Executive Travel : Companies Lobby for Discounts, Not Mileage
A consortium of Fortune 500 companies, tired of paying premium air fares for business travel, plans to ask the federal government this month for clearance of a plan that could give corporations steep discounts for travel in lieu of receiving frequent-flier miles.
Under the current ticketing system, corporate travelers frequently cannot take advantage of discount fares offered to leisure travelers, so they pay the highest ticket prices. At the same time, however, the employee who travels, not the corporation itself, gets the frequent-flier miles.
This in effect means that the company pays for a benefit it doesn’t get, said Kevin Mitchell, founder and president of Business Travel Contractors Corp., a 17-company consortium based in King of Prussia, Pa., which announced its formation last month.
Business Travel Contractors wants to set up a system that gives participating members special corporate rates from airlines instead of frequent-flier miles. The consortium would set the rates, and the airlines could accept or reject them. The proposed rates, called business contract fares, would be based on mileage and would be the same for all carriers.
The idea behind banding together as purchasers is that airlines would not want to lose the volume of business represented by consortium members. Mitchell expects the consortium to represent $2 billion to $4 billion annually in air travel dollars.
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The consortium already includes such industry giants as General Motors, Chrysler, Merck, Black & Decker, Bell Atlantic and Whirlpool, each of which has contributed research and development seed money to prepare the proposal.
Although it is the consumer, not the supplier, fixing the price in this case, the group is taking the precautionary step of running its plan by the antitrust division of the Justice Department this month before taking it to the airlines.
For their part, the airlines are officially remaining quiet on the issue until the Justice Department has reviewed the proposal, which could take three to six months. However, several airline representatives, who asked not to be named, expressed doubts that the effort will fly.
“If they’re talking about (getting rid of) frequent-flier miles, then we would not be interested,†one said. “We view the frequent-flier program as the cornerstone of our marketing program.â€
In fact, when IBM reportedly approached United Airlines and American Airlines earlier this year about a similar proposal for a corporate discount without frequent-flier miles, it was turned down.
“Frequent-flier programs are a billion-dollar business,†said Ken Heldt, president of RAN Decisions, a Colorado Springs, Colo.-based firm that helps companies set up programs to reclaim their employees’ frequent-flier miles for use in future business travel. “They’ve become a new way of advertising for the airlines.â€
On the other hand, pressure from companies to get reduced fares is mounting. Companies have only two choices in reducing air travel costs, Heldt said. “There aren’t any other ways to save money other than getting a discount or using (frequent-flier) awards,†he said.
Under the Business Travel Contract plan, member corporations would purchase tickets from contract airlines at a “net†price that would exclude the cost of including frequent-flier miles, travel agency commissions and other marketing costs the public pays for in the ticket price. Member companies would pay their travel agencies a fee for each ticket so the airlines would not have to pay the agencies commissions.
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Companies could save up to 20% of their travel costs under the plan, Mitchell estimated.
The group, which has not yet disclosed specific fare proposals, has run its own analysis of airline ticket costs to determine what it believes would be a fair net price for its corporate customers, said Mitchell, former vice president of conference and travel management for Cigna Cos.
The proposal has drawn criticism from some travel industry groups. The American Society of Travel Agents, for one, plans to fight it.
“ASTA is inalterably opposed to any plan that would alter the agent-travel supplier-consumer relationship that has served the traveling public so well,†the Washington-based group said in a statement last month when Business Travel Contractors announced its plans.
“We see no advantage in putting a middle man or a corporation in the airline business,†said Jeanne Epping, senior vice president of ASTA and an agent with Santa Cruz Travel in Santa Cruz. “We don’t think it would reduce costs per se.â€
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ASTA particularly objects to changing the way tickets are issued, Epping said. The plan would eliminate airline commissions, which are worth 10% or more of the ticket price. Instead, companies purchasing the tickets would pay the agents a fee for their services. The amount of the fee has not been decided yet.
In addition, ASTA doesn’t believe buyers should dictate the price of a seller’s services, Epping said. “We will oppose this concept with the carriers, the participating corporations and the Department of Justice if necessary,†she said.
However, the group said it is working to get airlines to address many of the same issues as those brought up by the Business Travel Contractors.
It’s true that frequent-flier programs have resulted in higher fares for the business traveler, Epping said. “We have asked airlines to review†their frequent-flier policies.
ASTA has also advocated a simpler fare structure with fewer fare changes.
The National Business Travel Assn., an Arlington, Va.-based trade group representing corporate travel planners, is withholding judgment while it studies the proposal.
“The Business Travel Contractors Corp. approach is another adaptation of volume purchasing,†NBTA President E.J. Hewitt said, adding that it calls for “new methods in marketing airline tickets, new procedures in travel management and a new relationship with travel agents.â€
“Yet questions regarding antitrust, airline acceptance of the program, actual savings to firms and how this proposal would impact the way in which business travel is presently managed all need to be answered before travel managers could consider implementing this proposal,†Hewitt said.
Creative Ticketing
Business travelers often fly midweek and cannot qualify for lower air fares. This inspires the cost-conscious to “bend the rules†to get discounts. Three common techniques:
* Back-to-back: This works when (for a midweek trip) it is cheaper to buy two round-trip tickets that require a Saturday night stay than to use one unrestricted fare. Travelers simply use the outbound portion of each ticket, never using the returns.
* Nesting: This works when a business traveler needs to routinely take midweek trips. A series of round-trip tickets can be bought, each including a Saturday night stay, that alternately begin in the destination or originating city. A ticket might be bought leaving Los Angeles on a Tuesday morning, returning the following Tuesday night. At the same time, another round trip can be bought leaving San Francisco on Tuesday night, returning the following Tuesday morning. Mixing the tickets creates a round trip each Tuesday.
* Hidden city: Sometimes a lower fare will exist to a destination that connects through a higher-priced hub city. To take advantage of lower fares when you want to travel to a hub, book your flight to the least expensive “hidden city†(beyond the hub) and get off at the hub. Warning: Checked luggage will go to the ticketed destination.
Sources: “202 Tips Even the Best Business Travelers May Not Know,†by Christopher J. McGinnis (Irwin Professional Publishing); Los Angeles Times.
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