Business Travel: Corporate Changes Have Consequences for Airlines

To better understand the reasons for the recent collapse in the business of business travel, you might want to go back to last summer.
On second thought, who wants to do that? Suffice to say that last summer, with record air delays and deteriorating passenger service, was a memorably unpleasant ordeal for frequent business fliers.
The experience was so bad that several industry analysts suspect the current declines in business travel, which are responsible for some major airlines having their worst year in a quarter century, are partly a result of corporate travelers and travel managers` telling the airlines: We`re mad as hell, and we`re not going to take it anymore.
It isn`t quite that simple, of course. Actually, a convergence of outrages has helped to land domestic airlines in their current pickle, according to Kevin P. Mitchell, the chairman of the Business Travel Coalition, which represents the interests of corporate travel buyers in public policy and industry affairs.
“First there`s the 77 percent increase in business air fares since 1996,” Mr. Mitchell said. “Then there`s the passenger service problem, which really showed its ugly head with Northwest Airlines during the snowstorm of 1999.” That was when several thousand passengers sat angrily on the runway in Detroit, trapped on Northwest planes for up to eight hours—with no food, with toilets overflowing and surly employees barking at them—during a snowstorm.
That widely publicized incident started a movement that led to passage of a national passenger rights bill. “It was the Fort Sumter of the passenger-service war,” Mr. Mitchell said. Then came the third affront, last summer`s systemwide gridlock. “I think all three have now been emblazoned in the minds of travelers, as well as senior management,” Mr. Mitchell said. “They`ve converged. People are saying the system`s broken.”
Trying to gauge just how broken it might be, Mr. Mitchell`s organization recently commissioned a detailed survey of domestic companies that do a significant volume of business travel. While anecdotal, the findings suggest bad news for airlines, hotels, car rental companies and others hoping for a quick resumption of the good old days in business travel.
When they began pulling back on travel during indications of a general economic slump in the winter, companies began “watershed” reviews of existing travel policies that are likely to have long-term effects on the freewheeling business-travel market, he said.
Of the 65 corporations participating in the survey, 86 percent said they were reducing business-travel spending by an average 28 percent. What`s more, corporate travel managers said that unlike the previous big pullback in 1991, current cutbacks were not short term, but were rather part of a long-term strategy whose goals include reducing overall travel, forcing lower airline fares and hotel rates and substituting rapidly improving technologies in teleconferencing for some business trips.
The trade group said it was also exploring new strategies for having business travelers use secondary airports to save money and reduce delays, and channeling more business to low-fare airlines. When will business travel snap back? Industry analysts acknowledge they are only guessing when they say that the start of next year is a good bet. This year`s prospects remain dismal for most domestic airlines, many of which are expected to post losses.
On the other hand, people are still certainly flying, largely because leisure travel—prompted by the current spate of virtually unprecedented airline fare sales and Internet travel- site discounts for summer and early fall travel—remains quite strong. And it is even hard to say how much business travel has actually declined in sheer quantity, and how much of it has been rerouted by savvy travel managers into the lower-fare, advance-purchase, nonrefundable tickets that are more typically used by leisure travelers.
Airline revenues are down sharply. But passenger traffic in June wasn`t off much. In general, domestic flights in June took off only slightly less full (75.5 percent on American Airlines; 78 percent on Continental, for example) than in June 2000, which was a record travel month. Also, in general, revenue passenger miles, a benchmark representing one paying passenger flown one mile, were down slightly domestically and generally up internationally in June. Continental, however, was up both domestically and internationally, and the low-fare Southwest Airlines, a popular carrier with business travelers, said yesterday its revenue passenger miles rose a healthy 7 percent in June.
Last week, Brian Harris, an airline analyst for Solomon Smith Barney, wrote in a report to clients that airlines were experiencing a “buy down,” in which many business travelers were behaving like leisure travelers, using more advance-purchase, lower-fare tickets despite the reduced convenience. The National Business Travel Association predicted recently that business travel, which currently accounts for more than $185 billion in annual spending by domestic companies, would grow to twice its current size in five years. That estimate is based on projections of sharp growth in international business travel, coupled with improvements in air-fare distribution and other factors that “will open the door for additional travel by companies” that once tended “to stay home because of high travel costs,” said Eugene Laney Jr., director of information and legislative services at the industry trade group.
One of the abiding effects of the current slowdown is that when business travel does rebound, airlines may be seeing less per-capita revenue from passengers paying the highest fares, which has long been the source of most airline profits. Another is that the growth in private business jets, especially the booming fractional-ownership segment that several airlines have expressed interest in entering, is likely to continue. Still another is that once the dust settles, corporate travel managers are likely to have a lot more power in negotiations with airlines and hotels.
Business travel “is not all going to snap back at once,” Mr. Mitchell said, “because companies are putting these measures in for long- term strategic benefit, and they`re not going to want to see those savings evaporate.”