Airlines ride rising fuel costs

While soaring fuel costs continue to put pressure on air ticket prices, competition between air carriers to maintain and acquire business is keeping price increases to a moderate level according to the recent BTI Canada Benchmarking Study.  “In efforts to recoup expanding operational costs, air carriers are increasing existing fuel surcharges, but, increases were minimal.  We do, however, expect to see further increases in the second half of 2005,” says Michele Ferrari, Senior Vice President, Client Management, BTI Canada.  Meanwhile, Corporate Canada’s air travel activity is strong.  The total number of airline tickets sold for the current review period, January to June 2005, rose significantly by 24 per cent.

Unique to the Canadian market, the BTI Canada Benchmarking Study is a semi-annual report that measures corporate travel activity booked by BTI Canada. The study identifies and analyzes key Canadian business travel industry trends. 

Continued fuel price hikes are expected to put further pressure on airline tickets in 2005-2006.  From January to June 2005, the average airline ticket rose slightly to $973, a $20 increase from the previous period.  Specifically, Domestic tickets saw an increase of five per cent, International prices inflated by two per cent, while in contrast, Transborder average ticket prices dropped marginally. 

The increase in domestic ticket prices is also attributed to the closure of Jetsgo as it allowed Air Canada and Westjet to adjust their ticket prices that were previously depressed due to a series of fare wars incited by the airline.  The increases, however, were minimal as the airlines compete head-to-head on many routes and are still feeling price pressures from Canjet in selective markets. 

Despite record fuel prices and continued financial challenges faced by most American carriers, significant competition from low cost carriers helped to push the Intra US average ticket price for BTI Canada’s clients down by nine per cent, or $56.  In February 2005, Delta Air Lines made headlines when it announced an aggressive new fare strategy that would reduce airfares by as much as 50 per cent for Intra-US travel.  Other players in the competitive US domestic market quickly responded with their own pricing reform.  Faced with the harsh reality of expanding operational costs, the same carriers that participated in the price reform would successfully rally for industry-wide fare hikes of $10 to $20 over seven times in the past six months and we expect further fare and/or fuel surcharge increases. 

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“In order to control air spend, it is important now more than ever to negotiate and support corporate deals with preferred carriers,” Ferrari explains.  “BTI Canada encourages companies to work closely with their travel management company to assess their travel booking needs and patterns and ensure they have a carefully planned travel policy that reflects their business requirements and objectives.  This in turn will result in maximum return on their overall travel expenditure.”


Companies focus on cost control and policy compliance

As a result of a more stable economy in 2005, airline ticket purchases increased by 24 per cent.  Although more tickets were purchased, BTI Canada’s data indicates that travellers chose the lowest fare option less often.  The 18 per cent decrease in travellers selecting the lowest fare can be attributed to airlines strategically advertising low fares that are often available in very limited quantities.  As a result, the lowest fares were sold out before travellers could purchase them.

Corporate clients have become increasingly aware of the inherent costs associated with selecting a non-preferred carrier. They risk diluting the business channelled to the preferred supplier and, as a result, may fail to meet the market share and net flown revenue targets required to attain desired discounts. 

“In the past, travellers have been encouraged to accept the lowest fare option regardless of the carrier; however, with many carriers scaling back and becoming more stringent on the application of corporate discounts, corporate clients need to monitor their market shares closely to ensure they maximize the use of non-preferred low-cost carriers while not jeopardizing the value of their agreements with their preferred carriers,” says Ferrari.  “BTI Canada works with our corporate clients regularly to assess their air travel patterns in order to maximize the value of their airline programs and to identify areas of opportunity.”


Booking on Self Service Reservations (SSR) results in obtaining lower fares

Consistent with the 24 per cent overall increase in tickets issued, Self Service Reservations (SSR) increased by 27 per cent and remained consistent at 11 percent of all airline tickets issued by BTI Canada.  Further, the number of SSR tickets for each market segment increased proportionally. In addition to transaction costs, clients typically save on the ticket prices when booking via an SSR tool as travellers often choose the lowest fare.  On average, travellers saved $167 (25%) on Domestic tickets, $160 (18%) on Transborder and $30 (5%) on Intra-US tickets. 
“Determining why the average ticket price is lower when using a SSR tool instead of a traditional travel counsellor is difficult since the same fares are available through both booking methods.  One main factor, however, is that fares are easily viewed through the SSR tool and travellers often feel obligated to purchase the lowest fare. This is known as the ‘guilt factor’.”


Hotel price increases are not as substantial as predicted

BTI Canada’s clients did not experience the four to five per cent increase forecasted by industry sources; instead, the average hotel rate increased by approximately two percent in the period.  BTI Canada’s support of clients’ preferred hotel programs and the BTI Canada Global Hotel Program - a way for companies to book hotel rooms at discounted rates without having to commit to a specific activity level - continue to help corporations control hotel expenditures.  With hotel rates expecting to increase another six per cent in 2006, programs like this are critical. 
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