Knowing that airfares have fallen to their lowest level since 1998, one might think this would be a time for business travel buyers to rejoice. Instead, it is a time of uncertainty and danger during which travel negotiating and managing steps should be taken carefully. Demand has dropped as many companies continue to enforce deep cuts in employee travel to offset lost revenue. Corporate performance further has been crippled in recent months by a spate of scandals uncovered among accounting, consulting and telecommunications firms.
With yields down throughout the business travel industry, things are getting even tougher for already hard-pressed suppliers, especially airlines. Having experienced nearly a year of daily losses in the millions—and with another hit to come this week from the mourning and fear generated by the anniversary of last year's horrors—the airlines hardly are having an auspicious start to the traditionally strong fall business travel season.
Things are so bad for air carriers today that they have no choice but to make significant changes in the way they do business. Dire circumstances breed drastic actions and desperate moves. Under such conditions, change is possible for the better or the worse: Buyers might enjoy further negotiating opportunities or be burdened with a new level of costs or both.
The acute need for airline executives to not just stand there but do something has turned the normally sedate end of summer into a lively period of trying new maneuvers for getting out of the fix they are in before the fall season begins. Carriers have announced cutbacks in capacity that will pare the industry back down to the lean visage of last fall, while further eliminating perks and adding fees for travel agencies and business travelers.
With new changes led by Continental and United in tightening up the latitude previously enjoyed by agencies in interpreting fare rules and limiting upgrades; the latest attempt to advance domestic airline consolidation, the Delta, Northwest and Continental codesharing agreement; and the most drastic action yet, led by US Airways, making nonrefundable tickets unusable after the ticket date
(see story)—a lot is in motion.
These moves seem more like an attempt to shore up the old airline pricing structure rather than to redefine pricing and build a new structure. Perhaps that's because airlines have not yet figured out a better way to price a perishable commodity, fraught with inherent risk.
We disagree with some in our industry that choose to view the redefinition of nonrefundable fares as a step toward airfare reform. Instead, we see it as the last best effort to save a system based on the premise that business travelers should pay more for flexibility. Whether a stricter interpretation of nonrefundability will be enough to prop the fence back up between business and leisure fares, however, remains to be seen.
With such a marked rise in the use of nonrefundable tickets by business travelers in the past few years, what is clear is that this decision represents a big hit to many companies in the short term and forces them to scramble to use nonrefundable tickets by Oct. 1. Also apparent is that the business travel industry is going through gut wrenching change that is far from over. Network carriers know that they have to do business in a smarter way and they are working hard to rationalize capacity and maximize efficiency.
Buyers must beware of and help shape the changes afoot, being mindful that it's in their best interest to have viable network carriers.