U.S. Domestic Average Airfares Rise as Airlines Flex New Pricing Muscle

Companies tighten T&E policies, toughen-up compliance and target indirect travel expenses to contain costs

New York — March 27, 2007 — American Express Business Travel has published its 2006 Business Travel Monitor, a retrospective pricing benchmark for air, hotel and car rental rates. The Monitor confirmed earlier American Express predictions that costs would increase across all transient travel segments as buyer demand remains strong amid thin inventory and increased supplier operating costs.

According to The Monitor, international airfares, international hotel rates and U.S. budget-tier hotels experienced the most dramatic increases.

"In line with our predictions, capacity constraints, strong demand and high fuel costs prompted transient travel prices to climb in 2006," said Mike Streit, vice president of American Express Business Travel Advisory Services. "Companies, however, heeded the warnings and looked internally to tighten policies, strengthen compliance and rein in indirect expenditures to hedge against the expected cost increases and challenging negotiating environment. These employee change management efforts helped to soften the expense impact and keep executives on the road."

Average Domestic Airfare Paid Increases 7.2 percent in 2006

The end of 2005 marked a six-year low in the average airfare paid by corporate travel buyers. By the end of 2006, the average airfare paid jumped $15 from $216 to a three-year high of $231. The instability of fuel prices combined with record-high load factors caused airlines to increase fares throughout the year.

Annual average domestic airfare paid:

  • 2000 — $259
  • 2001 — $259
  • 2002 — $243
  • 2003 — $243
  • 2004 — $225
  • 2005 — $216
  • 2006 — $231

Fourth Quarter Average Domestic Airfare Paid Decreases to Lowest Level Since 2005

Average airfare paid took a turn during the fourth quarter, trending back down to $216. This is the lowest average quarterly rate paid since the first quarter of 2005 when one-way domestic airfares averaged $202 and widespread fare reductions and simplified pricing structures were introduced on a national level.

Quarterly average domestic airfare paid:

  • Q1 2006 — $229
  • Q2 2006 — $247
  • Q3 2006 — $231
  • Q4 2006 — $216

"Companies began buying smarter and more aggressively managing employee compliance," said Streit. "During the last quarter of 2006, our data shows that clients had greater usage of discount coach fares and purchased more tickets in advance. These are some of the strategies we encourage clients to use to help avert rising costs."

Average International Airfare Records Double Digit Increases

The international airfare paid increased to its highest level since the Business Travel Monitor was first published in 1999. When comparing rates between 2005 and 2006, the increase was 5.8 percent. Over the last two years, the international airfare paid has risen by 12.8 percent following several years of relatively flat rates.

International average airfare paid:

  • 2000 — $1,468
  • 2001 — $1,461
  • 2002 — $1,473
  • 2003 — $1,469
  • 2004 — $1,514
  • 2005 — $1,614
  • 2006 — $1,707

"With global economies continuing to surge ahead, U.S.-based carriers expanded capacity to different regions, yet demand continued to outpace supply," said Streit. "Similar to the domestic landscape, strong demand, high load factors and rising oil prices remain the primary drivers for increasing costs."

Internationally, Asia continues to show the greatest demand increase regionally, particularly in China and India. Fares paid to this area increased 11 percent, the highest average increase in any region.

Average International Booked Hotel Rates Rise $18 in 2006

Costs for international hotel bookings continued to climb, ending 2006 up 8.5 percent, or $18 from 2005.

International average booked rates:

  • 2000 — $190
  • 2001 — $192
  • 2002 — $188
  • 2003 — $195
  • 2004 — $197
  • 2005 — $212
  • 2006 — $230

U.S. Budget-tier Hotels Experience Sharpest Price Increase Quarter-Over-Quarter

The sharpest increase domestically was found within the budget-tier hotel category. In four out of the past five quarters, across 34 top domestic markets, budget hotels cost more than or as much as economy-tier rates. In the fourth quarter of 2006, the budget category was up 19 percent compared to the same quarter in 2005.

Average Domestic Booked Hotel Rate by Tier

"Budget hotel rates increased to such high levels because they are trying to attract more of the business travel market," said Streit. "They are heavily investing in capital improvements such as room renovations and adding in-room amenities, in order to better position themselves competitively as occupancy rates remain high and companies start to trade down to lower-cost alternatives within their hotel program."

Car Rental Rates Continue to Ascend

A trickle-down effect has occurred in the car rental market forcing price increases. The cost of fleets has drastically increased from 12-20 percent, putting pricing pressure on the major car rental companies. Car rental firms have pushed their prices up approximately 4.5 percent in order to offset higher operating costs.

Average daily car rental rates:

  • 2000 — $61
  • 2001 — $63
  • 2002 — $64
  • 2003 — $65
  • 2004 — $65
  • 2005 — $66
  • 2006 — $69

"Car rental spend is too often left unmanaged," said Streit. "However, more aggressively managing car rental purchasing could be a hidden savings jewel for many companies. Those who closely manage car rental expenditures and aggressively bid their business can achieve savings in excess of 10 percent. We are starting to see many clients shift focus toward exerting greater control over this aspect of their travel program."

Streit added that the industry of business travel remains unpredictable, and the best way for companies to prepare for the unexpected is by taking a holistic approach to travel management, focusing on strategies that will help them make the most of every travel and entertainment dollar they invest.