As the U.S. travel industry is on the cusp of another merger
between two large legacy airlines, much of the buzz around the travel water
cooler is how bad this is going to be for the industry. Again.
Remember, the mergers of US Airways-America West, Delta-Northwest
and United-Continental also spelled doom and higher prices. But somehow we are
still standing here.
So, what was the impact of those airline mergers on airfares
for business travelers?
To find out, a team of associates at Topaz International examined
information in our database to study airfares before and after those mergers,
evaluating from 2007 to 2012 systemwide domestic airfares and specific city
pairs.
Topaz reviewed competitive hub city pairs for the two
airlines before their respective mergers and the more restrained market after
the mergers established new hub-to-hub routes. An example city pair would be
Houston Intercontinental and Chicago O'Hare—a Continental hub and United hub,
respectively.
For the 38 markets reviewed from 2007 to 2012, 87 percent
showed increases in the average airfares paid by business travelers. In the
other 13 percent, there actually was a decrease in the average airfare paid.
The data support the perception by those travel managers who thought airline
mergers would result in an increase in prices paid.
However, when looking at the overall average airfares paid
for all domestic routes during the same time period, the results are not as
dramatic. US Airways saw a rise in the average airfare paid from $468 in 2007 to
$498 in 2012—a modest growth of $30 over six years. United saw a change during
the same time period from $581 to $578 (yes, a decrease) while Delta went from
$501 to $480. Are you sitting down, because that was a decrease too.
So what does this all this mean?
First of all, to their credit, airlines are getting smarter
about how they charge for services and how they control their costs. They are
controlling their seat inventory better, charging ancillary fees for optional
items and running more effective operations. The net effect on airfares does
not necessary tell the whole story.
Second, to assume that any changes in airfares are just the
result of a merger would not be prudent and is not implied in our study. The
most common factor that impacts prices is competition. This is evident in two
citypair markets where the post-merger prices declined (Denver-San Francisco
and Washington Dulles-San Francisco) most likely caused by stronger competition
in those markets.
So in the end, what is a travel buyer to do? I suggest three
strategies:
Focus on your numbers: It always is imperative to completely
understand your travel patterns and spend. You must know where to ask for
deeper discounts and how to deliver value to your airline partners.
Elevate competition: The ability for multiple airlines to
compete for your business will elevate your standing during negotiations. It is
not always easy, but it is necessary for you to be prepared to move your corporate
business to another carrier that may be hungrier for your business.
Deliver on your promises: To maintain your good standing in
the competitive marketplace you must deliver on your promises. This will show
to both new and old preferred carriers that you mean business. It also will
carry you a long way in your career.
The landscape of airfares is complex and changing. There is
nothing that can predict what will happen to airfares, and as airlines
constantly change their pricing models, the future is very uncertain. Travel
managers will be called upon to be more analytical and strategic in their
decisionmaking, thus making their roles more valuable to corporations all over
the world.
Brad Seitz is a
15-year veteran of the corporate travel management industry and currently is
owner, president and CEO of travel audit firm Topaz International.
This report
originally appeared in the August 2013 edition of Travel Procurement.