American Express and Continental Airlines apparently fell short of
the expectations raised by their ambitious experiment with a
blocked-space deal on Virgin Atlantic.
In mid-1998, American Express purchased inventory on
Continental's code-share service to London on Virgin Atlantic from
several U.S. cities.
The deal provided American Express with exclusive access to
seats at a significant discount, seats that it then would resell to
clients at a markup.
But despite its marketing clout and abundant financial
resources, the travel agency giant was unable to move enough
inventory to make the program work. As a result, the deal was
renegotiated several weeks ago.
Under the new terms, American Express no longer will assume risk
on the Virgin Atlantic flights. In exchange, it loses exclusive
rights to the seats. At the same time, it appears that the discount
provided by Continental is less attractive than before.
There is a lesson to be learned here, and it is this: No matter
how good a deal looks, corporations have concerns beyond price.
For one thing, many businesses have airline contracts to
satisfy. To get a pricing discount, they often must meet specific
market-share or volume targets. Some corporations obviously saw
this agreement as a threat to these contracts. On top of that,
market forces, such as the Asian economic meltdown, forced
companies to cut back on travel. Deflated Asian currencies made air
travel too expensive for others. Consequently, several carriers
shifted wide-body jets out of Asia into European markets.
Faced with resultant increases in transatlantic capacity,
Continental is selling upper class code-share seats to London at
almost 75% off.
The airline says there is no direct connection to the American
Express deal, but something, somewhere seems to have gone awry.