Rising Fares Lead Travel Cost Hikes

November 15, 2002
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Higher airfares will generate the largest share of rising costs for business travelers next year, as airlines seek to recoup post 9-11 security costs and to stem continued operating losses.

Three recent forecasts for business travel costs show airfares rising next year at greater rates than other costs such as lodging and car rentals.

The National Business Travel Association, consisting of more than 2,000 corporate travel managers and service providers nationwide, forecasts a 7 percent increase next year in air travel costs, pushing the average business airfare to $1,179. The increase reflects the present economic woes of the airline industry that are furthered by a reduction in travel volumes and inability to make corresponding cost cuts, said Sylvia Ross, manager of information and legislative services at the NBTA.

“We’ve certainly looked at where the airlines are and what they’re trying to do in 2003,” Ross said. “They haven’t been doing well and a lot of their fleets are sitting and not being used. They have to make their money somehow.”

Past increases in air travel costs typically have been a reflection of inflationary pressures, Ross said. The association a year ago forecast a 3 percent increase in airfares.

Airlines’ growing labor and security costs and ongoing operating losses are now figuring into the equation and pushed the forecasted increases higher, she said.

“They have to stay alive and the only way to do that is to slightly increase rates,” Ross said.

The NBTA forecasts that overall costs for business travelers will increase 5 percent in 2003 over 2002. Corporate car rental costs and hotel rates will each increase 2 percent, according to the NBTA forecast issued late last month. The overall average cost to rent a car for business use will grow to $68 per day, the association stated.

Part of the rising costs are the result of reduced travel volumes stemming from security concerns and the soft economy that has forced corporations to cut travel budgets and tighten travel policies.

“Corporations have changed the way they purchase travel,” association President Kevin Iwamoto said. “Moving into 2003, our forecast shows that business travel will resume as the economy recovers. Yet overall travel spending will remain flat in the coming year as corporations continue to focus on the bottom line.”

American Express, in its annual forecast of business travel costs, foresees a 3 percent to 4 percent increase in typical airfares across North America for 2003. It defines typical as the lowest fully refundable economy fare with up to three days of advanced purchase. The increase comes after a year with virtually no change in fares.

American Express predicts lodging costs will stay flat or grow by only 1 percent as hotels struggle with low demand and an excess of rooms. Car rental costs will rise 2 percent to 3 percent in 2003, according to the financial services company’s recent forecast.

Adding to the cost of business air travel is a move by many major airlines to impose a $100 fee for standby flights and implement nonrefundable rates and other restrictions.

Business travelers who fly can still save money by purchasing leisure-class tickets, although some airlines have begun to exempt certain low-fare categories from negotiated corporate discount programs and have established nonrefundable rates that render an airline ticket worthless if a traveler misses a flight, according to cost forecasts.

“Now, more than ever, it’s critical for corporate travel managers to communicate to employees the importance of carefully planning trips to minimize the potential of losing the entire value of a nonrefundable” ticket, said Brian Mogler, vice president for supplier relations and consulting for American Express Corporate Travel.

Another forecast, issued in late October by Philadelphia-based corporate travel manager Rosenbluth International, sees domestic airfares rising 4 percent to 8 percent in 2003.

Rosenbluth forecasts hotel rates in North America to decrease 5 percent to 10 percent. Car rental rates will remain steady, the firm predicted.

All of the forecasts are based on present conditions, including concerns of a war in the Middle East. If the U.S. does go to war in Iraq, “all bets are definitely off,” Ross said.

Airfares, driven in part by increased jet fuel costs, would go even higher, she said.

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