<B> Airfare Hike Fails</B>
<I>Highlights Rising Tide, Actual Vs. Typical Fare Gap</I>
By David Jonas
Despite being short-lived, last week's temporary 3 percent fare hike by four major carriers underscored the continuing trend of rising airfares. Indeed, business fares, both domestic and those originating in Europe, have increased by 6 percent and 3 percent, respectively, according to recent indices from American Express. In the United States, the differential between average typical business fare and actual fare paid reached an all-time high of 41 percent.
American and Delta led the year's fifth price hike, which was quickly matched by Continental and United and touted as a countermeasure to offset rising fuel costs. However, the other majors did not bite and the hike ultimately unraveled. "It will be back sometime before the end of the year because that has been the pattern," predicted Terry Trippler, airline expert at Onetravel.com. "Fuel prices, a double punch with the latest commission cuts and a higher than expected price tag on the customer service initiatives all have contributed to this latest push."
One industry insider said Delta--the first to rescind the hike--was forced to back off when US Airways, a direct competitor on the East Coast, held firm. "American and Delta have said they can accept fewer passengers as long as they can charge higher fares," he said. "Northwest needs more passengers as they continue their recovery."
Harold Seligman, CEO of Management Alternatives, said there isn't much corporate buyers can do about fare increases. "The airlines have yet to respond to an outcry from customers unless it becomes completely universal," he said. "All a buyer can do is try to negotiate a more aggressive contract when their current one expires."
In the United States, the average typical business fare for the third quarter was $976 roundtrip, up 6 percent from 1998, according to the latest American Express Business Airfare Index. Typical business airfares, defined as the lowest fully refundable economy class fare available for business travelers with no more than three days advance purchase, also were up a percentage point in September from a month earlier. Full coach fares were up 4 percent while lowest discount fares were down 3 percent.
Despite jumps in typical business fares, the Index holds some good news for buyers. Typical business fares are 41 percent higher than average fares paid, the widest quarterly margin ever recorded. Should the 3 percent year-over-year increase continue, the price differential would reach 50 percent by 2002.
"Though the rack rate looks higher, when all is said and done, the business traveler will have paid less in '99 than in '98," Trippler said, citing improved negotiating from corporations and sweeter deals from the airlines. "I have seen discounts of 25 percent from hub airlines in their hub city," Trippler noted. "The rack rate is becoming a joke."
Heather Garvelle, director of American Express Consulting Services, said the sizable gap can be attributed to a variety of factors. "Travelers in general are more sensitive to prices, more aware of travel policy and are using leisure fares more often," she said. "Also, many corporations are using nonrefundable fares as part of their core business travel program." Garvelle added that travel managers have become more sophisticated as they use new software tools to analyze travel patterns and empower themselves with additional leverage during airline negotiations.
Other factors include the proliferation of net fares, use of advance purchase fares and online booking systems providing the lowest available fare.
However, smaller businesses continue to take these fare increases on the chin since they do not have the clout and negotiating power of corporations with much greater travel volume.
Seligman said demand will continue to be strong in 2000 but inventory will not keep pace and prices will continue to increase. "Unless there is a slowdown in the economy, there will be difficult negotiations next year," he predicted.
Meanwhile, across the pond, business fares in 439 Western European citypairs--both intra-regional and intercontinental--have risen 3 percent in the past year, and 8 percent since 1997, according to the American Express European Corporate Travel Index.
First, business and full economy fares all have risen faster than economy fares. Matthew Davis, manager of American Express Consulting Services, Europe, attributed that to a substantial increase in low-fare carriers. "Fares used by business travelers from London to New York are up 50 percent in the past five years, due to growing demand," he said.
Overall, Amex said business class fares from Europe to North America rose 4 percent in the past year and 15 percent since 1997.
"On the continent, leisure fares subsidize business travel, quite the opposite of the situation in the U.K.," Davis noted. In fact, he said on a typical business fare, the cost per mile to New York from London is 53 percent more expensive than from Amsterdam, 63 percent more than from Frankfurt and 66 percent more than from Milan.