Amex: U.K.-U.S. Airfares Plummeted In Second Quarter

Published business class fares from London to the United States fell sharply in the second quarter of 2008, following the massive expansion of ex-Heathrow capacity through Open Skies deregulation, according to American Express. Amex's Business Travel Monitor for Europe, the Middle East and Africa-a relaunch of its former European Corporate Travel Index-shows London-Newark fares plummeted 24 percent, while London-New York JFK was down 25 percent. Business class fares to Seattle and Los Angeles both fell 9 percent.

The comparisons are all with average fares in Q1. Amex did not have a comparison with Q2 of 2007 available at press time. However, they appear to illustrate the effect of increased supply on the transatlantic market from Heathrow, from where five airlines launched U.S. flights for the first time when Open Skies came into effect on March 30. Incumbent carriers at the airport responded by expanding U.S. service. The effect on what Amex calls "economy lowest" fares between the United Kingdom and North America was even more dramatic, with the average published price dropping 49.1 percent against the previous quarter.

Average fares may well move prove to have moved up again in Q3 and Q4 because supply is contracting once more. British Airways, Virgin Atlantic and Air France each have trimmed capacity on Heathrow-U.S. routes, while United Airlines already has pulled its post-Open Skies Heathrow-Denver service and Continental Airlines is closing all operations from Gatwick, London's second airport.

For the United Kingdom as a whole, Amex reported that average "economy lowest" fares decreased 7.8 percent in Q2 2008 compared with Q2 2007, but full economy fares, which business travelers often have to use for their greater flexibility, rose 9 percent. "Both of these are reflective of the ability of airlines operating from the U.K. to continue to increase fares for higher-paying customers, where travel demand is still strong, while cutting leisure fares to compete with no-frills low-cost carriers," Amex said.

Across all of Europe, "business lowest" fares in Q2 fell 4.3 percent, year-over-year, while "economy lowest" fares fell 10.9 percent. "While prices have fluctuated in economy class throughout Europe, fares in other classes, on average, have remained relatively stable," said Amex vice president advisory services Joakim Johansson.

The Business Travel Monitor also pinpoints Q2 as the period when hotel rates started to move downward in Europe. Average daily rates paid by customers of Amex's travel management company business in Q1 were up 6.9 percent on the same period in 2007, but in Q2 they were 3.6 percent lower than Q2 of 2007. Amex claimed that clients paid 37 percent lower rates in Paris and 32 percent less in Rome.

However, rates in cities with oil business connections, such as Stavanger, Norway, and Aberdeen, Scotland, continued to grow, as did several German cities, including Düsseldorf, Cologne and Hanover.

"The European hotel market is entering a new phase, with slower demand and lower rates," said Karen Penney, vice president business solutions for Amex. "Particularly, we notice that the financial sector downturn is making itself felt, with hotel rates decreasing in most European financial centers, such as London, Frankfurt, Paris, Geneva and Edinburgh."