Management

[Specs]

This came up in another a few other threads here and there and nobody really took a position so I'm gonna offer this up for debate.

Dagger has mentioned that it's time for AC to give up the security blanket and I absolutely wholeheartedly agree. An undercurrent to that debate has been that maybe employee expectations are a bit too high to carry the same status quo into the future and that they need to be balanced more equitably with shareholders returns. I might agree with that as well to some extent.

But the question that's never been addressed is management's ability to step into the future. There are a number of things that cause me to question their policies their abilty to deliver. For the moment I'll just deal with marketing.

For the last few years all I hear from certain pwrs that be is that the Internet is the key to the future and to keeping planes full. Ad nauseum in fact. Paraphrasing one executive - We have a new fare grid that must be working and must be a huge success because our flights (AC) are full. There seems to be no shortage of patting each other on the back in the executive suite for an innovative and dynamic new approach that everybody's watching.

But here the thing(s). Nobody has convinced me our new marketing strategy is working. People may be watching but nobody is copying the AC model in any great effort. But our Flights are full? Well of course they are. The Cdn economy is going great so of course our flights are full. Westjet flights are just as full and so are most american carrier's transborder flights. How could our flights not be full in this market?

I don't have any numbers to prove this and readily admit I'm just going on hunches here but we (AC) don't seem to be producing any more profits above and beyond what might have been expected had there simply be some adjustments to the old fare structure. I'm also kind of bothered by the fact that with flights as full as they are then the the argument could easily be made that product is obviously underpriced and the prices should be raised but that doesn't seem to be happening. There isn't even a whiff of upward pressure on prices in the media?

And here's the really annoying thing about our marketing strategy:

I've been comparing 3-5 AC vs WJ flights on the internet (the key to the future) every night over the last few weeks. Not a significant enough sample size for conclusions I admit but it does beg a few questions about AC's ability to step into the future with the present management running things.

Here's what I found as Joe consumer, using Travelocity, comparing flights 6 wks out, 1 way, lowest price, 9:00 am departure (or as near as possible) Taxes and fees included.

-On Travelocity WJ beat AC on every single lowest priced fare I compared (domestic and x border) by more than 10%, and usually much more.

-I should mention that the AC fare on Travelocity wouldn't compute on 75% on the routings.

-In order to actually get an AC price I had to go to AC.com to get the fare.

-when AC.com worked, the AC fare beat the WJ fare by much more than 10%.

-Unfortunately though AC.com only worked 50% of the time. WJ site was 100%.

It was incredibly frustrating, if not darn near impossible to get an AC price quote.

Yes I know AC is working with the GDS suppliers to remedy the situation but how long should this be going on without holding a few feet to the fire. It's been nearly a year!!! Keep in mind that nobody is copying our fare structure so why should the GDSs hurry up.

So if the Internet is the key to future ticket sales and attracting customers and our new fare structure is going to improve profotabilty then I'm thinking AC is in big trouble when the economy tanks and full planes aren't so common anymore.

Am I the only one who thinks management is fooling themselves and thinks there's a problem here?

[FA@AC]

People may be watching but nobody is copying the AC model in any great effort.

Actually, if you check the Mexicana site for fares/availability on domestic Mexican services, you could easily get the impression that Mexicana had copied its fare structure and the means of displaying it to shoppers directly from AC. The display is almost identical. The fare structure shown on the Alaska Airlines site is awfully similar to AC's, too. I'd say that the AC model is being copied.

[CD]

Here's what I found as Joe consumer, using Travelocity, comparing flights 6 wks out, 1 way, lowest price, 9:00 am departure (or as near as possible) Taxes and fees included.

Interesting that you should choose Travelocity as the example. At one time, I did all my booking through that site. Then, I found that if I went to the actual airline site to book directly, I would enjoy websavings of $5 each way. Now, I may do some comparative shopping using Travelocity but I always go to the airline website to confirm the lowest rate.

If I recall correctly, and manwest or Daggar could confirm, the reason that Air Canada's lowest fares are not available through the online portals is that they pee'd in someones conflakes so they are being punished for it.

