Wirraway
20th Jun 2003, 00:10
Thurs "Australian Financial Review"
A financial focus gives loyalty the flick
Jun 19
Ben Sandilands
Business travellers are pulling the plug on airline loyalty in a big way, but the winners aren't always low-cost carriers like Virgin Blue.
Instead, the "deal" and the travel management companies are picking up some of the loyalty that the airlines have lost.
The principal of American Express Axis Travel in Adelaide, Max Najar, says: "The real shift in loyalty has been to the 'best fare of the day'.
"This counts more for changes in the way business travellers fly than anything else, and you can forget frequent-flyer points or lounges or anything else if you want to explain what is happening in the marketplace."
Najar points out that this often doesn't mean a customer switches to Virgin Blue. Instead, it means they are learning how to pay Qantas less than they used to.
His analysis is supported by other independent business travel managers and inflamed by Virgin Blue's claim that, with more than 27 per cent of the total market, it is flying 26 per cent of trips generated by Australia's top 500 companies.
The managing director of corporate travel consultancy Travelsearch in Sydney, Carole Murphy, says: "We could be as little as six months away from the meltdown that has occurred out of the blue in Europe, with clients en masse abandoning the traditional high-fare carriers and deciding that single-class, low-fare air travel is the norm, not the exception.
"The same situation exists in the US. The passengers have staged a revolt and the old high-fare structure isn't coming back."
The chief executive of the Australasian Business Travel Association, Glenn Buckingham, says: "Virgin Blue drew a very thick line in the sand when they said that, if your travel management policy revolves around budget reduction, then all of your strategies will be driven by cost.
"This is what is happening in the business travel market. Private and public sector organisations are saying travel budget management comes first - with anything else a distant second.
"Our buyer members depend for their living on delivering cost efficiency, and loyalty to Qantas or Virgin Blue only plays a role once that requirement is being met.
"I think many of the loyalty products now in the market are having less of an impact than they did when it was a Qantas/Ansett duopoly."
At Leggett World Travel, general manager corporate, Shirley Field, says: "With Virgin Blue in the GDS [global distribution system - the electronic booking system used by travel agents] we will see a lot more exercising of choice, rather than blind loyalty by some of our clients."
Virgin Blue had said it would never go into a computer reservations system or GDS, just as it said it would never do hot meals or have club rooms. It appears never doesn't always mean never.
But Virgin Blue's global sales manager, John Marshall, discovered that some travel companies were agreeing to sell his fares with a punitive $50 surcharge because of the airline's different, yet simple, booking system.
Once Virgin Blue realised that it would not get a fair crack at some of the biggest business accounts in the country unless it put its inventory into the same platform that their travel managers used, it abruptly changed its mind - as it did with lounges and food, and will do soon with frequent-flyer programs.
The GDS decision is probably one of the biggest blows Virgin Blue has yet dealt Qantas - apart from making more money per jet than Qantas believed possible. The budget airline posted $158 million gross profit for the last 12 months, with an average of only 25.2 Boeing 737s.
Field says: "In the GDS, a travel manager can book an itinerary in Virgin Blue is less than three minutes, just like Qantas, rather than the 13 minutes it took before, and with all the back-office paperwork that corporate travel requires."
On top of that, it is now all but official that Virgin Blue will launch its frequent-flyer scheme next month, removing customer resistance to a carrier that doesn't at least purport to offer freebies to those who have to shuttle between cities.
It will give one free trip for as little as 10 paid trips - a loyalty dividend comparable to Qantas's but with fewer infuriating restrictions.
Field says: "We are seeing a shift of business to Virgin Blue on short routes like Sydney-Melbourne, but it is a different story to Perth, where our clients want more of the amenities that Qantas provides.
"To that extent, loyalties are being divided or diluted."
Field says Virgin Blue could do more to win customers, such as introducing valet parking and improving the seat pitch for those that pay its full or unconditional fares.
Her first wish is likely to be granted this year, once Virgin Blue - which has been described as "a difficult customer" by all the major Australian airports - gets its way over the terms for the valet parking service.
The seating is another story and is not likely to change soon.
The seats in economy are the same size on many Qantas aircraft as on Virgin Blue. However, Qantas complains that only 2 per cent of travellers actually pay for a domestic business-class seat and it is threatening to abolish business class on even more routes.
The roomiest economy seats in the sky are the nine (out of about 180) in Virgin Blue's "Blue Zone".
