Industry Research

Drop In Business Travel Slams Airlines, Hotels

Posted on April 22, 2009 by LCT Staff - Also by this author - About the author

NEW YORK — The deterioration in global trade and investment has taken a huge bite out the worlds' travel-related businesses in the first quarter, with airlines and high-end hotels reducing their prices significantly to attract a shrinking pool of business travelers.

The International Air Transport Association (IATA) said Thursday that for February premium airfare, the ticket of choice for most corporate travelers, plunged 21.1% from a year ago. At the same time, revenues have dipped an estimated 30% as carriers slashed their prices to attract fewer customers.

In January, premium travel fell 16.7%.

"Average travel distances are now getting shorter as long-haul international markets suffer most, as a result of the unprecedented collapse in world trade and investment flows," Montreal-based IATA said in a statement.

Travel on economy tickets posted a more modest decline, falling 8.3% for February, suggesting business travelers have been trading down to cheaper seats, IATA said. In January the fall was 4.7%.

Altogether, the number of international passengers fell 9.6% from a year ago, or 6% when adjusted for Leap Year, a slight acceleration from January when the decline was 5.6%.

Hotels are also getting whacked from the drop in business travel. Bookings for high-end hotels fell 29.4% in January, and 24.8% in February, according to data from Ovation Corporate Travel.

As with airlines, hotel operators have slashed their prices to attract travelers, with the average rates down 10.8% in January and 11% in February.

For March, average rates were down a whopping 22.3%, while bookings were down 24.8%, the travel management company said. Airline data for March is not yet available.

Correlations between airlines and the high-end hotels carry into specific regions. In February, Asia saw the steepest decline in premium traffic, falling 27.3% from last year, IATA said.

High-end hotels in the region also reported some of the biggest drops in monthly bookings, with Mumbai and Singapore down 62% each and Delhi bookings down 83%, Ovation said. Average rates also plunged.

For trans-Atlantic travel to and from Europe, premium travel fell 22.5% for February, IATA said. Hotel bookings fell 32.5% in Paris, 38% for Milan and 59% in Zurich. Frankfurt and Amsterdam faired better, with bookings down 14.7% and 6.1%, respectively.

On Wednesday, American Airlines parent company AMR Corp. (AMR AMR Corporation said its trans-Atlantic flights saw the largest unit revenue decline during the first quarter, with booking down 1.5 points for the remainder of the second quarter.

Bookings in general are showing a slight improvement from the deterioration seen in January, said Chief Financial Officer Tom Horton on a post-earnings call.

IATA said a slowing decline in travel deterioration between Europe and the Far East may be tentative sign the drop off has hit a floor. Europe to Far East premium travel declined 19.6% in February compared to 21.2% in January.

Source: MarketWatch

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