As 2005 comes to a close,
Business Travel News takes a look at the top five stories of the year:
1. Airfare Simplification
Delta decided in January to introduce simpler and lower airfares nationwide to give customers a cleaner pricing structure with fewer restrictions; not only bringing a long-awaited and fundamental change to airline pricing, but initially lowering corporate travel costs and providing new flexibility for travelers
(BTN, Jan. 17).
Changes included the end of the much-maligned Saturday-night stay requirement; the reduction of the ticket-change fee to $50 from $100; a $499 cap on one-way coach fares and a $599 cap on one-way first class tickets; and four levels of advance purchase coach fares of 3, 7, 14, or 21 days.
The move prompted other legacy carriers to adopt a similar structure, much to the initial chagrin of airline executives. Continental Airlines, for example, told investors at the time that fare reform would knock down annual revenues by $200 million. Other members of the industry suggested simplified fares would be anything but, as noted in one
BTN editorial
(BTN, March 21): "As other airlines widely or selectively match the new pricing and construct or deconstruct their pricing formats, more fare codes are available in a given market, creating confusing scenarios for corporate buyers attempting to reconcile the new and the old."
Though the basic structure of new published pricing models remains in place—with a few tweaks—airlines in the second half of 2005 successfully pushed through a series of airfare hikes, leaving many corporate buyers expecting higher average ticket costs for next year.
At the same time, rising ticket prices and improving revenue trends point to a possible airline industry recovery in 2006.
2. Registered Traveler
Following a controversial five-airport test run that ended in September, the Transportation Security Administration will launch its Registered Traveler program on a permanent and nationwide basis on June 20, 2006. The program is a fee-funded cooperative between private industry and the federal government to speed up airport security screening for travelers who pass background checks and volunteer biometric information like fingerprints and iris scans
(BTN, Nov. 14).
The National Business Travel Association and the Association of Corporate Travel Executives applauded the program for increasing the level of air travel security and shrinking the screening process at airports. The American Civil Liberties Union, however, said the program could jeopardize traveler safety by allowing members of terrorist sleeper cells to obtain false identification and become registered travelers, thereby evading detection.
Verified Identity Pass operated the Orlando template, the first program to be funded, operated and marketed by an airport and its private-sector partners. Likening the program to an automated teller machine, Steven Brill, CEO of Verified Identity Pass, said his company is working with competitors and TSA to establish interoperable guidelines so compatibility is not an issue come the summer 2006 launch.
3. Fuel Prices
Rising fuel prices crippled every corner of the travel industry this year, causing carriers to cut flight schedules and transportation companies to adjust pricing—even prompting the IRS to revise reimbursable mileage guidelines for U.S.-based corporations midyear.
AirTran CEO Joe Leonard told
BTN, "The question isn't if prices will go up. The question is when, and by how much
(BTN, April 18)?" At times, crude oil cost over $60 a barrel, with jet fuel exceeding $100 this year, consequentially issuing an ultimatum to airlines: ask passengers to assume some cost or fail.
Carriers responded by raising airfare and reducing or discontinuing flights that weren't profitable
(BTN, Oct. 17). Similarly, chauffeured transportation companies dogged by $3 per gallon gas adjusted pricing structures to reflect the increase
(BTN, Oct. 3).
Of no help to the situation was Hurricane Katrina, which exacerbated existing pricing problems by evacuating oil facilities in the Gulf of Mexico and causing pipeline power outages
(BTN, Sept. 19). The devastating natural disaster and its effect on fuel cost spurred the federal government to revise its reimbursement guidelines, allowing 48.5 cents per mile for the remainder of 2005. The IRS' actions were unprecedented, not just for the midyear adjustment, but also by waiting to determine the 2006 rate.
4. Airline Bankruptcies
Continental Chairman and CEO Larry Kellner in August predicted the industry would see more bankruptcies in 2005, and he was right: Delta and Northwest filed for Chapter 11 on Sept. 14 and Independence Air filed for bankruptcy on Nov. 7. The three carriers joined United Airlines and US Airways in what proved to be a tumultuous year for airlines.
Despite restructuring efforts, Delta and Northwest filed for Chapter 11 amidst rising fuel costs and Hurricane Katrina
(BTNonline, Sept. 15). Meanwhile, Independence Air, originally serving Delta and United airlines as feeder carrier Atlantic Coast Airlines, cited an unrestricted cash balance of $24 million before filing for bankruptcy
(BTNonline, Nov. 7).
"Since 2002, industry recovery has been just over a steadily receding horizon," said UBS analyst Robert Ashcroft
(BTN, Feb. 7). "This year will again be poor and 2006 will be the elusive transition year."
5. Hotel Strength
Unlike airlines, hotels saw a profitable year, sequentially investing in renovations and gaining ground in buyer negotiations. PricewaterhouseCoopers predicted industry profits would reach $20.8 billion in 2005, the highest since 2000.
As a result, travel buyers can expect tougher negotiations for 2006 contracts, as hotels push for substantial rate increases and reduce the number of corporate deals
(BTN, Oct. 3). "Some chains that are taking a very bullish approach are limiting the number of contracts that they are even willing to offer to below five," said Kim Maschoff, WorldTravel BTI Travel and Procurement Solutions director of hotel business consulting. "They're saying, 'We only want to have two contracts here.' Everything is going to be very market-specific. That's the challenge and this will be one of the challenges that we will have this year."
Strong occupancy and revenue levels are expected to continue through 2007.