They offer more stretch room than Qantas business class, cost an extra $50 per sector, and sell in a flash.
The "savings versus loyalty" debate is also being fuelled by better customer knowledge of how fares are set.
Several weeks ago Najar had a major business client, booked business class on Qantas from Adelaide to Brisbane, who was told on check-in that the flight was all-economy.
"He had paid $1700 for the flight," Najar says.
"Qantas offered him a downgrade to economy for $1100. However, he had already been asking questions about how fare structures worked, so he asked if there were any seats available in K class [a discount category within economy class].
"The check-in guy said he couldn't possibly do that, even though two of his employees were seated on the same flight in K class at $400.
"The flight departed with empty seats and one managing director furious about how Qantas does business."
However, Najar is also highly critical of Virgin Blue.
"Out of Adelaide, too many of their flights go AWOL," he says. "I tell people that if they are going to a wedding reception or a vital meeting they have to fly Qantas because the competition doesn't have enough frequency to get them there on time if a flight gets cancelled."
He also says Virgin Blue is often more expensive than Qantas.
"There is no loyalty to airlines in situations like this, only to the [travel] manager who fixes the problems and gets the best fare.
"I do sell a lot of Virgin Blue flights to companies whose senior managers insist on flying Qantas but want to save on the costs of flying junior staff."
There is broad agreement among corporate flight retailers that greater use is made of Virgin Blue for less senior staff and that Qantas is being reserved for a few at the top.
This selective loyalty would put Qantas in a serious situation if it accelerated because the airline cannot sustain profitability by being the carrier of the elite few, rather than the mass of business travellers.
Travel management companies are still in the early stages of using the new Qantas domestic fare structure. This is effectively a carbon copy of the Virgin Blue system, which encourages users to mix and match single fares, even of different airlines, to get the best deal.
The Qantas initiative is being called "brave" by travel managers.
In theory, it means very few business travellers will need to buy one of its most costly full fares and can instead choose a cheaper conditional fare.
This involves the minor risk of having to pay a $27 fee if they need to change their plans, then buying a new ticket, while retaining the value of the missed or cancelled flight for future travel.
The pursuit of "best fare of the day" is behind the attack on Qantas Business Travel (the Qantas business travel management company) by almost every other airline selling tickets in Australia, even some of Qantas's allies.
QBT handles many of the large government and business travel accounts in the country and promises to offer best fare of the day to its clients from any carrier.
But carriers - including Singapore Airlines, United, Virgin Blue and REX (Regional Express) - are so angry about what they see as discrimination in favour of Qantas that they have refused to give many, if not all, of their best net or wholesale fares to QBT.
It is a strategy clearly aimed at making QBT's customers question the issue of loyalty, although it is impossible to determine at this stage if it is working.
Murphy says she sees "a great deal of push forward by travel managers to choose price, rather than brand, and forceful pushback by employees addicted to points and lounges".
However, loyalty to Qantas has been in retreat on international routes for years.
Murphy says it was common several years ago for Qantas to ask for written commitments to 66 to 70 per cent of international flight bookings when negotiating corporate travel discount deals.
Today she sees Qantas seeking only 50 per cent of those flights.
"There are major corporates who booked zero per cent with Emirates three years ago who routinely give the Dubai carrier 5 to 7 per cent of their business today," she says.
"One factor in that is loyalty, because Emirates is in the Singapore Airlines frequent-flyer program, which gives very useful rewards to many business trippers."
The executive director of Synergi Travel, Col Williamson, says the loyalty disconnection (whether international or domestic) is being driven by another factor which airline managements keep ignoring as they destroy product differentiation in efforts to curb costs.
"You don't really save yourself if you take too much out of your product," Williamson says.
"Our clients want reasons for continuing to ask for Qantas, or United, or whomever.
"They are disposed to be loyal, but they are also getting very peeved with some carriers, including Qantas."
Almost every manager referred to the Qantas cardboard "Enjoy" boxes - packs that contain a small bag of chips and a bottle of water.
Some thought the water was to wash the salt off their fingers, and all believe Qantas intends to continue to ignore their complaints, despite welcome improvements to transcontinental flight catering.
The managing director of the Centre for Asia-Pacific Aviation, Peter Harbison, says it has identified an emerging loyalty issue with travellers from small to medium-sized enterprises, compared with the large corporate or government accounts.
"The SME flyers are paying for their own tickets, and they are not getting the recognition or the rewards they need from the loyalty programs," he says.
