Cos. Continue To Tighten First, Add Business Class

Sharp increases in airfares and hotel rates combined with improvements in business class amenities prompted some buyers to tighten restrictions on first class travel in the past six months, but they are sending more employees on business class, consultants said.

The biggest volume increases in business class air travel are occurring on routes to India and China, said Dale Eastlund, director of air solutions for Minneapolis-based Carlson Wagonlit Travel North American Solutions Group. "We've seen an increase of 35 percent in business class going to China and 39 percent to India," he said, comparing data from 2006 with 2005. "It's speaking to the growth in those markets and where those companies are moving."

New Brunswick, N.J.-based Johnson & Johnson last year changed its policy allowing first class travel for flights of longer than six hours, said travel analyst Kathleen Byron. "Anything above six hours is now business class," Byron said, adding that improvements in business class amenities, such as lounge access, lie-flat seats and power sockets for laptop computers, contributed to the company's decision.

There wasn't much resistance to the policy, she said, as top executives supported and complied with the rules.

"In any policy, in terms of management and getting travelers to comply, it is so important to have executive support," said Eastlund.

Tightening premium class policies can generate significant savings for corporate travel programs, he said. Eliminating upgrades altogether can save tens of thousands of dollars. "Companies that are willing to reduce their travel policy to economy class are saving anywhere from $2,000 to $3,000 per ticket on average," he said.

Most companies are reluctant to take such drastic measures, however, as there are benefits to allowing executives to fly business class on long-haul flights. Two years ago, Redmond, Wash.-based Microsoft Corp. changed its travel policy to allow employees to fly business class on flights longer than seven hours, said Hernan Pelayo, senior manager of global travel.

"We felt people would be more productive when well-rested. Usually they travel the night before and start working directly after arrival, instead of spending an extra night at a hotel," he said.

Bob Brindley, vice president of the Americas for Advito, BCD Travel's consulting division, said price isn't the only factor companies take into consideration when reviewing their premium travel policies.

"There's obvious trade-offs," Brindley said. "On longer flights, there are a lot of reasons for your employees to fly with a little more comfort so they can get work done and arrive in better shape to immediately go to a meeting. There are very good and valid reasons to keep business class policies on intercontinental flights," he said, citing employee retention, corporate culture and reputation.

Brindley said some customers have asked for research on how traveler comfort affects productivity. "We have run some analysis that shows that if you fly on business class, it's perfectly acceptable for someone to land and go right to a meeting and have a full workday. If you are flying economy, you may have to travel a day earlier to have time to adjust," he said. "We have tried to quantify that, but there are some pretty big price advantages of an economy versus business class policy."

Carriers on transatlantic routes have made significant improvements in business class amenities, Brindley said, and now routes to Asian destinations are featuring some of the same benefits. Better business class means more companies may restrict first class travel to those areas.

"As more of those lie-flat business class seats become available, that may put some pressure on those first class policies to Asia," he said. "At a certain point, what's the real difference between that and first class?"

Such major carriers as American Airlines have announced plans to expand and improve business class amenities in 2007. American said it would introduce expanded tray tables, lie-flat seats, additional lighting and privacy screens to its business class cabins throughout the year. United Airlines business class offers travelers arrival suites at six airports equipped with showers and continental breakfasts. In addition, Northwest Airlines recently completed an upgrade of its business class services and offers lie-flat seats.

Premium class travel policies usually are not changed dramatically, but many companies see them as low-hanging fruit when trying to generate travel program savings.

"In times when fares start to trend up aggressively, corporations are trying to pull back wherever they can to reduce the cost of their travel," Brindley said. "If you had asked me six months to a year ago, I would have said there was a trend of more companies allowing first or business class domestically and staying in premium hotels. With the sharp increase in airfares over the last 12 months as well as the increase in hotel rates, clients are looking for ways to offset that through policy changes."

Companies also are trying to build consistency into their premium travel policies, he said. For example, some companies allowed business class travel on intra-European flights even when they restricted domestic U.S. travel to economy class. Switching to a lower class can save at least 15 percent, Brindley said.

Travel policy revisions are closely tied to the health of the economy and of the companies themselves, CWT's Eastlund said. "Changes tend to go in line with the economy. If the economy is going strong, policies remain more liberal. As the economy begins to soften, that's where we see more companies reviewing their policies to see if there is an opportunity to save money," he said.

Internet and technology companies in particular have begun to loosen premium class travel policies as profits increase, Eastlund said. Employees who qualify for an upgrade generally take at least three international trips a year and business class is permitted on flights longer than eight hours. Companies on the U.S. East Coast may use six hours as the threshold for business class upgrades, he added, so that flights to Europe qualify.

The launch of several all-business-class carriers, including Eos, MaxJet, Silverjet and L'Avion, on particular transatlantic citypairs has intrigued some travel buyers, said Advito's Brindley, but the service is too limited as of yet to fully incorporate them into a travel policy.

Smaller companies that are unable to leverage volume for discounts on regular carriers are finding such carriers offer significant savings, but also risks. Most of the new business-only carriers operate only two flights a day, using smaller European airports. If a flight is cancelled, a company may find it difficult to find an alternative, he said.