ANALYSIS: April 6 2009

There was a lot of anger last week from buyers on both sides of the Atlantic directed at airlines.

In America, the annoyance was over the extra costs airlines are adding to flights, like charges for baggage and checking-in at the airport. In Europe, it was specifically aimed at Lufthansa for its controversial and much disliked Preferred Fares Programme (PFP).

Both have something fundamental in common, the extra costs involved in both actions are landing on the buyers' desks. One is a clear case of airlines putting up their prices; the other one of a carrier shifting its costs.

The disquiet in America was forcefully aired at the National Business Travel Association's (NBTANational Business Travel Association: NBTA was renamed in February 2011 to the GBTA (Global Business Travel Association). It provides its members (business travel management professionals) with education and information) Business Travel Financial Forum in New York. The audience of 150 buyers had already been treated to a glum look at the US and world economy from Ken McGill, executive vp and managing director of Global Insights.

Things were bad and GDP was dropping around the globe. But he did offer a hope that the US economy - though not Western Europe's - might start to recover next year.

With the economy is a poor state, the presentation on aviation was also predictably downbeat. Since the crisis began, America has "parked" 580 aircraft in the desert - the equivalent of taking a major legacy carrier out of business.

Capacity and demand were both down so, therefore, was revenue. Costs were increasing and the price of oil uncertain. Such desperate conditions made it imperative for airlines to find other streams of revenue.

Carriers like Delta Air Lines were already focusing more on finding and milking these new streams than in simply cutting capacity. American Airlines is also drawing in something like $60m a year from its new found streams.

But the problem for buyers is that some if not most of the extra charges are not being captured.  Delegate after delegate from the floor in New York complained about the difficulties of finding out just what had been spent on what services and by whom. 

IT company Farelogix has since announced that it is working with US carriers to create a data warehouse for ancillary spend which will enable airlines them to supply customers  with details of their extra spend.

But the replies at the Forum in New York were not encouraging. Jim Compton,  executive vp of marketing for Continental Airlines, described ancillary charges as a "work in progress" - a phrase he used several times which gave the impression the charges had been levied before being  fully thought through. A sign of desperation perhaps.

Continental, Mr Compton said, had also been working with the Airline Tariff Publishing Company to make reporting of ancillary and unbundled services easier. Clearly the buyers did not find that this was enough.

By Friday, the scene had switched to Cologne, where Germany's association for travel managers, the  VDR, was holding its spring conference. As a part of the three day event, the Business Travel Coalition (BTCBusiness Travel Coalition: Founded in 1994, the mission of Business Travel Coalition is to bring transparency to industry and government policies and practices so that customers can influence issues of strategic importance to their organizations (source: www.businesstravelcoalition.com).) had organised a customer hearing at which Lufthansa would explain its PFP.

The event was somewhat marred by Lufthansa's decision not to attend but it went ahead with a symbolically empty seat where its representative should have sat.

What emerged was more anger (see ABTN's news story: Amadeus faces massive loss over fares scheme), not least from Amadeus which has been unable to reach agreement with the carrier and faces a potentially catastrophic loss of business in Germany.

Dirk Gerdom, global travel manager for SAP and the newly elected president of the VDR, said the PFP was undermining the current, highly efficient process which had been established for many years.

"It is adding lots of unnecessary complexity, making administration unnecessarily complicated and damaging the process," he said.

Mr Gerdom said that travel managers were now having to analyse between PFP fares and non-PFP fares to see which was cheaper and this was adding to their costs.

"So we are faced with going through a highly inefficient process or paying higher fares. Everyone wants to reduce their costs but this programme is not acceptable," he said.

Kevin Mitchell

Kevin Mitchell, chairman of the BTC, said the PFP was "nothing more than an anti-consumer, unilaterally dictated attempt to increase prices and undermine our preferred distribution practices."

It was better termed the Abusive Fares Programme and warned that other airlines would follow Lufthansa's example.

He said the scheme showed that Lufthansa planned to "re-engineer the managed business travel model" and it was not going to consult the buyers.

A travel manager, speaking from the floor said she was "mad" at Lufthansa, not just for not attending the hearing but also for imposing the whole PFP. Her remarks were greeted with considerable applause.

Earlier in the hearing, the delegates were asked if they were happy with their relationship with Lufthansa. Only one of two said they were, a response which may concern Lufthansa. But it also became clear that changing airlines and getting the same range of routes was not easy.

If raising or saving money is a common theme of the ancillary charges and the PFP, there is also a second common thread: lack of consultation.

The airlines do not seem to have talked with their best customers on the new charges and have implemented them in a way which causes them problems. Lufthansa did not consult anyone, including Amadeus, the largest GDS in Germany and a company in which it has an 11.5% stake.

While the US carriers are belatedly addressing the problems caused by unbundling, there is no sign that Lufthansa is getting the message that its customers do not like the PFP. Thierry Antinori, its marketing director, at the ITB Berlin in 2008, two months after the scheme was launched, gave the impression it was done and dusted. At his press conference at ITB last month, it was not mentioned.

Yet the PFP has the elements of a PR disaster for the airline. Its customers do not like it. That seems enough reason for Lufthansa to look at it again or, at least, talk to the disgruntled buyers.