Hands On Tomorrow: Fares, Fees To Rise, Upping Air Travel Costs - Business Travel News

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Hands On Tomorrow: Fares, Fees To Rise, Upping Air Travel Costs

October 15, 2010 - 11:05 AM ET

By Jay Boehmer

No matter which way you slice it or whose forecast you adhere to, airfares across most major regions and cabin classes are poised for year-over-year growth in 2011, following steady air travel price increases throughout this year.

2011 Budget Planner - Air AmexThough projected airfare increases vary by forecast provider, consensus has emerged on several 2011 trends: Fares by and large should grow by low-to-mid single-digit percentages, capacity will remain constrained, demand and fare growth will moderate from the increases seen this year and ancillary fees will continue to cloud the true cost of corporate air travel.

BCD Travel's Advito consulting unit expects airfares next year will grow by low-to-mid single-digit percentages in all regions, following fares that have risen "sharper and faster" this year than originally forecast.

"Because the yields have been rising this year, load factors are still strong and demand is still relatively strong, carriers have been able to generate significant average price increases through yield management in closing off the lower fare buckets, without necessarily putting big increases in published fares," said Advito vice president Bob Brindley. "This year, it's very difficult for travelers to find space on the airplane, let alone get the really cheap fare."

Demand and fares have risen dramatically in 2010, said American Express Business Travel Global Advisory Services Group director of research and media Christa Degnan, with some air segments, such North American trans-border business class tickets, up in price as much as 49 percent year over year. Meanwhile, Degnan said demand similarly had grown by double-digit percentages this year across many segments, with North American long-haul business class volume up 30 percent and short-haul up 11 percent.

According to its 2011 forecast, American Express is expecting increases in overall air pricing, which include up to 6 percent growth in economy short-haul fares from North America and up to 7 percent in long-haul business fares from North America. Carlson Wagonlit Travel expects domestic economy airfares, international economy fares and international business class tickets each to grow between 3 percent and 5 percent in 2011.

2011 Budget Planner - Air AdvitoEgencia, meanwhile, is expecting a lower range of fare growth in North America in 2011, with fares flat to slightly up. Egencia said fares to and from Houston, Phoenix and Denver should rise 7 percent, 6 percent and 5 percent, respectively, and fares to New York, Philadelphia and Seattle would fall slightly. Contrary to other forecasts, Egencia expects airfares to be lower for exit-U.S. international trips. "Prices were up pretty dramatically last year, and we have a feeling that will be difficult to contain," said Noah Tratt, Egencia's vice president of supplier relations for the Americas.

According to Air Transport Association data, year-over-year domestic airline yields—which represent the average price passengers pay to fly one mile—fell every month in 2009, but have been growing every month this year, by as little 0.7 percent in January and as much as 17.7 percent in June. Still, domestic yields for the first eight months of 2010 fell nearly 4 percent below those posted in the first eight months of 2008.

Looking at base fares, Brindley said, "By the end of this year or early next year, from an air perspective we are going to be back to those 2008 levels," but was quick to note that 2008 was broken into two distinct segments: the pre-recession first half and abyss in corporate demand and pricing that marked the fourth quarter. "While we may be back fourth quarter of this year to the fourth quarter 2008, airfares in the first or second quarter next year may still be a little bit under first and second of 2008, and then by third quarter, we'll be back to parity," Brindley said.

"I think the carriers would say that they're not yet back to pre-recession levels, though in some markets, we're there," said Carlson Wagonlit Travel director of air consulting Joel Wartgow. "There are some markets where the fares are exceeding pre-recession levels, but I think in general the industry would say that fares are not back to where they were. Travel buyers have to ask, with all the ancillary fees, are we paying as much or more than we did back in 2008, considering all the bag fees and other ancillary charges?"

Other travel management company analysts warned the actual cost of air travel likely would be higher for many corporations, as forecasts look only at base fares and do not include ancillary fees.

For example, American Express in an Advisory Services report issued earlier this year said many organizations estimate ancillary fees to top off at 5 percent of overall travel spend, though without accurate measures, "that estimate is believed to be on the low end," and could be as high as 15 percent, Amex said, though analysts agreed it would vary greatly by company.

Though growing, the rate of fare increases is expected to abate. For example, ATA yield figures show decreases in the magnitude of fare growth in its last two months of data. "We're still forecasting increases, but they're nowhere near as large as this year," said Brindley.

2011 Budget Planner - Air CWTOther trends similarly point to a broader slowdown in the recovery. The International Air Transport Association last month reported that year-over-year international airline demand growth slowed in August, increasing 6 percent, compared with nearly 10 percent passenger traffic growth in July. Noting that traffic began to recover in summer 2009 after some of the biggest traffic drop-offs in history, IATA said the industry is beginning to lap last year's "post-recession rebound," meaning slower year-over-year growth ahead. Still, August global passenger traffic remained 2 percentage points above the pre-recession levels of early 2008.

"The slowdown of demand in August is consistent with our forecast for a tougher end to 2010 as government stimulus monies run out without having generated significant improvements in employment," said IATA director general and CEO Giovanni Bisignani. "The bounce from restocking is over."

This report appeared in the Oct. 11, 2010, edition of Business Travel News.

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