Carriers Raise Business Fares, Yet Again

<B>Carriers Raise Business Fares, Yet Again</B>

By David Jonas

The year's fifth fare hike, this time targeted strictly at business travelers and initiated by Delta Air Lines, was posted earlier this month and widely supported by the other majors. The hike was based on distance, up to $30 each way for walk-up business fares on longer routes. Southwest did not follow suit. Meanwhile, several buyers sounded off on fuel-related surcharges ahead of the Business Travel Coalition's testimony at a Congressional hearing last week, calling them fare hikes in disguise.

"Successive fare increases highlight industry pricing power against the backdrop of moderate capacity growth and unrelenting demand," said PaineWebber analyst Sam Buttrick in a research note to investors. "High oil prices and even higher labor costs make the industry more dependent than ever on continued sloppy corporate purchasing habits."

The latest American Express Business Travel Monitor found the average fare paid by Amex business travel customers in the month of July across 329 domestic city pairs, which factored in negotiated discounts and use of leisure fares, was up 7 percent versus a year earlier. However, the report suggested that corporations continue to successfully negotiate discounts, as the average fare paid was 42 percent below the typical business fare, a wider margin than the 39 percent reported for June.

The American Express Domestic Airfare Index also showed year-over-year increases for all four fare types tracked each month. On average, full coach fares across 215 domestic city pairs were up 12 percent in July, while typical business fares and lowest discount fares each jumped 11 percent. Average fare paid grew 6 percent, with double digit increases in Kansas City, Miami, Richmond, Va., Salt Lake City, San Francisco, San Jose and Seattle. Travel buyers now are faced with predicted overall fare increases for 2001 in the 5 percent to 8 percent range (BTN, Sept. 18).

Regarding fuel surcharges, BTC chairman Kevin Mitchell last week testified before the subcommittee on aviation. He suggested an industrywide initiative between buyers and suppliers to address oil price swings through contract addenda, an idea thoroughly rejected thus far by carriers. A draft of the addendum was sent to 1,300 buyers and is accessible at globalBTC.com.

Prior to his testimony, Mitchell compiled comments from corporate travel and purchasing managers. Said one buyer, "'Fuel surcharge is just a thinly veiled excuse for a fare increase, more so because the most recent increase is only added to the highest fare categories, clearly directed at the most inelastic group of customers, business travelers."

Others suggested the surcharges, if anything, should be based on actual miles flown per segment and that they resemble illegal price fixing. Also, some complained that carriers selectively choose markets to levy the surcharges, excluding city pairs competing against low-fare carriers. "Negotiating discounts now becomes more vague," said another respondent. "X percent off a very vulnerable unknown."

One buyer in support of the fuel surcharge said, "Let's not forget the airlines are in business, too. We have to pass on higher raw material costs to our customers or we eventually go out of business.