I also have found the airline booking portals to have issues with stability at times - both WestJet and Air Canada, although my biggest hassles have been on the WestJet site. However, I would just pick up the phone and call direct if I really needed a quote.

As far as getting the best rates when booking a complete vacation (air/ground transportation, car, insurance, tours, etc.), I still find a travel agent is the best resource...

[ccairspace]

For the moment I'll just deal with marketing...

Nobody has convinced me our new marketing strategy is working. People may be watching but nobody is copying the AC model in any great effort. But our Flights are full? Well of course they are. The Cdn economy is going great so of course our flights are full. Westjet flights are just as full and so are most american carrier's transborder flights. How could our flights not be full in this market?

You should have stopped at the end of paragraph 6, because by continuing, you have opened the door for posters to concentrate on minutiae rather than concept.

The question you are asking is: "Is the marketing department using false logic?" The answer is yes and it doesn't matter whether you want to discuss AC or WJ. Really good marketing/advertising executives (managers) can "make" you believe that without them businesses would wither and die. And it doesn't matter whether they are selling widgets or airplane seats.

You see, when the economy is booming the marketing department, after spending $10-50 million on some advertising blitz, can say, "See what we did! If it weren't for us, our business wouldn't be booming." Alternatively, when the economy is bad the response is usually, "No one is doing well. If it weren't for us, we wouldn't be selling anything!"

It is logic that is difficult to refute. The data are hard to collate and analyse, which means that analysis is expensive. And typically if an outsider decides to check out the logic, they are rebuffed as naysayers.

Just my $0.02 worth.

ccairspace

[Specs]

I also have found the airline booking portals to have issues with stability at times - both WestJet and Air Canada, although my biggest hassles have been on the WestJet site. However, I would just pick up the phone and call direct if I really needed a quote.

As far as getting the best rates when booking a complete vacation (air/ground transportation, car, insurance, tours, etc.), I still find a travel agent is the best resource...

Westjet and others worked 100%. No stability issues at all there in my mind.

Calling direct - I think you invoke a service charge then of 20 or 50 bucks.

As for calling the travel agent. AC is trying to get people away from that. They want people using internet. They have publicly stated often that the internet and online booking is the way of the future. Despite that vision though their Internet implementation has been absolutely attrocious. From what I understand the GDS problem caught them by surprise.

If I hired somebody to open up a store for me and he put the shop where there was no parking I'd fire him. If he kept the shop closed 50% of the time I'd fire him.

Shouldn't heads be rolling at AC?

[Stickle]

I can remember when Montie came into one of our marketing town hall meetings and explained to us how we were going this simplified fare structure and that the future was the internet. While he didn't say it directly, you could tell that he wanted to get to the consumer directly thereby avoiding the additional costs of any third parties in the transaction.

I'm not sure that Travelocity is the best example to use here but it does illustrate how one vendor can affect your bookings.

I think that you have raised another interesting concept in that the current management at AC is on the verge of a collapse. I'm not talking about the people high up, I'm talking about the lower level director and managers. There are a couple of departments that have had a revolving door on the directors position. Every 12-18 months one gets punted and another one gets brought in. They have tried bringing in the UA people, employees from other departments that had no clue about what we did, people from outside the industry and now finally someone from within that was rewarded for previous hard work. Problem is that this person knows the job very well from a technical point but is not a manager in any shape or form. Herein lies the problem, this particular group have become unmotivated and quite frankly they are on the verge of revolt from being pushed and abused so hard. Good people have been previously pushed out of this position if they disagreed with the executive ranks on the direction taken.

Management is no different than the front line people. I'm talking about the employees that actually do the work. All employees are being pushed so hard with little respect for them that we are already starting to see junior employees (who were once touted as the future of the company) leave. It is not hard to find good employment in today's economy.

I've seen the executives stand up at meetings and say that they were going to be able to strong arm people like Travelocity. So far they have come up flat and it is costing them revenue. Perhaps not bums in seats but certainly higher yield.

[dagger]

I've seen the executives stand up at meetings and say that they were going to be able to strong arm people like Travelocity.  So far they have come up flat and it is costing them revenue.  Perhaps not bums in seats but certainly higher yield.

