Breaking Travel News

Business Travel On the Rise as Competition Continues to Force Airline Ticket Prices Down

The cost of ticket prices are falling and business travel is on the rise as mainline airline restructuring and competition continue to pilot the recovery of the business travel market according to a benchmarking study done by BTI Canada of over 125 of its corporate travel clients. The Canadian study revealed that domestic ticket prices decreased by $26, transborder fares fell by $48 and intra-US prices shrunk by $65 over the second half of 2003. In addition, the average overall cost per mile continued to fall to $0.43 per mile from $0.46 over the same time period.

“Low-cost carriers are continuing to pressure legacy carriers to keep their ticket prices down,” according to Michele Ferrari, Senior Vice-President Client Management at BTI Canada. “Air Canada for example, in extending its restructuring plans to emerge from bankruptcy protection, has begun shifting focus to transborder and international routes, while reducing fares to compete with the domestic low-cost carrier market.”

BTI Canada also reported that the number of tickets issued to business travellers increased by nearly 13%, indicating that business travel numbers are climbing at a steady rate. “In addition to Canadian numbers, this rise in business travel seems to be a global trend,” Ferrari said. ” In fact, the International Air Transport Association (IATA) noted that worldwide passenger traffic rose by over 15% during the second half of 2003 and other industry organizations expect these numbers to rise overall in 2004.”

Despite the healthy passenger statistics, Ferrari points out that global carriers are still cautiously adhering to yield management policies. “Although higher passenger traffic is a welcome product of a strengthening economy for airlines, these airlines are reluctant to add more planes and routes given their continuing drive to reduce costs and increase profitability in an effort to fend off bankruptcy,” she said.

The BTI Canada Benchmarking Study is a semi-annual report that measures corporate travel activity booked by BTI Canada. The study is unique to the Canadian market as key Canadian business travel industry trends are identified and analyzed.


Ferrari also notes that although a buyer’s market currently prevails, fare increases are on the horizon with the continued high-cost of fuel.  Signs that higher costs are emerging are clearly evident in the international market place where BTI Canada’s data shows that the average ticket price actually increased by $77.50 to just over $2,375 over the second half of 2003. However, Ferrari says that although the cost of fuel has increased on a global scale, motivating airlines to attempt to increase fares, the competitive landscape has thus far restricted any significant fare hikes.

The study also found that Global Distribution System (GDS)-booked paper tickets continued to decline, dropping 2.5% and now account for only 8% of all tickets booked, while GDS-booked electronic tickets account for 52%. Non-traditional bookings - fares not accessible through the GDS - account for over 40% of all bookings, up 13 % since the second half of 2003.

According to Ferrari, “the substantial increase in bookings outside the GDS is evidence of a change in distribution in which legacy carriers are moving to lower cost distribution methods previously utilized largely by low-cost carriers. For instance, in 2003 Air Canada announced that selected discounted fares would be available only through their Web site. However, in July 2004 Air Canada made the decision to make these Web-only fares available through the GDS again. Although many carriers have negotiated with the GDSs to reduce their distribution costs, the market is still fluid as carriers continue to look for alternatives to cut costs.”

Ferrari points out that as legacy carriers attempt to fend off their rivals by reinventing themselves and lowering ticket prices, the competition may look to providing their clients with more comforts and amenities to compete themselves. Some emerging signs of this include the introduction of more routes, access to larger airports, the increase of strategic partnerships and the introduction of on-demand TV and leather seating in some low-cost carrier aircrafts.

“These improvements will come at a price and will inevitably put pressure on low-cost carriers to raise their fares,” Ferrari said. “For the time being though, travellers will continue to enjoy the lower fares offered by low-cost carriers as the competitive landscape continues to influence ticket prices.”

Study results also show that average ticket cost savings by Self Service Reservations (SSR) vs. non-SSR increased in the domestic (average savings of $110), transborder (average savings of $19), and international (average savings of $244) market segments. However, intra-US bookings were more cost-effective when booked with the assistance of a counsellor with savings of almost $6 per ticket.

“The widening gap between SSR and non-SSR average ticket price may correlate to the ‘guilt factor’ that many travellers experience when booking via SSR - travellers take more responsibility for the costs of travel when they see lower fare options,” Ferrari said.

The study also found that domestic hotel rates have increased by over 2.25% whereas transborder and intra-US hotel rates decreased by nearly 6% and 5% respectively. International rates on the other hand increased by nearly 5%, as the sector recovered from a notable drop in the second half of 2003. 

Although the overall average hotel rate remained fairly static, there were some significant changes in certain regions. Room rates increased most significantly in Ottawa by 6.25%, while Vancouver’s rates dropped by 8.3%. The average rate booked for other cities, such as Toronto, increased nearly 1%, Montreal less than 0.5%, and Calgary 3%.