Since a regional airline such as Midway benefits from even small shifts in market share, it will target both small and large companies. United Airlines Inc. and American Airlines Inc. are not as scrappy. But travel agents say both will work out deals to move big blocks of passengers in certain markets. The bottom line: "The company's gotta deliver something," says Michael B. Arrington, president of Chicago's Arrington Travel Center.
Opportunities often depend on the specific markets. In Denver, for instance, travel agents say Continental Airlines Inc. and United both discount aggressively. Each company decries the practice, and Continental says it only discounts defensively. In Atlanta, meantime, Delta Air Lines Inc. is feeling less heat since Eastern stopped flying. Last fall, a former executive notes, when Eastern Air Lines Inc. was offering the public first-class seats for 35% off regular coach price, it was also cutting deals for an additional 10% off of that.
One thing is sure: As regular fares rise, so will demand for corporate discounts. And if traffic stays sluggish, airlines will keep dealing. "Corporations are barking up the wrong tree," says John C. Pope, United vice-chairman. "Managing travel is a better way to cut costs." Counters Casserly: "I think corporate travel managers have a lot of leverage. And if they don't, they should." With prices for business travel flying high, smart companies may do best to take both executives to heart.