Cos. Reconsider Breadth Of Premium-Class Air Policies

Several carriers' aggressive promotions of their premium-class seats have led to corporate travel buyers finding it increasingly difficult to deny their international travelers class upgrades, despite continued budget constraints and projected domestic fare increases.

Industry insiders expect year-over-year price increases of about 5 percent for domestic fares in 2006, a result of fuel surcharges and the effects of airline sector turmoil.

To temper these conflicting pressures, corporate travel buyers creatively are devising and applying company rules pertaining to business- and first-class tickets.

"Companies are taking a more serious look at premium-cabin policies," said Scott Gillespie, CEO of Cleveland-based Travel Analytics. "It's standard cost pressure—nothing fundamentally new there."

What is new are the innovative ways that companies are looking to relieve that pressure. Tactics include shifting some travel policy decisions to department heads and pushing for upgradable coach tickets and 50-day reservations.

At Taro Pharmaceutical Industries Ltd., an Israeli pharmaceutical company with U.S. headquarters in Hawthorne, N.Y., the luxury of business-class seats now is doled out to travelers at the discretion of department heads, following a recent change to company travel policy.

Previously, business-class fares were permitted only on overseas flights that exceeded a certain number of hours. While upgrades still are allowed only for transoceanic trips, their availability is limited by individual departments' budgetary constraints and the decisions of those departments' executives, said Robin Buzzeo, director of corporate travel for Taro.

"Things have changed—the economy, the way people view travel and the value they place on business-class seats," said Buzzeo, who has seen some department heads ask their employees to take a long-haul coach trip the day before a meeting and rest during an extra night in a hotel, as opposed to the more expensive option of investing in a business-class seat for the same purpose.

"The policy is giving the individual department more shared responsibility in making travel decisions," she said. Buzzeo said she expects the travel policy change to result in fewer business-class fares for her company.

Some travel management companies are seeing corporations push their travelers to buy full-fare coach tickets. Vicki Rush, CEO of A & I Travel Service in Memphis, Tenn., has seen an increase in corporate policies that restrict air travel to coach class, but allows a traveler to spend his or her own money or frequent-flyer points for an upgrade.

Rush estimated that companies are buying more of the lower-priced business-class fares on the market and flyers are getting bumped up via points at their own expenses, but that overall corporate spending on business fares remains about the same.

"Business travelers are just being smarter about how they're getting to business class," Rush said.

Dan Boehm, president of Atlanta-based Boehm Travel, said that when full-fare coach tickets are bought, three out of 10 times the traveler is able to upgrade. He observed that many carriers have reduced the number of available first-class seats, or done away with the class altogether.

Other creatively designed premium-cabin policies include the "chairs-by-day, beds-by-night" program for international travel, in which coach class travel is mandated for daytime flights, and business-class tickets permitted for overnight trips.

The policy can result in savings averaging 20 percent to 25 percent per trip, said Travel Analytics' Gillespie, who has approached some of his corporate clients with the concept. Several have expressed interest in the policy, though none have adopted it.

That is not surprising, as historically companies have been hesitant to pinch their cabin policies.

"There has been a reluctance to punish the international traveler," Gillespie said, "but the chairs-by-day, beds-by-night policy undermines that resistance." Employees can be expected to work during daytime air travel, while a well-rested worker can be worth the investment of a premium-cabin overnight ticket, he argued.

When travel budgets were particularly tight a few years ago, several companies mandated travelers take coach trips across the board.

"As much as anything, that was just a technique to eliminate the trip in first place," forcing the employee to question whether air travel was the only way to conduct business, Gillespie said.

One company reported that instead of suffering through an overnight coach flight to Asia, employees would conveniently find ways to communicate with overseas clients and colleagues while remaining stateside.

In most cases, however, such policies did not produce the intended results, Boehm Travel's Dan Boehm said. "I'm not losing business to telecommunications," he said. "Businesses still want that face-to-face meeting—not over a TV 1,000 miles away."

In fact, Boehm said, he has corporate clients who will reschedule a long flight to ensure they will receive a business-class seat.

Today, flat no-business-class policies are rare—especially for flights exceeding eight hours, a standard cutoff point at which many companies allow business-class tickets.

At those companies at which booking premium seats is permitted, A & I Travel's Rush has seen more executives require that travelers plan far enough in advance to take advantage of 50-day business-class fares.

However, Dan Beschloss, executive director of Valerie Wilson Travel in New York City, said that plan-ahead policies rarely work for business travelers.

"The average business traveler cannot take advantage of those 50-day advance fares," he said. "He doesn't know what he's doing six to eight weeks before departure."

Corporate buyers' efforts to keep business-class travel under control is in direct competition with carriers' efforts to make the class more appealing: Business-class fares are dropping and amenities are improving, while coach is increasingly cramped.

"In the domestic market, there are more and more seats in smaller planes," Rush said. "Every international carrier and domestic first-class carrier is doing extraordinary things in the front of the plane. It mystifies me."

Gillespie said that the competition for business-class travelers makes it harder for corporations to tighten cabin polices.

"You're taking away an increasingly attractive product," he said.

Cendant Corp. in July 2004 implemented its first cabin policy, and a simple one at that: All travel within the United States must be in coach class, while business-class seats are allowed for overseas trips.

The new policy has resulted in increased purchases of international business-class tickets.

"However, budgets and cost still dictate class of service booked," said Wendy Blaney, vice president of corporate travel for the large-market, Parsippany, N.J.-based company.

Blaney said she hasn't seen any major changes in premium cabin policy among many other corporate travel buyers—despite what she perceives as a concerted effort on the part of the airline industry to change them.

"Many airlines were hoping that with simplified pricing, corporate travel managers would take a look at their cabin policy and take advantage of lower first-class ticket prices," she said. "That didn't happen."