Airlines and corporates perpetuate downward spiral

THE airlines and their corporate clients are perpetuating a contradiction that is substantially contributing to carriers’ low profit margins or, many cases, losses, according to Michael Boult, the coo for a division of US-based Rosenbluth International. On the one hand, airlines are increasing published fares in an inelastic environment while offering corporate accounts large discounts to maintain market share. Some corporate must share the blame because it is all too common for a large company to sign preferred supplier contracts with a target it has no chance of meeting. There have been examples of companies agreeing to a discount for moving 70% share. However, the problem problem arises when a company signs that deal with two airlines operating in the same market. One of them is bound to be disappointed. However, while carriers threaten to withdraw discounts under those circumstances they rarely do fearing loss of share. The net result is that clients with workable policies are subsidising those who can’t deliver. On top of that, airlines try and regain yields by increasing walk-on fares. *Forget September 11, this is one of the reasons why the industry is in chaos. (Mark Gray)