Seems like AC and the other airlines did rather well, much better than you think. This also addresses the question about whether other airlines are doing the commercial things AC is adopting.

Air contract details: Fees dipping, content missing (10/23/2006)

By Dennis Schaal

Over the next five years, travel agencies will continue to face the prospect of content gone missing from their GDSs as airlines bolster their ability to offer exclusive products on their Web sites.

The new batch of airline-GDS agreements, while tightening some aspects of “full content,” contain provisions that enable airlines to continue shoring up their Web sites and other direct channels with exclusive promotions. These include fare sales to groups of travelers, travel club memberships, mileage rewards and upgrades that will not be available through travel agents.

In interviews with insiders across the industry, Travel Weekly pieced together the broad outlines of the closely guarded GDS-airline contracts. Many of these details, including economic provisions related to a descending fee structure, are being published for the first time here.

Each contract between Sabre, Galileo or Worldspan and their participating carriers assuredly varies from each of the others (Amadeus continues to negotiate with several major airlines), but the provisions described below found their way into most of the agreements.

In the first year, the segment fees the airlines pay the GDSs drop from the “high $3s” under the contracts penned in 2003 to the low $3s, depending on the airline. The fees will further decline in 2007-2008 to the upper $2s and dip progressively to the mid-$2s by 2011, when most of the agreements expire.

The prospect of declining revenue could set the stage for GDSs to further reduce agency incentives beyond the current 80-cent hit, but that appears to be unlikely.

Galileo said last week that the 80-cent fee for agencies in its Content Continuity Program will not increase during the term of its agreements. Travel attorney Mark Pestronk said Galileo’s agency contracts actually bar it from increasing the 80-cent fee.

Sabre said it doesn’t have any plans to change the economic terms of its Efficient Access Solution program for agencies. The company said EAS “takes into consideration the economics/booking fees of the participating airlines over the full term of those agreements.”

According to Pestronk, Sabre contractually can increase the agents’ fee if Sabre’s economics “materially decrease.” He said Worldspan can modify incentives after 30 days’ notice.

The agreements clarified and tightened previously ambiguous definitions of full content, including language about published, Web and bulk fares. The agreements also secured, for the first time, parity among the GDSs regarding negotiated fares.

But the agreements also continue to allow airlines to offer exclusive promotions on their consumer Web sites. The carriers can’t offer across-the-board fare sales to Web shoppers unless the GDSs have access to them, as well. But the airlines can continue to offer exclusive promotions on their Web sites to what one official termed “a subset of a subset” of travelers. For example, airlines could offer promotions to Chicago-based passengers who have flown to Los Angeles or have achieved a certain frequent-flyer status.

Airlines can continue to develop their travel clubs without providing similar perks through the GDSs. For example, United offers membership in its Silver Wings Plus club to travelers age 55 and older and can continue to offer exclusive membership benefits to these travelers without making them available through the GDSs.

The airlines can offer exclusive mileage credits, upgrades and airport club passes when corporations book directly through the carriers’ corporate portals. These incentives can be offered above and beyond the framework of the negotiated agreement between the airline and the corporation.

Some airlines won what might be called an Air Canada clause: They have the right, with certain limitations, to offer exclusive products and fares on their Web sites if the GDSs lack the technology to display and sell this inventory in a manner the airlines desire.

Although the GDSs, under deregulation, have the right to bias airline displays, as major online agencies do today, the airlines won protection against such bias in the new agreements. Although airlines will be able to purchase advertisements for fare sales, they will not be able to pay for positioning in GDS displays.

So, with the yearlong round of airline-GDS content negotiations nearly concluded, it is clear that the carriers and their chief distribution partners reached a broad accommodation, with both sides getting a lot of what they needed.

Travel agencies didn’t fare as well.

Agencies generally, and there are many exceptions, have to pay, on average, a $2 fee per trip (2.5 segments at 80 cents per segment). Agencies did avoid massive content fragmentation, which was good for airlines as well as agencies, said Tom Klein, executive vice president and group president of Sabre Travel Network and Sabre Airline Solutions.

