The New Year had barely been rung in when both American Express and the US Department of Transportation confirmed what most business travellers already know from hard experience - US air fares are climbing.
But the studies also show that, faced with increasingly expensive full-fare economy tickets, the business traveller is becoming more adaptable so that he can take advantage of lower price options, albeit with restrictions. In other words, the US business traveller is becoming conditioned to avoiding the full fare just as the US leisure traveller has already become used to waiting for a fare sale, and the deep discounts, before buying his ticket.
According to the newest edition of the American Express business air fare index, the nation's typical business fare in 1997 was $445 each way - 17 per cent higher than in 1996 and the most expensive recorded by the index since American Express began tracking fare levels in 1992. American Express also predicts that all fares will rise by a further 5 to 6 per cent during this year.
Hot on the heels of the American Express index came the DOT's newest quarterly air fare report which looks at overall average fares, not just business fares. This found that during the second quarter of 1997, more fares went up than down. While fares fell by more than 30 per cent in 31 city-pair markets, they increased by at least 30 per cent in 50 other markets. In strong business markets, such as Atlanta-Pittsburgh, Boston-Detroit and Chicago-Des Moines, one-way fares rose by 119 per cent or more.
David Stempler, president of the Washington DC-based Air Travellers Association, says his members are under no illusion that fares have been rising and will continue to do so, but that the real issue has become the widening gap between the restricted leisure fare and the true business fare. 'The most significant factor now is that we are seeing the price for a full-fare coach [economy] ticket approach the $2,000 range, where we used to talk about $1,500. It's starting to squeeze and hurt,' says Stempler.
The result is the creation of opportunities for the low-cost airlines. 'We are hearing of a lot more acceptance for Southwest Airlines and where there are competing services from low-cost carriers, costs are being driven down,' says Stempler. 'Some of our members realise this. For instance, in Washington DC they are booking out of Dulles Airport, where there is low-cost competition, rather than National. People are responding as best as they can manage.'
However, Stempler sees no sign of the business traveller avoiding air travel or using alternatives such as teleconferencing. There is simply, he says, '. . . a lot more dancing' going on as the business traveller tries to find a cheaper fare. 'The business travellers are looking at the tops and the leisure travellers are looking at the bottoms. The gap is bigger than ever before.' Stempler says his members would welcome some degree of rationality that would help fill that gap.
American Express agrees that the corporate traveller is becoming more wily in his search for the best price. 'As airlines continue to raise business fares, more companies are applying travel management strategies - some tried and true, some new - to help them cut air travel costs,' says Ed Gilligan, president, American Express Corporate Services. 'For instance, some companies are tightening travel policies and requiring employees to book only the lowest logical fare. Other companies will start to use Internet-based online travel reservation systems.'
The American Express index tracks only the typical business fare and is based on data from 215 US city pairs. According to its figures, those fares have increased by a total of 39 per cent since February 1996, including a 3 per cent hike in October 1997 over September and a further 1 per cent rise in November. The repeated lapse and reinstatement of the government ticket tax in 1996 and 1997, combined with strong demand for a limited number of seats, have contributed to the steep rise in air fares, says American Express.
Evidence exists, however, that the business traveller is looking to avoid those full fares and this could become a longer-term problem for the majors. American Express points out that the average fares actually paid by business travellers have risen at a slower rate than the unrestricted fares particularly aimed at them: 'Average fares paid by business travellers in those same 215 routes rose at a slower rate in the first seven months of 1997 - an average of 12 per cent compared to the same period a year earlier - indicating that business travellers were successful in finding alternatives to the high-priced, unrestricted fares aimed at them.'
American Express does not believe that airlines are offering much in the way of corporate discounts, and puts this down to companies being prepared to find alternative airports, use connecting flights, or accept Saturday night stay-over options. But American Express does not see the businessman avoiding travel.
Air Transport Association figures appear to support this. Over the past two years, air travel in the US has been growing by about 7 per cent and passenger revenues by about 8 per cent annually. 'It's the first lesson of economics which comes down to supply and demand,' says Chris Privett at the American Society of Travel Agents. 'You just have to look at the hard numbers. Load factors have been at all-time highs, at 80 per cent and beyond. Combine that with a strong economy - consumer confidence has not been this high for 30 years - and the fact that the airline industry has been under a major upswing, and it should not be surprising that fares have risen. You have to look at the big picture. Let's face it, air fares have been rising since Wilbur and Orville.'
Getting the Wrights airborne was probably easier than comprehending today's air fare system in the US, however. The major carriers, hiding behind the laws that prevent them from discussing fares between themselves, allow the subject to remain something of a black art to the outside observer. Only two airlines, Northwest Airlines and Southwest Airlines, are prepared to comment on fares. 'We think 1998 is going to be a strong year and it will be the fourth consecutive good year for the industry as a whole,' says a Northwest spokesman. 'The average fare seemed to be up a little bit in 1997, particularly because of the reimposition of the ticket tax.'
Southwest was the only airline to own up to price hikes. 'In 1997 there were a few modest increases of $1 or $2, mainly to offset the new segment fees,' says Southwest. 'On the whole, our prices stayed pretty stable in 1997, although we saw some average fares increase simply because of supply and demand. Low-fare seats were selling very quickly in some areas and we could get more higher yield sales.'
By implication, more business travellers are switching to low-cost carriers and, as the DOT report points out (see box), the presence of a carrier like Southwest Airlines can have a stark effect on fares and traffic, both in the markets served and on nearby markets that are not actually served.
The high load factors, however, have given the majors the confidence to stand up against some other methods that, while illegal, were commonly practised by business travellers to obtain a cheaper ticket. These include back-to-back ticketing, where the passenger purchases two round-trip tickets, but uses only the outward-bound portion of each so that he does not have to stay over a Saturday night, but gets the substantially cheaper, Saturday stayover leisure price. In recent months the majors have warned travel agents that the computer capability to track back-to-back and other illegal ticketing methods now exists. Agents, fearful of fines, and passengers, fearful of being struck off frequent flier programmes, are less willing to resort to such methods.
One alternative that is gaining popularity is the use of Web sites, such as the one set up last year by Tom Parsons, publisher of Best Fares magazine based in Texas. Parsons claims his Web site is getting around 1 million hits a day. 'Airline systems are complicated, complicated, complicated,' he says. 'I am the one who tracks them and brings them all together.'
Parsons highlights where the best deals are each day, including his 'snooze-you-lose' ticket deals that pop up, offering extraordinary prices but which could disappear at any moment. 'These are the oddball stuff - last month there was an Atlanta to the west coast round trip ticket available at $98. I put them down to temporary insanity by the airlines. They may be due to fare battles or an airline might do it just to tick the other guys off. Often, they have few restrictions. It will be the early bird that catches that worm.'
Parsons also advises corporations and small businesses on how to get the best ticket prices. 'I tell them, as long as you are brand loyal, the dice is in favour of the airline. Leave the doors open and be flexible.'
But even flexibility will only go so far in 1998, when seat capacity is expected to be even more constrained. Industry analysts are also predicting higher prices at US hotels, in restaurants and for rental cars. Overall, American Express forecasts that the cost of business travel this year will increase by 3-5 per cent over 1997.
Source: Airline Business
