Amex: Gap Closing On Increases

<B> Amex: Gap Closing On Increases</B>

By Sarah Welt

<I>New York</I> - Business travel prices are expected to increase 2 to 3 percent in 2000, the smallest overall increase in six years, according to American Express Consulting Services. The group released its Trends & Forecasts 2000 Preview last week to help buyers get a headstart on budgeting for next year.

The final forecast, which for the first time will include a prediction for telecommunications costs, will be published in January.

Amex noted that overall business travel prices have risen 5 percent so far this year, while they increased close to 9 percent between 1997 and 1998. It estimated that prices rose 12 percent over the 1996-1997 period. While there was a decrease in 1994 from the previous year, there consistently have been increases of about 5 percent or greater since 1994.

Meanwhile, typical business airfares--the lowest economy-class unrestricted fares--peaked at $956 for a roundtrip in the first half of 1999 and Amex predicted it will reach close to $985 next year--up about 3 percent. As for the $956 figure, "that is the high watermark for the airfare category in all the seven-and-a-half years we've been tracking it," said Consulting Services vice president Rusty Carpenter. He noted that so far in 1999, typical business is 7 percent higher than it was in the first half of last year. "And from the end of 1995 to July 1999, typical business has risen about 51 percent."

On the other hand, vacation fares have remained almost flat. "Three years ago, the average typical business fare was two-and-a-half times higher than the lowest available discount fare. Today, typical business airfares were nearly four times higher than the lowest discounted leisure fare," Carpenter said.

Despite the fact that typical business fares continue to rise, Amex does not anticipate that airfares will increase significantly next year for a number of reasons. According to the study, companies are having better luck negotiating discounts with carriers. That is due in part to the fact that rampant merger and acquisition activity is providing companies with more volume in return for deeper discounts.

Additionally, the usage of automated booking systems is causing travelers to be more likely to take the lowest fare. "They are more likely to accept lower fares with connections or advance-purchase restrictions because of the price differential," Carpenter said. Also making an impact is the fact that over the past five years, more corporations have tightened their travel policies, expecting travelers to accept the lowest logical airfare. Airfare prices also should remain lower for 2000 because the growth rate expected in capacity should outpace traffic.

The Duluth, Ga.-based Ciba Vision Corp. is expecting to see an increase next year on airfares of between 2 to 5 percent, but is trying to control costs. "We have increased videoconferencing capabilites and we are piloting a couple of self-booking tools. We are finding that people for some odd reason are choosing lower airfares when seeing it on the screen rather than hearing it from a travel counselor. That is helping to decrease costs and we are pushing people to get on our pilot program, which we hope to have corporatewide early next year," said head of corporate support services Ron Sharer.

At the Wayne, N.J.-based Reckitt & Colman, travel manager Amy Tansey predicted airfares will go up 6 percent across the board, but only expected them to go up about 2 to 3 percent at her company. To keep costs down the company is looking at alternative airports and connections.

Meanwhile, America's Best Contacts & Eyeglasses of Pennsauken, N.J., is "not seeing too much of a dramatic increase because we bargain shop and preplan very well," said manager of corporate administration Phyllis Witchey. "There have been slight increases but we are so cost conscious. We shop wisely and spend a lot of time educating travelers."

According to the Airfare Index, in the first half of the year, customers paid an average fare that was 38 percent below the typical business airfare over the same period.

However, the airlines aren't going to back down on what they expect from their corporate counterparts. Carpenter said companies can expect airlines to "press for more stringent adherence to contractual requirements." Additionally, "airlines have been investing in more sophisticated tracking systems to monitor their clients' performance against these goals."

Overseas, meanwhile, Amex forecasts fares to rise 1 to 2 percent. That is taking into account both full-economy and business class fares to Europe, Asia/Pacific and Latin America. According to the study, business class fares are expected to increase the most to Europe and Asia/Pacific. "From the U.S. to Latin America, high capacity growth and intense competition among the carriers should prevent any fare increases next year," said Carpenter.

