Low costs win share of business market

Fares for budget airlines grew by 10% in the last year and now account for one in eight business travel bookings, according to a recent survey by international corporate services company Hogg Robinson Group.

Traditional carriers have responded to the growth of the low cost carriers in the business sector by reducing the cost of their economy fares by an average 5%. This heightened competition across the airline industry has kept overall average price increases below those seen in previous years despite an increase in the number of travellers.

HRG’s air trends survey was compiled from actual flights booked and ticket rates paid by an indicative sample of over 250,000 business travellers booking from the UK between May 2006 and June 2007. The findings reveal that:

- The average cost of economy seats on major airlines has dropped by 5%
- Budget airlines have increased their market share on popular routes, allowing them to increase fares by an average of 10%
- Prices for business class tickets have gone up by 4% despite marginal change in the number of travellers choosing this class
- Of the low cost carriers, easyJet’s business-friendly routes have helped it to increase its market share to almost 20% on popular routes, despite the fact that it continues to be the most expensive of the budget airlines surveyed.
- The additional volume of bookings has given easyJet the confidence to increase its prices during the last year, with return flights to popular destinations such as Edinburgh and Amsterdam now costing more than £100.

Commenting on the trends, Mike Platt, HRG’s Group Industry Affairs Director, said, “During the last year we have booked over 90,000 flights on low cost carriers and we are seeing more businesses choose this option for domestic and some short haul flights. It is also interesting to see business class ticket prices increasing by almost 4% despite ticket sales remaining static, reflecting the airlines’ confidence in the popularity of the business class cabin.”

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Although economy class has suffered as a result of the increase in business customers using budget airlines, economy class continues to account for the largest proportion of business travellers. HRG’s survey looked at the different classes chosen by business travellers and found the following trends:

- The number of people travelling on low cost carriers has risen by an astonishing 33%, to represent over 12% of the total market
- As a consequence of increased competition from budget airlines the economy class share of the overall market dropped by 4% to 59%
- First, business and premium economy shares of the market are relatively static at 0.3%, 28% and 0.8% respectively

HRG’s survey also looked at the most popular destinations for business travellers over the last year and found that bookings to long haul destinations had increased significantly:

- The number of travellers going to the Far East and Australia increased by over 30%
- 28% more business travel bookings were made to the Middle East
- Business travel to Africa has increased by 23%
- Bookings to South America were up by 12%

“With such steep increases in bookings it is no surprise to see that ticket prices have risen on the most popular routes. Africa is becoming an important business destination, with prices up by 14%, being largely driven by the popularity of Johannesburg. The cost of tickets to South America is also up, by a more modest 5%, and we expect to see ticket prices continue to rise on these routes as they become more important business destinations,” added Mike Platt. 
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