Average domestic airfare hit a new six-year low last year, while international airfares and hotel and rental car rates all witnessed upticks, according to a report American Express issued today.
Domestic airfare last year averaged $216 following years of downward trending since 2000, when the average hit $259, according to the quarterly American Express Business Travel Monitor. However, domestic fares last year inched upward each quarter—from $202 in the first and $218 in the second quarters to $219 and $223 in the third and fourth. Many in the industry expect domestic fares this year to remain on a skyward approach.
"Despite rising fuel costs, U.S. domestic airfares for business travel settled at a six-year low in 2005, due in part to the introduction of simplified fares and more low-fare competition," said Andy McGraw, senior vice president and general manager of American Express Business Travel North America, in a statement. "For 2006, however, the pricing trend lines indicate that corporate travel buyers will face a tough negotiating environment across the board—whether sourcing air, hotel or car-rental inventory. The hotel industry, in particular, is already proving to be a true seller's market."
Monitoring 160 international city pairs, average fare grew to $1,666, representing a 7 percent jump. First class increased 4 percent, business class increased 5 percent and discount economy increased 9 percent, compared with the fourth quarter of 2004. In light of stronger pricing power on such routes, airlines in the past year have bolstered long-haul international service to lap up increased demand
(BTN, July 18, 2005).
"International route capacity is being consumed by strong demand," McGraw said. "As demand grows and capacity shrinks, the airlines have grown stricter on sticker prices. However, clients who maintain large preferred supplier volumes will continue to benefit from better deals down the road."
Meanwhile, increased business travel coupled with a stagnant hotel supply has given hoteliers the leverage to raise room rates. The new Business Travel Monitor shows average booked rates domestically have been on a steady incline since 2003, reaching $137 in 2005—the highest rate since 2001. Internationally, booked rates have increased even more drastically. In 2005, the international booked rate according to the monitor was $212, which represents a 15-dollar hike over the 2004 rate.
"As room prices top out at new highs, the corporate discount is disappearing—making the job of corporate travel buyers even harder," McGraw said. "The jury's still out on how long the hotel industry can maintain these increased rates."
The Amex data also show car rental costs rose 2 percent to a six-year high during 2005. The average daily rental was $66 in 2005, up a dollar from the year before. Daily rental costs as recorded by the Business Travel Monitor have been growing by about the same annual rate since 2000. At the same time, the average length of a car rental grew by 3 percent from last year.
"Business and leisure travelers returning to the road in record numbers are literally driving demand and prices," McGraw said. "It will be interesting to see if the suppliers can maintain this sales momentum through the year."