No-Commission Fares Get Off the Ground

The controversial attempt by a group of major companies to negotiate commission-free discount fares with airlines got a boost this summer when Southwest Airlines agreed to work with the group.

Southwest became the first--and so far only--airline to contract with Business Travel Contractors Corp. to offer stripped-down fares to BTCC’s member clients, a cadre of Fortune 500 companies representing about $1.5 billion in annual travel purchases.

Of course, Southwest--already a low-fare airline--often beats BTCC’s proposed negotiated, or net, fares anyway.

“From our standpoint, it was sort of a no-brainer,” said Joe Lamkin, manager of business development for Southwest. “All these contract fares were above our full fares. It wasn’t a difficult decision for Southwest.” In cases in which the net fare is higher than Southwest’s regular ticket price, he said, the airline gives BTCC members the cheaper of the two.

BTTC, which made headlines a year ago with its gutsy proposal to create net fares based on mileage alone, plans to approach the airlines again with revised proposals this fall.

It has been working to overcome airline objections, many of which centered on BTCC’s trying to change too many things at once. According to the revised proposals, net fares would be phased in, allowing airlines to offer them in select city pairs. That way the airlines could cherry-pick the routes that would give them the most opportunity to gain market share, BTCC founder Kevin Mitchell said.

If Southwest’s participation doesn’t represent much of a victory for lower fares, it nevertheless can be seen as an endorsement of an idea critics said no airline would ever go for.

Mitchell has endured plenty of skepticism over his idea to create a huge strategic buying group that would force airlines to give their big corporate customers a break on fares.

His approach is to strip ticket prices of built-in commissions and overrides (the monetary incentive an airline pays travel agents for helping it build market share) and create systemwide fares based solely on mileage. He has projected that fares would then be about 20% less than the full fares business customers typically pay.

At one time, the group also proposed that the tickets not earn frequent-flier mileage, but it quickly became clear that business people would not want to give up that perk.

So far, BTCC has 25 member companies, among them Bell Atlantic, Black & Decker, Chiquita Brands, Chrysler, Colgate-Palmolive, Mellon Bank, Merck, Pharmacia & Upjohn,

Procter & Gamble, Schering-Plough, Whirlpool and Xerox. Many other companies have expressed interest.

This month, BTCC also formed the Business Travel Coalition lobbying group, whose mission is to influence public policy related to corporate travel.

“The Coalition is the natural outgrowth of the work of BTCC, which was founded in 1994 on two principles: 1), the corporation is the true business travel customer and its needs have been largely ignored; and 2), industries that engineer missions, strategies and products around the customer achieve long-term economic viability,” Mitchell said. “In the business travel industry, the customer is constantly surprised, disrupted and frustrated by supplier actions.”

Mitchell says Southwest’s involvement is reviving interest in the plan. “It’s giving us a lot of credibility,” he said.

As for Southwest, contracting with BTCC is a marketing move aimed at gaining market share in its newer Northeastern markets, where Southwest flights are not as frequent.

As part of the agreement, BTCC members pledge to have their employees fly Southwest whenever possible. In some cases, that means routing their business travelers through the smaller airports Southwest serves.

“The companies have been very much at work moving market share,” Mitchell said. “Companies that might have traveled to O’Hare are now using Southwest to go to Midway. Where they might have gone to Logan in Boston they are taking Southwest to Providence, R.I.”

To date, BTCC members have spent $24 million on Southwest tickets, and the group expects to drive an additional $25-million worth of business to Southwest.

BTCC is hoping that Southwest’s participation will break down the resistance of other airlines.

“I think they will have to stand up and take notice,” Lamkin said. “If this can effectively shift business away from them, they’re going to have to give it a harder look.”

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Without an agreement such as the one with BTCC, it’s difficult for corporate travel managers to require that employees fly on a particular airline, Lamkin said. It’s even harder to persuade them to switch to an airline such as Southwest, which has an open-seating policy, something many Eastern travelers are less familiar with.

“I’ve seen examples where people will spend $100 more on a flight to O’Hare out of Baltimore when they could have flown Southwest to nearby Midway airport,” he said.

For Southwest, playing with Fortune 500 members is also a step up to the big leagues. “I’m truly heartened by the response we’ve gotten,” Lamkin said. “Usually we’re such a small part of their business, it’s hard to get their ear. Now they’re very much for trying to put business our way.”

Carol Smith is a freelance writer based in Seattle. If you have suggestions or comments on Executive Travel, write to Daniel Gaines, Executive Travel/Markets Editor, Business Editorial, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message business@latimes.com on the Internet.