Agents Say ‘New’ United Airline May Benefit Mega Agencies Most
by Michael BilligThis week’s announced pairing of United and Continental Airlines heralds more than merely “an all-stock merger of equals.” To the corporate travel world, this represents the latest salvo in an on-going battle for the wallets of business travelers and has major implications for travel managers and corporate travel-management agents.
Most industry watchers agree that fares will rise in most markets, at least in the short term, and see benefits for the largest markets and agencies along with warning signs for travelers and corporate travel managers.
Capacity Down, Fares Up
“Expect prices to go up,” said Blake Fleetwood, president of Cook Travel, which has five agencies in the greater New York area, noting that between Continental and United, Newark Airport will become a dominated hub and, “typically, airlines don’t tender favorable contract terms to corporations when they operate out of a dominated hub.”
In addition to his anticipation of Continental/United wielding a virtual “death grip” on pricing, Fleetwood also expressed fears this union could ultimately lead to “worst practices” of the airline industry (fewer flights, packed planes, etc.).
Rick Ardis, general manager of Ardis Travel, and New Jersey ASTA chapter president, agreed that on-going airline mergers would subsequently produce less choice and higher fares. “Being in one of Continental’s two major hubs, my clients are extremely concerned about the merger.”
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“Air fares would increase as a function of capacity reductions [as well as] one fewer major competitor [no longer] available to reject a systemwide fare or surcharge increase,” Business Travel Coalition chairman Kevin Mitchell added.
Particularly, smaller companies and those with travel patterns containing numerous noncompetitive markets could face much higher fares, Mitchell predicted.
Mitchell also forecast that American, Delta and USAir would respond in kind. Plus, he said: “The battle this time around includes most of the LCCs [lower-cost carriers].”
Inconvenient Truths
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An additional concern came from Andrew Henry, Uniglobe Travel International LP & Uniglobe Travel USA vice president – U.S. operations & industry relations: “In order to achieve the savings the combined carrier will surely be seeking, there will likely be reduced capacity, resulting in higher load factors. These will [likely] lead agents to recommend routings the traveler may not be expecting or wanting.”
“However,” he elaborated, “with the larger hub network, [TMCs should] be able to provide these alternate routings while still adhering to the corporately mandated preferred-supplier program.”
And while travelers might expect greater connectivity in some cases and improved access to perks and privileges, Mitchell predicted “business travelers in small and mid-sized communities would, in many cases, find fewer frequencies.”
On the other hand, something that might eventually help mitigate against these issues, but is not receiving much attention, said Mitchell, “are potential new entrants enabled by parked aircraft, available crews and easing credit markets.”
Benefits to the Big
Mitchell predicted that corporate travel managers in competitive markets and/or with significant global travel spend would benefit. “They could lock in better deals in markets where they have discounts today, and secure discounts in markets where they [currently] have either no or marginal discounts.”
“Of course this assumes well-managed corporate travel programs,” he continued, noting the fact there are at this time “12 to 13 hub-to-hub overlaps, but this is an increasingly networked industry, so effective CTMs should be able to protect their companies from supra-premium prices in these hubs…if the DOJ [should fail to] do so through some type of remedy.”
Another benefit that Mitchell sees for the largest TMCs: “The new UA would have the resources and motivation to enrich incentivized share-shift programs.”
Fallout for Smaller Agencies
“The small and regional TMC not in a market position to drive business would likely see less-rich incentives…which might, in turn, accelerate consolidation,” Mitchell continued.
Although, Henry pointed out that smaller agencies could also derive benefits from the merger. “As joint contracting isn’t yet pervasive, the merger could provide opportunity for smaller and mid-sized companies to achieve a corporate discount agreement, where their volume as separate carriers wasn’t enough to qualify,” he said.
Yet another benefit, said Fleetwood: “Booking travelers aboard the new, larger airline should prove to be easier.”
United Concerns
Ardis said his biggest concern is with United’s policy of shifting the cost of credit cards to the travel agent. “This would have a great effect on the cost of doing business, and the client will ultimately bear the cost of this policy.”
“Moreover,” Ardis said, “Continental’s Web site is much easier to use than United’s…for both agents and travelers.”
Another primary concern in the merger is service, said Ardis. “Customer satisfaction with Continental is very high here. My travelers feel United does not provide the same level of service consistency as Continental and worry that service will suffer after a merger.”
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Another fan of Continental (over United) is Larry Austin, chairman/chief executive officer of Austin Travel. “Continental is a very pro-travel-agency partner [and], we prefer putting our passengers on airlines [with which] we can work closely…and support our clients,” he said.
“On the purely financial side,” said Henry, “mergers that result in reduced competition are bad for travelers, [their] companies and [their] travel agencies. By reducing the number of competitors in the market, the balance of power shifts to [all] airlines and gives them more pricing/negotiation power with companies and agencies.
Airline, Industry Well-Being
“However,” Henry added, “an alternate view suggests the airline sector needs consolidation to increase the health of the industry in good times…and to provide a buffer in bad times (like the recent European air-space closure).”
Companies and agencies need a strong airline sector and should be happy with changes that reduce the chances of liquidation or failures which can interrupt travel plans, Henry said. He added,“The actual travel manager within a corporate account could experience a moderate benefit by having one less major supplier to manage.”
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Nick Stafford, senior vice president – marketing & business development for RADIUS (a global travel management firm), said, “It’s still a matter of delivering the best product at the best price to meet our clients’ corporate needs. Additionally, it will continue to be up to agents to demonstrate our ability to bring in customers and deliver revenue…especially if we want to hold onto our commission levels.”
Complementary Routes
Stafford said that he wasn’t very concerned about hub dominance: “I don’t see it as too much of a concern. With both of these lines, there’s not too much route-structure overlap. “Furthermore,” he offered, “I think we should have faith in the U.S. regulatory approach; after all, consumer protection is paramount.”
“Maybe the only markets of concern might be San Francisco, and possibly Chicago. By and large,” he explained, “this union makes for a strong international network.”
In general, most view this mega-merger as having the potential to create an airline that is better-positioned to succeed in an increasingly competitive global and domestic aviation industry…provided it takes full advantage of building on its existing Star Alliance partnership, and that it strives to support travelers, their companies and their travel-management agencies.This week’s announced pairing of United and Continental Airlines heralds more than merely “an all-stock merger of equals.” To the corporate travel world, this represents the latest salvo in an on-going battle for the wallets of business travelers and has major implications for travel managers and corporate travel-management agents.
Most industry watchers agree that fares will rise in most markets, at least in the short term, and see benefits for the largest markets and agencies along with warning signs for travelers and corporate travel managers.
For a related story on the merger’s affect on agents, click here.
