Many corporate purchasers today are paying more for tickets than they did at the beginning of 2005 when Delta Air Lines led the industry in reforming published pricing. For others, savings are apparent but not necessarily to the extent indicated by preferred carriers during contract renegotiations earlier this year. Even when excluding corporate discounts, changes to published business fare levels are difficult to assess—varying by fare type, market and carrier in question—but recent data suggest fares purchased by many corporate travelers have risen steadily since January.
Nonrefundable airfares, for example, on average rose 13 percent from $204 one way in January to $230 in April, according to New York-based Harrell Associates, which measures fares across 280 top domestic routes. Nonrefundable airfares are favored by many companies and include alternate business fares that have certain restrictions, such as an advanced purchase and a minimum stay, but are more flexible than typical leisure fares. Continental's April average was highest at $256, while American's and Delta's increased most, both in excess of 30 percent. Conversely, unrestricted refundable business fares are down markedly from last year and somewhat from the beginning of this year—31 percent and 4 percent, respectively.
"Fortunately, the lowering of unrestricted fares had less of a dilutive effect than many expected," said American Airlines CEO Gerard Arpey in an investor's conference this month.
That's because carriers this spring repeatedly raised most other fares. Through the middle of last week, airlines this year attempted 11 broad fare hikes in the domestic market, eight of which have endured, said a Northwest Airlines spokesman, who noted that three of six Northwest-led attempts had remained in place. That excludes targeted fare hikes attempted by various carriers in specific markets only.
Overall, network carriers raised hundreds of thousands of individual fares since February, lowered tens of thousands and filed between 60,000 and 185,000 new fares in each of the past four months, according to a new analysis conducted by Travel Analytics and commissioned by the National Business Travel Association. In that time period, the cumulative impact of all fare changes at five of the six largest network carriers was at least a $15 hike one-way. United Airlines was the contrarian, with only a marginal net increase.
For corporate buyers, published price increases are not necessarily the issue—most recognize them as necessary to help keep financially strapped airlines in the skies, especially when considering just how low fares had been. The concern, they said, is that average fare paid, when factoring in diminished corporate discounts and other factors, may be higher than expected.
"A healthy airline environment is good for all of us and lots of accounts feel the carriers' pain, but corporate travel managers feel like they are paying the burden," said Tim Fleming, executive vice president for sales, operations and client services at Omaha, Neb.-based Travel & Transport. "There is a general unhappiness with what has been done with fares."
One recent attempt to raise fares—the most substantial in 2005—fizzled early last week when some competitors did not match a Northwest Airlines move to add $50 to virtually all one-way business fares. That attempt tested the $499 cap Delta put on one-way fares as part of airfare simplification in January
(BTNonline, Jan. 5).Newly named Northwest vice president of passenger marketing and sales Jim Cron, in an employee memo, said "Delta's $499 cap is artificial and has actually depressed fares, which otherwise would have been included in recent fare increase initiatives."
Both Continental and United airlines matched Northwest's $50 increase, but American and Delta did not. J.P. Morgan Securities analyst Jamie Baker said Delta's $499 cap "will eventually need to rise for future industry fare increases to occur."
"You will see SimpliFares stick for now, but over the next year or two you will see movement," said Darryl Jenkins, visiting professor at Embry Riddle Aeronautical University, this spring. "None of us now has a long-term pricing strategy that will cope with low-cost competition or high jet fuel prices, so it will have to change."
Just before press time last week, Continental Airlines had raised many fares, pushing its cap on certain prices beyond $509, according to analyst reports. Northwest followed by similarly raising many business fares to $509 each way, according to a spokesman.
Meanwhile, on a smaller scale, JetBlue Airways last week confirmed it had raised by $5 one-way fares on transcontinental and other long-haul routes. The carrier's highest walk-up fares were excluded to maintain its $299 cap. American matched JetBlue's price hike, according to a spokesman.
Corporate CostsLike published pricing, average corporate air travel costs changed noticeably this year. The most recent American Express Business Travel Monitor shows the average one-way fare paid by the company's corporate travel clients in this year's first quarter fell to $202, a five-year low, "though our data suggest that with the rebound in business travel, rate rises may return in the near term," said Andy McGraw, senior vice president and general manager for American Express Business Travel North America. Amex said the average fare paid in April edged upward to $210.
Amex reported average fare paid across 160 international routes in the first quarter increased 4 percent versus last year. The average one-way business class fare ($3,803) and first class fare ($5,684) each jumped 7 percent. "We have seen a considerable increase in international travel costs, particularly across Asia, where robust economic growth continues to drive strong traffic demand," McGraw said.
Delta Air Lines last week raised by $10 the passenger surcharge each way on many transatlantic fares, citing rising fuel costs.
Meanwhile, airfare auditing firm Topaz International said the average cost per domestic passenger name record among the corporate travel programs it studies reached $550 in May, up from $406 in December. While Topaz numbers showed year-over-year reductions in January and February as the full impact of Delta-led airfare reform took hold, in each of the three months since, average costs per PNR were higher this year than in 2004.
"Since the announcements earlier this year of simplified airfares, Topaz has been watching carefully and cautioning clients that have asked about doing anything quickly with regard to making any changes to air contracts," Topaz president Brad Seitz explained. "Now we see that business airfares are in fact going up, and will continue to rise until there are competitive pressures to drive them back down. Corporations must keep a close eye on the actual rates they are paying and do their best to be equally competitive with their discounts."
Indeed, some companies that had anticipated lower overall rates as carriers adjusted corporate contracts to lower published fares are not seeing as deep of savings, if at all. "Our air spend this year is lower, but not nearly as low as the airlines said it would be," said one Chicago-area travel manager.
"It makes it increasingly difficult to promote savings, especially domestic, provided by our managed travel program," added a travel manager from a Boston-area firm."I have begun to more actively promote the service and convenience of the program as our savings levels have decreased."
Fluctuating published airline pricing long has been a way of life for corporate travel professionals seeking to keep a lid on travel expenditures. The more controversial developments occur when carriers test the waters of ticketing rule changes. US Airways, for example, drew fire from corporate buyers when it led the industry in restricting reuse of nonrefundable fares
(BTN, Sept. 9, 2002). Northwest, which had matched US Airways' policy, this spring adjusted its nonrefundable fare rules by requiring those travelers booked on such tickets and who wish to change their travel plans to make an exchange within 90 days after the originally ticketed flight. Travelers previously had a full year to make an exchange, provided they cancelled their plans before the original date of travel.
This month, the carrier again altered ticketing rules. Coinciding with its attempted $50 fare hike this month, Northwest changed its minimum-stay requirements from one night to two nights on many tickets. Cron told Northwest employees that the change would provide the carrier "valuable price segmentation, which the fare structure now lacks." That attempt also failed.