Industry Research

Airlines, Hotels Take Hit As Biz Travel Falls

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

NEW YORK — Airfare wars and room-rate promotions are usually aimed at vacationers, but airlines and hotels are resorting to similar tactics to regain their traditional cash cow — the business traveler.

Corporate travelers, who pay higher airfares when they sit in the front cabins of planes or book close to the date of travel, are flying coach more often — or not traveling at all during the recession. And their employers are booking fewer banquet halls and blocks of rooms, leaving many hotels pining for the sizable and reliable revenue that business meetings used to generate.

Partly as a result, several major airlines are expected to post losses for the April-June quarter when they report their earnings starting this week. And hotel revenue — which fell sharply in the first quarter from a year earlier — is not expected to show much improvement in the second quarter, either. Marriott International Inc.’s results are due Thursday.

Business travelers tend to generate a higher percentage of overall industry revenue than the percentage of total travelers they represent. Of the $641 billion spent by U.S residents in 2007 on domestic travel and tourism, roughly 33 percent came from business travelers, according to the U.S. Travel Association. But the number of domestic business trips accounted for less than 25 percent of that year’s 2 billion total domestic trips.

Boston-based aviation consultant Mark Kiefer of CRA International said the economy is keeping a lid on business travel this year.

“We have a case of certain sectors that were consumers of a lot of business travel, like banking and so forth,” Kiefer said. “The other issue we are grappling with are expectations. There is a lot of uncertainty about when the economy will turn around and by how much.”

Travel companies are using a range of strategies to lure business travelers. Hotels are offering bonus room nights, free snacks and drinks, and more flexibility on booking and cancellation policies. Airlines have been offering heavily discounted upgrades and business-oriented fare sales.

Discounts have helped lure some vacationers back onto the road. Deutsche Bank analyst Chris Woronka noted that, while U.S. revenue per available room, a key gauge of the hotel industry’s performance, was still down by a double-digit percentage since late June, it has shown a marked improvement because summer leisure demand has picked up.

But in a recent survey of 285 senior finance executives around the world, 87 percent said their companies plan to spend less on business travel this year. The American Express/CFO Research Global Business & Spending Monitor found 44 percent of the executives expect their companies’ travel to decline more than 10 percent.

The survey did find that most companies will continue to spend on travel that could generate revenue. Frank Schnur, of American Express’ business travel group, predicts that clients will continue to expect a financial return on their investments in travel, even after the economic recovery.

For now, many companies are cutting back. Drew Ramsey, a 33-year-old information security manager in Phoenix who is a Southwest Airlines frequent flier, says his company has essentially shut down business travel.

“Any business travel has to be a necessity; otherwise people are being asked to use videoconferencing or teleconferences,” Ramsey said.

Traffic in high-end airline seats fell 22 percent in April, compared with the same month a year earlier, according to the International Air Transport Association. Meanwhile, the number of travelers on coach tickets rose 0.3 percent.

With a shrinking pot of corporate travel dollars, airlines like Southwest are trying new strategies to get business travelers on board. Ramsey said Southwest offered to fast-track him to “A-List” status. That provides a year of reserved-boarding privileges to passengers who belong to the airline’s frequent-flier program and take a certain number of flights within a given period.

Airlines also are giving business travelers things like Wi-Fi, satellite radio, advance seat assignments and priority boarding to lure them in.

In the hotel industry, all kinds of chains that rely on business travelers are feeling the pain. Extended Stay Hotels LLC — which caters to business travelers who need longer-term lodging at lower rates — has filed for Chapter 11 bankruptcy protection, citing a heavy debtload and a sharp drop in business travel.

Starwood Hotels & Resorts Inc. is offering a 4 percent discount to business meeting planners who book an event for 10 or more room-nights at some of its brands, including the W, Westin and Sheraton chains. They also get a free snack break from PepsiCo Inc., through Aug. 31, and a hefty bonus of loyalty program points they can use for personal travel.

Hotels are not as agile because they typically negotiate corporate rates months or years in advance. So the rate cuts they’re offering now could have a long term impact on revenue.

Continental Airlines CEO Larry Kellner said at a June investor conference that his airline is working its “business (traveler) side very hard because ... we could also see a recovery much more quicker if we could get the business traffic back on the airplanes.”

Source: The Associated Press

View comments or post a comment on this story. (0 Comments)

More News

5 Ways To Sell Into The Luxury Travel Market

It’s not your father’s high-end market any more. These lessons apply to chauffeured transportation as well.

Trump Travel Ban Could Deter Business-Related Trips

Tech firms and multinational corporations have lashed out at the move, and some recalled employees traveling overseas.

Half Of Companies Allow TNC Use For Business Travel

A GBTA survey finds an increasing number of traveling employees using companies like Uber and Lyft.

Study Shows Jobs Rose In Taxi Industry Despite Uber

The authors believe this is the first serious look at the effects of the gig economy platforms such as Uber on jobs.

What Trump Means For Fleet-Based Businesses

Fleet expert: "If Trump eventually rolls back regulations in the automotive sector, he would likely stimulate growth."

See More News

Facebook Comments ()

Comments (0)

Post a Comment



See More

LCT Store

LCT Magazine - March 2017 $12.95 INT'L LCT SHOW ISSUE COVER STORY: * Innovate or Die: Show To Be a Business "Disrupter" * *


Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment


Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close