With corporate buyers' frustration at reducing air travel costs at an all-time high and airlines mired in an unprecedented slump, companies in several communities are re-investigating alternatives to negotiated contracts.
In February, about 20 corporations in Detroit, representing an annual air spend ranging from $20 million to $300 million, met with Kevin Mitchell, Business Travel Coalition chairman, to discuss consortium buying and other options. In June, Mitchell met with a similar group of corporate travel buyers in Syracuse, N.Y.
Even though BTC's initial 1996 proposal that corporations jointly purchase air went nowhere, the consortium has 51 corporate members. And Mitchell believes it's time to approach the airlines once again. “When the airline industry reaches the bottom of the cycle, they're discounting to keep customers and market share,” he said. “But there's nothing being done about corporate pricing.”
Detroit is a ripe market for such a proposal because it is a classic “fortress hub”: Northwest Airlines accounts for more than 70 percent of total flights, resulting in significantly higher fares than at airports where there's more competition. And in a move that has further alienated corporate buyers, Northwest eliminated negotiated discounts on its lowest published fares in December, simultaneously expanding discounts on other types of fares.
In the Detroit meeting, which included Delphi Automotive Systems and DaimlerChrysler, Mitchell pitched two other low-cost options: luring a discount carrier to Detroit (once home to Pro Air, before it was closed by the FAA because of maintenance violations) by agreeing to a revenue-guarantee program and starting a group shuttle, which would provide scheduled service for corporate participants to a variety of top city pairs; and hiring an independent, third-party group-purchasing organization to start and manage the consortium purchasing.
It's too soon to tell what the outcome will be, but it seems safe to assume that the consortium purchasing concept is dead in the water.
“The airlines are concerned about the 800-pound gorilla,” says Pete Buchheit, director of travel and meeting services at Black & Decker, a Towson, Md.-based company that belongs to the coalition. “They're worried about too many people representing too many seats for lower fares.”
Indeed, Scott Gillespie, president and CEO at Travel Analytics, a Cleveland-based travel management consultancy, said that consortium buying of airfares would never work because companies' travel patterns are too dissimilar, which makes it highly unlikely that one or two airlines could meet all their needs. Also, corporate cultures and policies vary, making enforcement of the overall policy difficult.
Mitchell has proposed an alternative: an electronic marketplace in which airlines would bid on listings of tickets needed by companies for various city pairs. It could be hosted by an online travel agency, and it would enable a corporation's travel volume to be aggregated in one place, with employees free to pursue the variety of fares — Web, published, special offers — posted on the site. All that's needed for this proposal to become a reality, Mitchell says, is an investor.