A look at business travel prices in the first quarter reveals that U.S. companies faced significantly higher international airfares and hotel rates than a year ago.
High prices cast a shadow on domestic business travel, too, as business airfares, hotel rates and car costs rose briskly - prompting companies to attack travel budgets by pulling back on first-class air travel and using more negotiated discounts and cheaper, but non-refundable, leisure-type airfares, according to data from American Express Consulting. During the first quarter, the percentage of tickets sold in both first class and full-coach fare categories sank to record lows, holding business travellers` average fare paid to a more modest 6% year-over-year increase. “Even with a profit crunch on, travel is a necessary part of doing business for many companies,” said Rusty Carpenter, Vice President and General Manager, American Express Consulting. “So, more firms are laying down the law on everything from disallowing first-class travel, to using hotels in suburban or airport locations rather than downtown, to requiring travelers to gas up before returning rental cars.”
The International Composite in American Express` BTM, which tracks several categories of airfares from the U.S. to 160 overseas cities, reveals that high-end business airfares have risen significantly year-over-year. In the first quarter, international First Class fares climbed 9% from the same quarter last year, while Business Class skyrocketed by 15%. Yet, the data reveal that more business travellers are booking Business Class - often at lower rates, thanks to more competitive discounting in this class of service by carriers serving these routes for their large and mid-sized clients. As a result, the Average Fare Paid in the BTM`s international city pairs was only 5% higher than first quarter 2000 - just a third of the rise in Business Class prices.
In the first quarter, Business Class, as a percentage of total tickets booked by American Express Corporate Travel customers in the BTM`s international city pairs, increased three percentage points from a year earlier, to 50%. Meanwhile, the share of First Class, Full Coach and Discount Economy tickets fell. Still, for some companies struggling to trim T&E budgets, flying coach rather than high-end may be the only cost-containment option.
“Where it`s possible and not too much of a hardship for travellers, firms are taking advantage of excess coach capacity on some international routes to book the lower fares,” said Carpenter. “Companies can save thousands of dollars per ticket.”
The BTM data also reveal the state of business airfares in North America: stable but high. During the first quarter, the Typical Business airfare across 329 North American city pairs tracked by the BTM held steady from January through March, but was 12% higher than the first quarter of 2000. Typical Business is generally the lowest fully refundable economy-class fare available to business travellers with no more than three days advance purchase.
At the same time, the advance-purchase Lowest Discount fare across North America was 8% below the first quarter of 2000. But, evidence that companies are intent on cutting air travel costs appears in the distribution of tickets by fare class: the shares of both first-class and completely unrestricted full-coach tickets booked by American Express Corporate Travel customers in the BTM`s 329 city pairs have fallen to record lows. BTM first quarter data shows that business travelers booked 2% of tickets in first-class, down from the 3 percent share in the same period last year. Meanwhile, travelers booked only 7% of tickets in full-coach fares, a substantial five-percentage point drop from its 12% share the same quarter a year ago.
Most significantly, 91% of all business trips were flown on discounted economy-class tickets, including negotiated discounts and non-refundable fares, an increase of seven percentage points over last year. Seven years ago, in first quarter 1994, 17% of tickets were booked at full coach fares, and only 80% of business travellers used a discounted ticket. “With the weakness in the economy, it`s getting harder for companies to justify first-class travel,” added Carpenter. “Business travel standards have changed. The expectation today is that employees will use lower leisure fares whenever possible and use the company`s - not their own - preferred carriers for the negotiated corporate discounts.” As a result, the Average Fare Paid by business travellers across North America during the first quarter - including discounted and non-refundable fares was 6% higher than the first quarter of 2000, only half the rise of Typical Business during the same period.
First quarter BTM data reveal that, like global air travel costs, business travellers` average lodging rates rose significantly from a year ago. However, an analysis of rate trends within several top U.S. cities reveals savings opportunities. Across the U.S., the Average Booked Rate was up 7% above first quarter 2000. Pockets of healthy demand and tight room supply in several cities have kept prices high, for instance, in San Jose, in California`s hi-tech Silicon Valley, where average rates in the first quarter rose 16% higher than a year ago. In San Francisco, the average booked rate rose 9% higher than the first quarter of last year.
“There`s a different picture shaping up for the second quarter,” noted Carpenter. “As demand has eased somewhat due to a slowing economy, a lot of corporations have used this opportunity to renegotiate, and hotel rates are leveling off.” Similarly, in traditional business centres such as Boston, New York and Chicago, where demand is still significant enough to sustain higher rates, the BTM tracked year-over-year increases in average rates of at least 5%. Meanwhile, in meeting destinations such as Orlando, Miami and Phoenix, average rates were up 11%, 10% and 10%, respectively. The recent hotel construction boom has taken its toll in other cities, including Philadelphia, Salt Lake City, Charlotte, and Pittsburgh, where the average rate declined by 2 - 5%.
Despite overall increases in average rates across the U.S., BTM statistics on rate trends within certain cities` various business districts point to optional bargains for corporations. For example, in Atlanta, the midtown district saw average hotel rates in the first quarter rise 21% over the same time a year ago, driven up by rising demand and limited hotel development. Conversely, rates in Atlanta`s NorthWest/Cumberland and airport areas fell 3%.
Meanwhile, the international average booked hotel rate during the first three months of the year was up 16% over first quarter 2000. At that rate, overseas lodging costs rose by more than twice the U.S. increase. A look at 41 overseas cities spotlighted by the BTM reveals that several cities in Europe and Asia recorded the highest year-over-year increases in average booked rates. At hotels in Copenhagen, which is experiencing high occupancies and limited property development, rates in first quarter rose 33% higher than a year ago.
In Asia, where many hotels have raised prices as recession pressures eased, average rates during the first quarter at Beijing hotels rose 29% higher than first quarter 2000, while Hong Kong rates rose 22%.
Business travellers` car rental costs have climbed, too, pushed up by rental agencies` surcharges and rising fuel prices, which are often included in the total cost of a rental.
According to the BTM, the average daily cost of renting a car while on business in the U.S. during the first quarter was 4% higher than a year earlier.
“With rental costs up, companies are focusing on making sure employees mind rules on renting vehicles, for instance, filling the tank before returning a car to avoid high refueling charges,” said Carpenter.