BTC To Airlines: Corp. Cutbacks Remain On Horizon

The major U.S. airlines can expect many of their larger and more important corporate customers to further cut air travel expenditures throughout 2002, many by as much as 20 percent, according to a recent survey by the Business Travel Coalition. Of 184 corporate and organizational travel buyers surveyed, 65 percent said the number of domestic segments flown in January and February already were lower year over year, with more than 28 percent reporting drops steeper than 15 percent. Further, three-quarters of all respondents said at least some portion of recent cutbacks are considered permanent.

These findings suggest that carriers may not gain the pricing stability needed to quickly align revenues and costs as many of their highest yielding passengers maintain or further reduce already lower travel activity.

The 2002 U.S. Business Air Travel Survey, sponsored by Unisys Corp. and conducted in collaboration with the Association of Corporate Travel Executives, was completed within the past month by travel buyers whose companies spend an average $15.8 million annually for domestic air transportation. Of the 184 respondents, 31 are members of BTC, a corporate travel buyer advocacy group.

The study cited several factors behind a second year of falling corporate travel dollars, including the perceived high price of business travel, viable travel substitutes, expanding use of low-fare carriers and alternative airports, the hassles of airport processes and business travelers booking cheaper, leisure-oriented fares. In fact, BTC during the past two years observed a 13 percent jump in the use of discounted domestic tickets and said the 3 percent decrease in respondents' average one-way ticket price from 2000 to 2001—down to $361.56—is "attributable to business travelers purchasing nonrefundable tickets." (See story, page 1.)

Six in 10 respondents said their companies expect to decrease air travel expenditures in 2002. One-third said the reduction will be between 6 percent and 10 percent, with another 20 percent expecting even deeper cuts. About 13 percent expect air spend to stay flat. Only 5 percent predicted costs to increase by more than 10 percent, including several consulting firms.

Travel substitutes, primarily video- and Webconferencing, are gaining momentum in Corporate America, and about 86 percent of this study's respondents said usage in 2002 will increase at their companies. Also on the rise is the use of alternative airports, identified as a continuing strategy by 59 percent of those surveyed, and an increase in car and train travel for trips under 500 miles; 62 percent have observed somewhat of an increase and 15.2 percent noted a substantial uptick.

For travel that does occur, corporations are not just booking their travelers on cheaper fares, but also are turning to smaller, low-fare carriers to find them. About 70 percent of respondents expect to book more segments on such carriers compared with last year, similar to the increase in 2001 over 2000.

Though most respondents do not expect their organizations to increase corporate travel activity and expenditures, they identified conditions necessary to raise booked segments to 2000 levels. The top answers were lower business fares, 55.4 percent, robust economic expansion, 46.7 percent, and a simplified and rational airfare structure, 38 percent. More than one-quarter of those surveyed said moderate economic expansion would be necessary.

However, BTC said the industry crisis "is far graver" than that of the early 1990s. "Strategies for inducing significant business traveler demand at profitable yields are few," the study concluded. "The alternative to reform—maintaining the status quo—is the high-risk position for airlines, their customers and all sectors of the travel industry dependent upon the return of the business traveler."