Airline Suppliers Regain Pricing Power over Business Travelers

As airfare rates tick up and discounts disappear, companies must be more aggressive in seeking best rates, American Express Business Travel warns

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Houston — August 11, 2010 — If you've spent any time in the air recently, you've probably noticed that planes are more consistently full, and that your choice of flights has been more limited than in the past, as a result of airline capacity cuts.

Now all the airlines' efforts to make their way through the recession and strengthen the bottom line is paying off for them but hitting business travelers in the wallet, according to the latest North America Business Travel Monitor (BTM) data and analysis from American Express Business Travel, which found that airfares have increased substantially in the first half of 2010 versus the same period of 2009, climbing steadily towards pre-recession levels as of June 2010.

"The travel marketplace continues to change quickly as recovery occurs, creating new challenges for both travel managers and business travelers who became accustomed to significant discounts during the recession," said Christa Degnan Manning, director of eXpert insights research with Global Advisory Services at American Express Business Travel.

Manning said that airlines have taken many steps to position themselves for survival over the past 18 months to strengthen themselves and drive revenues and profitability. "With travelers on the road again, air suppliers have gained ground in pricing power, and the end of hotel rate drops is likely near. This means companies have to reconsider contracts, policies and cost-savings tactics that may no longer be relevant," she said.

Hotel rates have decreased slightly over the same period, with rate changes varying dramatically based on region. Gradual upticks in hotel prices over the first half of the year with further increases in demand indicate that hotel price declines will likely cease and even begin to rise in the 2011 negotiating season, according to the report, which details trends in US domestic and international airfare and hotel rates paid this year.

Fuller Planes, Better Profits

In the last year airlines have carefully calibrated capacity to ensure fuller planes and better profitability. This translates to higher pricing for available seats and fewer promotional discounts as travel demand increases. Today average rates are the highest they have been since the first half of 2008. BTM data shows trips to key business hubs around the world have increased, indicating the primary contributing factor in the price increases is that business people are on the road again.

Manning said that with volume returning, airline alliances and mergers increasing, and increased competition for the airplane seats available, companies need to be more aggressive this year to find the best fares. "This also means travelers need to change behavior and be aware of preferred supplier discounts where applicable and to plan ahead more effectively to make sure they get the seats they need at the best price," she said.

Year-over-year Mid-year International Airfare: Increased 8 percent
  • Mid-Year 2010 Average International Airfare Paid — $1,768
    • Q1 2010 Average International Airfare Paid — $1,726
    • Q2 2010 Average International Airfare Paid — $1,810
  • Mid-Year 2009 Average International Airfare Paid — $1,642
  • Mid-Year 2008 Average International Airfare Paid — $1,946

Year-over-year Mid-year US Domestic Airfare: Increased 9 percent
  • Mid-year 2010 Average Domestic Airfare Paid — $233
    • Q1 2010 Average Domestic Airfare Paid — $225
    • Q2 2010 Average Domestic Airfare Paid — $240
  • Mid-year 2009 Average Domestic Airfare Paid — $213
  • Mid-year 2008 Average Domestic Airfare Paid — $247

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Travelers Slowly Returning to the Front of the Plane

The BTM data also reports use of business class for international flights has seen a slight increase year-over-year, a positive indication of business travel policies and budgets loosening. However, international business class usage is not nearly as high as traditional levels, reflecting that the "New Normal" of more cost-conscious business travel may be here to stay.

  • Mid-year 2010 International Business Class — 41 percent
  • Mid-year 2009 International Business Class — 38 percent
  • Mid-year 2008 International Business Class — 50 percent

International Destinations Show Uptick

London, Frankfurt and Paris remain the top traveled to destination spots for US-based business travelers to Europe, with all three seeing notable volume increases in the first half of 2010 from the same period last year. London saw a 24 percent increase, Frankfurt saw a 30 percent increase, and Paris saw a 16 percent increase. In Asia, Tokyo, Shanghai and Singapore remain on top as the most popular traveled to business destinations; year-over-year Tokyo saw a 24 percent volume increase, Shanghai saw a 68 percent increase, and Singapore saw a 47 percent increase in the first half of 2010.


Overall business traveler rates paid on average are slightly down year-over-year in 2010. This is due to the very competitive negotiating environment for corporate rates at the end of 2009 for the 2010 contract year. Of note, companies with hotel programs managed by American Express Business Travel's Global Advisory Services achieved a 9.8 percent year-over-year average rate reduction in 2010 over 2009 contracts in the last year.

However, the hotel industry rate changes vary by business destination. On the US domestic front, May showed particularly strong average rates. As the first half of 2010 came to a close, common US domestic destinations — including Los Angeles, Atlanta, Seattle and Washington D.C. — showed rate increases, albeit in single digits. From an international perspective, June showed the highest average rates so far this year, with popular destinations — including Amsterdam, Athens, Madrid, Rome and Zurich — seeing notable business traveler average rate paid increases across the second half of Q2.

Year-over-Year Mid-year International Booked Hotel Rates: Decreased 2 percent
  • Mid-year Average International Booked Rates Paid — $230
    • Q1 2010 Average International Booked Rates Paid — $228
    • Q2 2010 Average International Booked Rates Paid — $232
  • Mid-year 2009 Average International Booked Rates Paid — $235
  • Mid-year 2008 Average International Booked Rates Paid — $267

Year-over-year Mid-year Domestic Booked Hotel Rates: Decreased 2 percent
  • Mid-year 2010 Average Domestic Booked Rates Paid — $149
    • Q1 2010 Average Domestic Booked Rates Paid — $146
    • Q2 2010 Average Domestic Booked Rates Paid — $151
  • Mid-year 2009 Average Domestic Booked Rates Paid — $152
  • Mid-year 2008 Average Domestic Booked Rates Paid — $151

Manning noted that as hoteliers have less ability to constrain capacity, the last negotiating season saw strong competition to lock in business traveler loyalty with more discounts for 2010. However, travel category managers and meeting planners will need to evaluate destinations carefully when looking at hotels for 2011, she warned.

"While some regions are flat or even slightly down, others are rebounding incredibly strong. Buyers will need to educate themselves on local markets, benchmark rates with peers, and even weigh alternative options to find the most cost-effective options next year," Manning concluded.