Major airlines, losing money these days faster than a jet burns fuel, have begun cutting back on the corporate discount programs they offer their business customers. But corporations are saving money anyway, by planning travel further in advance and shopping around for bargains at smaller airlines, say industry experts.
On June 29, Delta Airlines became the second major airline to stop allowing corporations to use negotiated discounts on its lowest-priced fares. Northwest Airlines had announced they would do the same thing last November. United Airlines is close to making a similar decision, according to the Business Travel Coalition, an industry watchdog group.
Corporations have historically negotiated discounts of up to 15 percent with an airline, on both full-fare tickets and deeply discounted tickets purchased weeks in advance. Kevin Mitchell, chairman of the BTC, called the elimination of corporate discounts on already-discounted tickets a fare hike. He predicted the policy changes would increase corporations’ cost of travel from 15 percent to 30 percent.
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"Ten or 15 percent off a $149 fare is not huge bucks, but if big corporations use 5,000 tickets a year, that could be significant," he said.
But post-Sept. 11, the negotiated corporate discounts are hurting the airlines more than helping. Since Sept. 11, corporate travel managers are prodding their colleagues to buy the deeply discounted fares bought well in advance of travel. Corporations are finding that even if they have to pay for a nonrefundable ticket twice on occasion, it’s still less expensive than the fully refundable fare, said Mitchell.
As a result, companies have reduced travel costs despite airfare hikes. Providence-based Textron has cut its air travel budget through enterprise-wide leveraging and negotiating, according to Al Casazza, travel manager for Textron.
Both Delta and Northwestern Airlines are preferred airlines for Textron, said Casazza. But the elimination of corporate discounts on nonrefundable fares "is not going to have a big effect on us," he said.
"The list price at many of the major airlines has increased, but we’ve been able to offset that by doing a better job of managing contracts," said Casazza. "The average cost per trip hasn’t gone up that much for us."
That trend factored into calamitous losses at the major airlines. On July 18, when they released quarterly earnings reports, the nation’s third- and fourth-largest airlines, Delta Air Lines and Northwest Airlines, blamed their huge losses largely on reduced spending by business travelers.
Delta’s second-quarter losses widened to $186 million, or $1.54 a share. Northwest Airlines’ second-quarter losses grew by 69 percent to $93 million, or $1.08 a share.
In a memo to travel managers, Delta said its top 75 corporate customers spent 35 percent less on tickets in the first quarter of 2002, compared with 2001, according to a July 1 report in the Atlanta Journal and Constitution.
"As a result of a dramatic reduction in published fares, aggressive discounting by Delta in low-end inventory is no longer practical," the memo read, according to the Journal and Constitution.
Peggy Estes, a spokeswoman for Delta, refused to comment further on the airline’s decision to end negotiated discounts on certain tickets.
"I can’t give you a comment on this action. Agreements negotiated between Delta and our customers are confidential," said Estes.
Northwest Airlines didn’t return phone calls seeking comment.
Many companies are also cutting air travel expenses by using smaller airlines more, and by using other forms of travel, according to a recent survey conducted by the Business Travel Coalition.
In its recent survey of 184 companies and large organizations that spend $2.9 billion a year on airline tickets, the BTC found that many companies plan to reduce air travel spending this year. A significant percentage say some of the cuts already made will be permanent.
At Providence-based Hasbro, "The question every travel manager is faced with is, ‘do I stick with a first-class carrier, or do I just ship my volume to a smaller airline that offers no discounts but every-day low pricing?’" said Wayne S. Charness, a Hasbro spokesman.
"In terms of the average cost per trip, there’s a clear fragmentation between top tier carriers like Delta and Northwestern and second tier carriers – your AirTran Airways and your Southwest Airlines."
Many companies are also using new technology such as videoconferencing more often in lieu of travel, and are finding other ways to travel when they do need to leave the conference room.
"In general terms our travel is down, and our travel costs are down since 9-11," said Charness at Hasbro. "Our travel is down, but that has to do with company dynamics, not necessarily the market."
Harness said that when he goes to New York City on business, he travels by train rather than plane.
"I can get much more accomplished on the train – I can use my laptop, my cell phone, get much more done – and many of my colleagues feel the same way," he said.
