statement
Business Fare Survey Results Misleading
RADNOR PA., September 20, 2006–The Business Travel Coalition (BTC) today responded to an American Express quarterly survey published this week (The Business Travel Monitor), which tracks 329 heavily traveled routes in the U.S. The survey revealed that average domestic fares-paid for business travel in the second quarter of 2006 on these routes rose to $247 one-way, up 13 percent from $218 a year ago. The travel company’s Press Release headline read in part: U.S. Domestic Airfares Surge 13% Year-over-Year in Second Quarter.
BTC chairman Kevin Mitchell stated, “Similarly eye-popping newspaper headlines this morning tell an incomplete story about what is going on with business airfares. This wire service headline is typical: US Business Flight Costs At 5 Year High, and an opening that reads, “US business travelers paid more for flights between April and June this year than at any time since the end of 2001…US domestic airfares have increased 13 percent in the past year...”
In reality, for many corporations, average fares-paid over a comparable period have risen in the low single digits only and some companies have seen their average fares-paid actually fall. Individual business travelers, who do not work for large corporations, would likely experience similar fare conditions as they travel throughout the system.
According to the Coalition, so long as a vast majority of business travelers on those 329 routes surveyed by American Express are actually purchasing business-type fares, then the survey is a useful proxy for purchased business airfares around the country. However, if the percentage of travelers purchasing business-type fares falls dramatically, which is what has happened in the past several years, then the survey results are less useful at best, and can be alarming and misleading at worst.
According to AirlineForecasts, LLC, in a recently released BTC report, high-yield business traveler traffic is approximately 50% of what it was prior to 2001. In other words, business travelers are purchasing all manner of leisure-type fares rendering the level of paid business-type fares an interesting but not very meaningful statistic. What’s more, the growing spread between leisure and business airfares is a less relevant metric than it was 5 years ago because business travelers are now part of the leisure crowd. (Download BTC report here: http://www.businesstravelcoalition.com/statements/5_yrs_later.doc.)
Yes, airline yields have risen significantly since the lows in July 2005, but they are still about 12% or so less than they were 5 years ago, with traffic up. In inflation-adjusted terms, average yields are down over 20%. Business travelers face little risk of the industry returning to the pricing-power days of the late 1990s because of the dramatic penetration of the low-fare airline segment. According to Air Transport World, “Compounding the problem [for majors] is the growing presence of low-cost carriers, which represented 12.3% of industry ASMs in the first quarter of 2001 and reached 18.1% in the first quarter of 2003… [Airline analyst] Higgins forecasts their share will rise to 27.5% in 2006.”
Furthermore, AirlineForecasts, LLC, in a just-released report on oil markets and jet fuel prices, now projects that jet fuel costs will average around $1.80 per gallon in 2007, which is less than the $2.20 that most analysts are currently modeling. This will provide approximately $6.5 billion in cost relief for the 12 major airlines, much of which will be transferred to the consumer in the form of lower fares. Moreover, lower fuel costs will result in higher capacity growth in 2007 - 3.5% versus 1.5% - (domestic) which in turn will put downward pressure on yields and average fares. This is all good news for the business traveler.