“The game wasn’t to whipsaw the airlines into giving us something,” said Klein. “The game was to get the airlines to understand that having all the fares in one place was good for them. We didn’t think it was good for the airlines to be so fragmented.”

Klein said Sabre’s new airline agreements were more comprehensive than prior pacts, and that “we closed some gaps.”

Who blinked?

The impasse between the industry’s two titans, Sabre and American, captured much of the industry’s focus in late summer. American balked at joining Sabre’s EAS program, withstood weeks of paying inflated GDS fees after their contract had expired and leveled charges that a Sabre joint venture had actively sought to sell passenger data to airlines.

Travel Weekly learned that Daniel Garton, executive vice president of marketing at American Airlines, made a phone call to a top Sabre official to get the stalled talks rolling just days before the Sept. 1 deadline that Sabre gave agents to decide on EAS participation. Until then, David Cush, American’s senior vice president of global sales, had spearheaded the negotiations for American.

Klein wouldn’t name names.

“I won’t say who made the first call, but it was a senior-level call, and we both thought we should take a fresh run,” Klein said. “We weren’t sure on either side if it would lead to a resolution, but both of us thought resolution was the best thing. I know that sounds wishy-washy, but sometimes that’s how deals get done.”

Both sides were under tremendous pressure to settle, and they announced an agreement midday on Sept. 1. Sabre had faced the disruption of not having the world’s largest airline in EAS, and American got hit with exorbitant GDS fees and had rival airlines tossing around huge signing bonuses and packages as they wooed American’s largest corporate clients.

Most industry observers said American and Sabre compromised and got what they needed, although both parties fell short of getting everything on their wish lists.

“AA, like every airline, and consistent with what airlines have done traditionally, wanted the ability to come out with some promotions outside the GDS, and we’ve granted them some flexibility to do so,” Klein said. “That said, EAS has tighter definitions of full content than any in the history of the industry, and we think that’s good value for travel agents and corporations.”

Given the rancor of the public dispute with Sabre, American declined to comment for this article.

“Unfortunately, the emotions of negotiations drove a much more public debate than either of us would have liked,” Klein said. “In the end, we’re very much aligned on principles about privacy. I’ll use this forum to say we’re aligned that data security and data privacy are both high priorities and in our best interest.”

Rational compromise

Regarding Sabre and American, Henry Harteveldt, Forrester Research’s principal travel analyst, said, “I don’t think either party blinked. A rational compromise was reached that was beneficial to the discussions.” As a result of that compromise, Sabre got about 98% of the content it sought, American secured the right to continue to attract consumers to direct channels and both sides got economics they could live with, Harteveldt said.

The economic terms “still aren’t low enough for airlines to get to that sweet spot of $6 per booking,” but the savings are substantial enough to dampen the carriers’ prior interest in developing direct-connects with non-GDS distributors, Harteveldt added.

However, Harteveldt said he expected that the airlines would continue to work with new-entrant distributors like G2 SwitchWorks, ITA Software and Farelogix and that the carriers would “maintain whatever kind of leverage they have because it is in their economic interest.”

“American and Sabre were the ones that brought things to the state of a nuclear distribution war. But it is my understanding that cooler, calmer heads prevailed,” he said.

[dagger]

This came up in another a few other threads here and there and nobody really took a position so I'm gonna offer this up for debate.

Dagger has mentioned that it's time for AC to give up the security blanket and I absolutely wholeheartedly agree. An undercurrent to that debate has been that maybe employee expectations are a bit too high to carry the same status quo into the future and that they need to be balanced more equitably with shareholders returns. I might agree with that as well to some extent.

But the question that's never been addressed is management's ability to step into the future. There are a number of things that cause me to question their policies their abilty to deliver. For the moment I'll just deal with marketing.

For the last few years all I hear from certain pwrs that be is that the Internet is the key to the future and to keeping planes full. Ad nauseum in fact. Paraphrasing one executive - We have a new fare grid that must be working and must be a huge success because our flights (AC) are full. There seems to be no shortage of patting each other on the back in the executive suite for an innovative and dynamic new approach that everybody's watching.