==========================================
A financial focus gives loyalty the flick
Jun 19
Ben Sandilands
Business travellers are pulling the plug on airline loyalty in a big way, but the winners aren't always low-cost carriers like Virgin Blue.
Instead, the "deal" and the travel management companies are picking up some of the loyalty that the airlines have lost.
The principal of American Express Axis Travel in Adelaide, Max Najar, says: "The real shift in loyalty has been to the 'best fare of the day'.
"This counts more for changes in the way business travellers fly than anything else, and you can forget frequent-flyer points or lounges or anything else if you want to explain what is happening in the marketplace."
Najar points out that this often doesn't mean a customer switches to Virgin Blue. Instead, it means they are learning how to pay Qantas less than they used to.
His analysis is supported by other independent business travel managers and inflamed by Virgin Blue's claim that, with more than 27 per cent of the total market, it is flying 26 per cent of trips generated by Australia's top 500 companies.
The managing director of corporate travel consultancy Travelsearch in Sydney, Carole Murphy, says: "We could be as little as six months away from the meltdown that has occurred out of the blue in Europe, with clients en masse abandoning the traditional high-fare carriers and deciding that single-class, low-fare air travel is the norm, not the exception.
"The same situation exists in the US. The passengers have staged a revolt and the old high-fare structure isn't coming back."
The chief executive of the Australasian Business Travel Association, Glenn Buckingham, says: "Virgin Blue drew a very thick line in the sand when they said that, if your travel management policy revolves around budget reduction, then all of your strategies will be driven by cost.
"This is what is happening in the business travel market. Private and public sector organisations are saying travel budget management comes first - with anything else a distant second.
"Our buyer members depend for their living on delivering cost efficiency, and loyalty to Qantas or Virgin Blue only plays a role once that requirement is being met.
"I think many of the loyalty products now in the market are having less of an impact than they did when it was a Qantas/Ansett duopoly."
At Leggett World Travel, general manager corporate, Shirley Field, says: "With Virgin Blue in the GDS [global distribution system - the electronic booking system used by travel agents] we will see a lot more exercising of choice, rather than blind loyalty by some of our clients."
Virgin Blue had said it would never go into a computer reservations system or GDS, just as it said it would never do hot meals or have club rooms. It appears never doesn't always mean never.
But Virgin Blue's global sales manager, John Marshall, discovered that some travel companies were agreeing to sell his fares with a punitive $50 surcharge because of the airline's different, yet simple, booking system.
Once Virgin Blue realised that it would not get a fair crack at some of the biggest business accounts in the country unless it put its inventory into the same platform that their travel managers used, it abruptly changed its mind - as it did with lounges and food, and will do soon with frequent-flyer programs.
The GDS decision is probably one of the biggest blows Virgin Blue has yet dealt Qantas - apart from making more money per jet than Qantas believed possible. The budget airline posted $158 million gross profit for the last 12 months, with an average of only 25.2 Boeing 737s.
Field says: "In the GDS, a travel manager can book an itinerary in Virgin Blue is less than three minutes, just like Qantas, rather than the 13 minutes it took before, and with all the back-office paperwork that corporate travel requires."
On top of that, it is now all but official that Virgin Blue will launch its frequent-flyer scheme next month, removing customer resistance to a carrier that doesn't at least purport to offer freebies to those who have to shuttle between cities.
It will give one free trip for as little as 10 paid trips - a loyalty dividend comparable to Qantas's but with fewer infuriating restrictions.
Field says: "We are seeing a shift of business to Virgin Blue on short routes like Sydney-Melbourne, but it is a different story to Perth, where our clients want more of the amenities that Qantas provides.
"To that extent, loyalties are being divided or diluted."
Field says Virgin Blue could do more to win customers, such as introducing valet parking and improving the seat pitch for those that pay its full or unconditional fares.
Her first wish is likely to be granted this year, once Virgin Blue - which has been described as "a difficult customer" by all the major Australian airports - gets its way over the terms for the valet parking service.
The seating is another story and is not likely to change soon.
The seats in economy are the same size on many Qantas aircraft as on Virgin Blue. However, Qantas complains that only 2 per cent of travellers actually pay for a domestic business-class seat and it is threatening to abolish business class on even more routes.
The roomiest economy seats in the sky are the nine (out of about 180) in Virgin Blue's "Blue Zone".
They offer more stretch room than Qantas business class, cost an extra $50 per sector, and sell in a flash.
