2009 Budget Planner: Corporate Buyers To Face Whopping Airfare Hikes

Average airfares this year have done nothing but rise, and the industry consensus is that the trajectory will continue through the fall, winter and throughout 2009—leaving companies, even those expecting to take fewer business trips next year, to budget more for each air trip they will take.

As carriers cope with historically high fuel costs and have better positioned their pricing power with large-scale capacity cuts, the bulk of which take hold in the latter half of 2008, airfares are poised to continue dramatic upward movements.

Carlson Wagonlit Travel in a late August forecast said the cost of domestic airfares is likely to rise by up to 12 percent in 2009, while international airfares are expected to increase between 16 percent and 20 percent.

CWT is attributing that significant growth to rising airline fuel costs, additional fees and surcharges, capacity cuts and more general economic factors.

Though BCD Travel has yet to release its own forecast, due this fall, Bob Brindley, vice president of Americas for Advito, BCD's consulting division said travel buyers should prepare for airfare increases.

"If oil stays consistent where it is, higher fares are a safe bet, especially with a lot of the other things happening on mergers and acquisitions front and capacity reductions," Brindley said. "All those things point toward prices not coming down. I have seen a lot of clients looking at potentially controlling their volumes, but because of price increases, they may still end up spending as much as they spent last year."

That is the thinking on airfares at BearingPoint. Travel manager Laurie Manning noted, "I have a rising commodity on my hands and I will have to take that into my considerations and benchmarks."

"Companies will have to budget more for airline tickets—that direction is a safe recommendation, as airlines think about ways to offset this increase in operating costs from fuel, which accounts for 40 percent of their operating costs," said Herve Sedky, American Express Business Travel Global Advisory Services vice president and general manager. "As corporations start to feel the impact of the reduced capacity, the supply and demand will be such that, obviously, fares will go up. Moving forward, I predict there will be different factors that impact the increase of fares. I think supply and demand will make an even bigger impact than the cost of fuel."

Domestic airfares during the second quarter this year reached a seven-year high, increasing 10 percent over the same period last year, according to American Express client data pulled for its quarterly Business Travel Monitor. Meanwhile, average one-way international airfare reached the high-water mark for the second quarter since American Express began measuring such data in 1999, growing 11 percent from the same period last year.

American Express said its clients paid on average $260 per way for domestic tickets—$24 more than the second quarter this year compared with the same period in 2007. On the international front, exit-North America fares to other regions averaged $1,980.

Though International Monetary Fund chief of transportation Caro Cook acknowledged the organization continues to tighten its travel budget, she confirmed what travel buyers have seen witnessed this year and expect to continue into next: "The cost of airfares is only going up."

Though companies are faced with rising air prices, Sedky and others noted several tactics companies can implement—and have already put in place—to soften the blow.

Carlson Wagonlit Travel in its forecast report said preferred supplier adoption, advance airfare purchases and use of restricted airfares, among other methods, yield corporate travel savings.

American Express' Sedky said corporate clients increasingly are enforcing advance purchase policies and encouraging travelers to trade down to economy tickets.

"Advance purchases in most instances, though not in all, yield savings," Sedky said. "When companies are looking at this return on investment, it's about how you stretch this dollar and take it further. Advance purchase is a great way to do this. The other trend is down-trading," he said, regarding business class usage among corporate travelers.

Sedky said 89 percent of domestic purchases were discounted coach fares, showing "that more travelers purchased tickets in advance." He said advance purchases could save companies up to 17 percent on domestic fares, noting that companies that shifted from a 7-day to a 14-day advance purchase policy saved on average $49 per segment.

Though travel expense reductions often are among the first levers senior management pulls to reduce costs, some companies are keeping their sights on the purpose of travel: to cultivate revenue.

ConocoPhillips travel manager Allen Plumley said the amount of travel at companies "is so tied to the business." As an energy company, Plumley said, "We're growing our budgets and will be traveling more."

ConocoPhillips' 2007 U.S. booked air volume was $50 million, and Plumley expects that to grow to $60 million this year and continue upward into 2009.

Booz Allen Hamilton travel manager Jack Lever agreed. "When there's growth in the business, there's growth in travel, and that's the nature of the beast: We travel because we're a consulting company," he said. "We're anticipating not only employment growth, but T&E growth."

Still, American Express' Sedky said many companies are growing more strategic in the ways they spend their travel dollars.

"Companies are looking at travel in a slightly different way—they're looking at travel as an investment," he said. "Instead of worrying as much about the specific cost of the airline trip and all the related costs of sending someone to a particular destination, they're looking at this, and asking, 'How do we know this is a good use of investment dollars?' "