But here the thing(s). Nobody has convinced me our new marketing strategy is working. People may be watching but nobody is copying the AC model in any great effort. But our Flights are full? Well of course they are. The Cdn economy is going great so of course our flights are full. Westjet flights are just as full and so are most american carrier's transborder flights. How could our flights not be full in this market?

I don't have any numbers to prove this and readily admit I'm just going on hunches here but we (AC) don't seem to be producing any more profits above and beyond what might have been expected had there simply be some adjustments to the old fare structure. I'm also kind of bothered by the fact that with flights as full as they are then the the argument could easily be made that product is obviously underpriced and the prices should be raised but that doesn't seem to be happening. There isn't even a whiff of upward pressure on prices in the media?

And here's the really annoying thing about our marketing strategy:

I've been comparing 3-5 AC vs WJ flights on the internet (the key to the future) every night over the last few weeks. Not a significant enough sample size for conclusions I admit but it does beg a few questions about AC's ability to step into the future with the present management running things.

Here's what I found as Joe consumer, using Travelocity, comparing flights 6 wks out, 1 way, lowest price, 9:00 am departure (or as near as possible) Taxes and fees included.

-On Travelocity WJ beat AC on every single lowest priced fare I compared (domestic and x border) by more than 10%, and usually much more.

-I should mention that the AC fare on Travelocity wouldn't compute on 75% on the routings.

-In order to actually get an AC price I had to go to AC.com to get the fare.

-when AC.com worked, the AC fare beat the WJ fare by much more than 10%.

-Unfortunately though AC.com only worked 50% of the time. WJ site was 100%.

It was incredibly frustrating, if not darn near impossible to get an AC price quote.

Yes I know AC is working with the GDS suppliers to remedy the situation but how long should this be going on without holding a few feet to the fire. It's been nearly a year!!! Keep in mind that nobody is copying our fare structure so why should the GDSs hurry up.

So if the Internet is the key to future ticket sales and attracting customers and our new fare structure is going to improve profotabilty then I'm thinking AC is in big trouble when the economy tanks and full planes aren't so common anymore.

Am I the only one who thinks management is fooling themselves and thinks there's a problem here?

You really pose two issues:

1) The commercial strategy: The strategy is clearly a work in progress, but it wasn't necessarily initiated to generate Westjet-like margins although that would obviously be nice. It's just that WS has much lower costs, so with comparable fares, Westjet's margins will be higher. The strategy was devised to prevent Westjet from destroying AC in the domestic market, which would have happened were AC still operating under the old fare structure. Customers would have defected in far larger number had AC maintained the old fare grid with its mandatory Saturday stayover and advance purchase requirements. Secondly, the new fare grid is meant to drive ongoing cost reductions and facilitate the automation of the sales and check-in process by moving as many customers as possbile to web booking and check-in. All the rule and fee changes, along with the launching of passes, are intended in part to reduce administrative costs. For example, a self-booked, self-managed 20-segment flight pass involves much less transactional cost than booking 10 round trips over the same route(s) using a travel agent GDS. At the same time, making this web channel so important has also helped AC negotiate lower GDS fees (see story above). I think the fare grid needs more work - it certainly has to be supported by a better res computer system, now in the works. So while the fare grid hasn't boosted AC into Westjet profitability, I would argue that it, coupled with lower costs, have done its initial primary mission - prevent Westjet from eating Air Canada's lunch. Had AC done nothing, even the wage/creditor concessions might not have been enough to save the company.

2) I agree that executives are too self-congratulatory. A shareholder advocate like me would like to see more significant profitability in the movement of passengers and freight.

Comparisons of AC to WS on a third party website don't tell us much about anything with respect to who is paying what. Corporate passes, corporate accounts, AC website fares vs WS website fares tell you a great deal more.

I'm not saying your concerns are unreasonable. If the economy tanks, ACE/AC will probably lose money. Then again, if the economy tanks, so will fuel and most other costs. So it's hard to predict. AC might prove to be a good counter-cyclical bet because if the economic weakness is regional and not global. It's hard to see the economies of China and India slowing to the same extent as a resource-based decline in Canada.