The "savings versus loyalty" debate is also being fuelled by better customer knowledge of how fares are set.
Several weeks ago Najar had a major business client, booked business class on Qantas from Adelaide to Brisbane, who was told on check-in that the flight was all-economy.
"He had paid $1700 for the flight," Najar says.
"Qantas offered him a downgrade to economy for $1100. However, he had already been asking questions about how fare structures worked, so he asked if there were any seats available in K class [a discount category within economy class].
"The check-in guy said he couldn't possibly do that, even though two of his employees were seated on the same flight in K class at $400.
"The flight departed with empty seats and one managing director furious about how Qantas does business."
However, Najar is also highly critical of Virgin Blue.
"Out of Adelaide, too many of their flights go AWOL," he says. "I tell people that if they are going to a wedding reception or a vital meeting they have to fly Qantas because the competition doesn't have enough frequency to get them there on time if a flight gets cancelled."
He also says Virgin Blue is often more expensive than Qantas.
"There is no loyalty to airlines in situations like this, only to the [travel] manager who fixes the problems and gets the best fare.
"I do sell a lot of Virgin Blue flights to companies whose senior managers insist on flying Qantas but want to save on the costs of flying junior staff."
There is broad agreement among corporate flight retailers that greater use is made of Virgin Blue for less senior staff and that Qantas is being reserved for a few at the top.
This selective loyalty would put Qantas in a serious situation if it accelerated because the airline cannot sustain profitability by being the carrier of the elite few, rather than the mass of business travellers.
Travel management companies are still in the early stages of using the new Qantas domestic fare structure. This is effectively a carbon copy of the Virgin Blue system, which encourages users to mix and match single fares, even of different airlines, to get the best deal.
The Qantas initiative is being called "brave" by travel managers.
In theory, it means very few business travellers will need to buy one of its most costly full fares and can instead choose a cheaper conditional fare.
This involves the minor risk of having to pay a $27 fee if they need to change their plans, then buying a new ticket, while retaining the value of the missed or cancelled flight for future travel.
The pursuit of "best fare of the day" is behind the attack on Qantas Business Travel (the Qantas business travel management company) by almost every other airline selling tickets in Australia, even some of Qantas's allies.
QBT handles many of the large government and business travel accounts in the country and promises to offer best fare of the day to its clients from any carrier.
But carriers - including Singapore Airlines, United, Virgin Blue and REX (Regional Express) - are so angry about what they see as discrimination in favour of Qantas that they have refused to give many, if not all, of their best net or wholesale fares to QBT.
It is a strategy clearly aimed at making QBT's customers question the issue of loyalty, although it is impossible to determine at this stage if it is working.
Murphy says she sees "a great deal of push forward by travel managers to choose price, rather than brand, and forceful pushback by employees addicted to points and lounges".
However, loyalty to Qantas has been in retreat on international routes for years.
Murphy says it was common several years ago for Qantas to ask for written commitments to 66 to 70 per cent of international flight bookings when negotiating corporate travel discount deals.
Today she sees Qantas seeking only 50 per cent of those flights.
"There are major corporates who booked zero per cent with Emirates three years ago who routinely give the Dubai carrier 5 to 7 per cent of their business today," she says.
"One factor in that is loyalty, because Emirates is in the Singapore Airlines frequent-flyer program, which gives very useful rewards to many business trippers."
The executive director of Synergi Travel, Col Williamson, says the loyalty disconnection (whether international or domestic) is being driven by another factor which airline managements keep ignoring as they destroy product differentiation in efforts to curb costs.
"You don't really save yourself if you take too much out of your product," Williamson says.
"Our clients want reasons for continuing to ask for Qantas, or United, or whomever.
"They are disposed to be loyal, but they are also getting very peeved with some carriers, including Qantas."
Almost every manager referred to the Qantas cardboard "Enjoy" boxes - packs that contain a small bag of chips and a bottle of water.
Some thought the water was to wash the salt off their fingers, and all believe Qantas intends to continue to ignore their complaints, despite welcome improvements to transcontinental flight catering.
The managing director of the Centre for Asia-Pacific Aviation, Peter Harbison, says it has identified an emerging loyalty issue with travellers from small to medium-sized enterprises, compared with the large corporate or government accounts.
"The SME flyers are paying for their own tickets, and they are not getting the recognition or the rewards they need from the loyalty programs," he says.
==========================================