The fact that the airlines are working on ways to provide Internet fares to corporations also will have an impact on corporate savings down the road. What that impact is, however, remains to be seen. Carpenter said, "We always hear anecdotally that people are able to find extremely low fares from point A to point B. What we don't hear about is the eventual cost. While on the surface it can appear to be a great opportunity, I think the challenge is how do you effectively manage that process and in fact capture the costs so you can compare apples to apples?"

On the lodging side, meanwhile, corporate room rates in the top 25 U.S. cities rose 5 percent in 1999 and are expected to increase 5 to 7 percent next year. Next year's average room rate in those cities should hit $188. However, Carpenter said that the 5 to 7 percent increase is lower than "the 7 percent jump in booked room rates from 1997 to 1998 and a marked decrease from the 12 percent jump in booked rates the year before."

The study attributes those numbers to the fact that corporations are changing travel patterns to stay in more moderately priced properties as opposed to luxury and upscale hotels. Additionally, "companies are developing full-service properties in secondary and tertiary markets," Carpenter said. A lessening in demand in the fourth quarter of 1999 also has attributed to better pricing in some areas.

Corporations are doing something right in negotiating. Carpenter said clients who booked hotels in the top cities for the first half of the year paid almost 11 percent below the average corporate room rate, including negotiated discounts.

In spite of that, Carpenter said the "general trend" is for hotels to give "companies a tougher time at the negotiating table. Next year, corporate buyers will see more contracts that impose restrictions on the availability of the corporate discount, including minimum-stay requirements, more black-out dates, less last-room availability and penalties for early departure." Additionally, he noted that hotels might charge additional fees for amenities such as in-room faxes, printers, email and Internet access.

Sharer said his average room night costs are $126, "which is about a 1 to 2 percent decrease from last year." He attributes it to asking travelers to stay in less expensive properties and improving negotiations with suppliers. "We are being more exact on room nights we expect in our top city pairs," he said.

Meanwhile, Witchey sees hotel rates going up about 5 percent because, "we find it at times hard to get rooms in more reasonably priced hotels and we are forced to go to more expensive ones."

In turn, average daily car rental prices are expected to go up 2 to 3 percent for 2000 and will hit $59. Currently, those costs are up 2 percent over the same period in 1998. "This increase is a far cry from the 19 percent jump in average daily costs from 1997-1998 when municipal city surcharges were climbing," Carpenter noted. He said costs are rising because the demand is there as well as the fact that some companies are adding their own city surcharges and charging for new technology.

However, companies are doing well at the bargaining table, negotiating away those surcharges and asking suppliers to unbundle prices.

Tansey noted that her company doesn't expect costs to increase until the second half of 2000 because it extended its existing car rental contract, but when that expires it could go up to 3 percent.

Sharer said he expects car rental costs to go up at least 2 to 3 percent because rates really remained flat for Ciba Vision in 1999.

New this year to the study is telecommunications. Amex expects those costs to rise 7 to 8 percent next year. Last year, as part of its Survey of Business Travel Management, was the first year that telecommunications accounted for 5 percent of T&E. Despite the fact that telecommunication rates are going down, carrier competition is expected to drive wired service costs up. Total corporate telecommunication costs are expected to rise due to expanding voicemail services, Internet access fees and the use of corporate cell phones.

Tansey said that the Amex prediction of 7 to 8 percent seems a bit high. "We see some very creative contracts and negotiations going on out there. We see telecommunications come under travel a lot more quickly than it would have in the past because it is such a negotiable, non-production spend item. We are considering placing it under non-production spend because it is very negotiable and traceable and you can go out to suppliers and fight for a better rate." She added that rates might increase 4 to 5 percent but not 8 percent. "I think there is going to be heavy competition."

According to Witchey, telecommunication costs aren't really going up. "The company is using more cell phones, everyone has cell phones now, so that is an additional cost, but I think it is a trade off for calling card costs and at one time we had special phone lines. Now it is all exclusively cell phone."

Meanwhile, rising labor costs are expected to help raise restaurant prices by 2 to 3 percent next year.