Categorized | Etcetera

2011 business travel forecast: Higher prices and more hassles…

Posted on 12 January 2011

More business travelers hit the road again in 2010, but that was scarcely cause for celebration, as more travelers competed for fewer airline seats while facing higher prices, new airport security hassles and major travel disruptions. Unfortunately, 2011 won’t bring much relief. Here’s how eight major factors will shape business travel in the coming year.


1. Clashing supply and demand


Business travel declined by 20% during the 2007-2009 recession, according to the National Business Travel Association (NBTA), but the trade group estimates U.S. based business travel spending increased by 3.8% in 2010 and NBTA forecasts a 6.7% increase in 2011, followed by a 6.9% jump in 2012. With airplane load factors already exceeding 80%, more travelers will mean more crowded airplanes, fewer last-minute seats for sale and a likely rise in airfares.


All forecasts call for higher airline and hotel prices in 2011. According to American Express Business Travel (Amex), the average domestic airfare for the third quarter of 2010 was up 6% over the previous year. International airfares increased by 8% during the same period. Amex projects domestic economy class airfares to rise 2% to 6% and long haul international business class fares to climb 3% to 7% in 2011.


Smith Travel Research (STR) says U.S. hotel occupancy rates increased by 4.4% in 2010 and STR expects another 1.4% increase accompanied by a 3.9% increase in average daily room rates in 2011.


One possible bright spot may be car rentals, where Amex projects strong competition might force a 2% drop in rental car prices.


2. Rising oil prices


While business travel is on the rise, so are oil and jet fuel costs. Jet fuel prices surged more than 40% in the past 18 months, according to the Air Transport Association. With the recession abating and increased oil demand from rapidly growing emerging economies like China and India, oil prices have reached $90 per barrel again and are likely to climb higher still. When oil prices topped $100 per barrel in 2008, many airlines added fuel surcharges and some cut capacity, eliminating routes no longer profitable with the high cost of fuel. Another oil price spike will trigger a new round of capacity cuts and fare hikes, wreaking further havoc on business travelers.


3. Fallout from airline consolidation


Recent airline mergers between Delta/Northwest, Continental/United, AirTran/Southwest and Frontier/Midwest/Republic are reshaping the air travel landscape for U.S. business travelers. More consolidation could be in the offing for 2011. Smaller airlines, like Alaska or US Airways are unlikely to remain independent in the long run, and even low cost carriers (LCCs) and regional airlines are in play. In the past, airline mergers have generally been bad news for business travelers, leading to capacity cuts and decreased price competition.


4. Increased reach of airline alliances


While airline mergers are often limited by foreign ownership laws, airline alliances continue to grow. The alliances now control over 60% of world airline capacity with more than 60 current and pending members including 25 of the world’s 30 largest airlines. Few places remain where alliances don’t reach and now they are even recruiting LCCs. While alliances help travelers maximize their miles with a single carrier and simplify airfare discount negotiations for corporate travel managers, the alliance oligopoly will likely lead to fewer flight options and higher airfares on many global routes.


5. More ancillary fees


The world’s airlines collected $22.6 billion in ancillary revenues in 2010, according to IdeaWorks, with $6.7 billion going to major U.S. airlines. That’s up a whopping 67% from 2009. Some of the increase is the result of higher checked luggage fees, but much of the increase comes from new fees, like carry-on bags on Spirit Airlines or Continental’s “fare lock” that allows travelers to hold a seat at a specific price for up to a week for a $5 to $9 fee.


Ancillary fees will rise again in 2011 as airlines invent new fees or add fees already charged by other airlines, like the one charged by some European LCCs for purchasing your ticket with a credit card. IdeaWorks projects ancillary fees to exceed $60 billion in revenue within the next few years.


NBTA and other consumer and trade groups are pushing for more airline fee transparency and disclosure, but that won’t curtail any fees.


6. Airlines missing from travel websites


Airlines have long sought ways to lure travelers away from travel agency websites to book directly with the airline. While most airlines no longer pay travel agent commissions, they still pay fees to Global Distribution Systems (GDS) that aggregate data from multiple airlines into the consolidated display preferred by most travelers and corporate travel managers.


In the latest skirmish, American Airlines removed its inventory from and Delta Air Lines pulled its inventory from a couple of smaller online travel agencies, as part of an effort to convince these retail sales agents to bypass the GDS and connect directly to the airlines’ computers. The resolution of this standoff is still in question, but we are likely to see more airline attempts at GDS bypass. In the long run, travel agencies will likely connect directly to most airline systems or GDS fees will be passed along to the traveler. Meanwhile, travelers cannot currently book flights on American and Delta Air Lines on some online travel booking sites.


7. Continuing security hassles


Ten years after the tragedy of 9/11/01, traversing airport security is still a miserable experience and perhaps worse in many ways. We remain in reactive mode and seem to keep adding new restrictions and more invasive screening procedures every time a new threat is perceived. The Registered Traveler program has been revived, but with service currently limited to Denver, Indianapolis and Orlando, it’s not widespread enough to bring much relief. Unfortunately, it is unlikely the security situation will improve in 2011 and could worsen as aviation faces new threats.


8. Few alternatives for stranded travelers


U.S. travelers got a break in 2010 with a new rule allowing passengers to disembark an airplane stuck on the tarmac for more than three hours. Meanwhile, major storms and volcanic eruptions wreaked havoc on air travelers on more than one occasion. No one can predict if there will be more air travel disruptions in 2011, but re-accommodating stranded travelers will continue to be a nightmare with fewer empty seats and no spare airplanes.

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