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Business travel: On the ground is the name of today's game
Conference Calling at it's peak
February 22, 2009
Conference calling is at its all time high. Companies are resorting to cost saving means to lower their costs while still maintaining the same result if not better. The following article offers a look into our current situation as well as future.
As the recession deepens, business travelers increasingly are staying on the ground.
Workers aren’t traveling to conferences for training and networking. Company meetings take place via conference call instead of in person. And when they do travel, corporate fliers are doing it on the cheap, taking shorter trips, flying on discount fares, and squeezing into coach rather than the more comfortable — and expensive — business and first-class cabins.
"Business travel is certainly down, there’s no question about it," said Lesley Harris, president of Travelocity Business, the corporate division of the Southlake-based online travel agent.
Worldwide, premium travel — first- and business-class fares typically purchased by corporate fliers — dropped more than 13 percent in December, according to the International Air Transport Association. The increase far outpaced the decline in coach-class fares, which dropped 5 percent during the month.
The decline in business travel is an ominous sign for the nation’s airlines. The major carriers traditionally earn a majority of their revenues from business fliers. That’s because corporate customers tend to pay more for last-minute refundable tickets, are more likely to fly in first or business class, and traditionally favor the most convenient schedules rather than the cheapest price.
For carriers like Fort Worth-based American Airlines, which has long focused on corporate accounts, a drop in business travel is far more serious than a similar decline in leisure passengers.
For Dallas-based Southwest Airlines, the decline in business travel makes it harder to achieve its goal of increasing corporate passengers. Still, that airline’s cheaper fares may help attract some business fliers who want to travel more cheaply.
Hotels have also reported slowdowns as travel demand weakens. Marriott International, for example, recently reported that revenue per available room was down 8.3 percent for the fourth quarter of 2008. Room revenues at Choice Hotels International are expected to drop by 12 percent during the first quarter of 2009. And the Gaylord Texan resort in Grapevine laid off 30 people last week, in part because of rising cancellations of group meetings.
Rental-car companies are also hurting. Hertz, for example, recently cut 4,000 employees, blaming reduced rental demand.
"Everyone is tightening their belts," said Chuck Sharp, president of the American Small Business Travel Alliance, based in Flower Mound.
Many analysts have been cautiously optimistic about the airline industry’s fortunes this year despite the downturn. That’s because of a sharp decline in the price of jet fuel, which will save the major carriers billions of dollars, as well as cuts in passenger capacity, which tend to keep fares higher.
AMR Corp., American’s parent, is forecast to earn a profit of $1.67 per share this year, for example. Southwest is expected to earn 37 cents per share, while Houston-based Continental Airlines will earn $4.71 per share, according to analysts.
But continued erosion in business travel could cause the environment to change dramatically. A pair of surveys by the Association of Corporate Travel Executives demonstrates how quickly companies have revised their attitudes toward travel.
In September 2008, 33 percent of travel managers reported that they would spend less on business travel this year, while 36 percent said they would spend more.
In a follow-up survey conducted in February, the number of managers reporting cuts in their travel budgets had swelled to 71 percent. Just 8 percent said they would spend more on travel in 2009.
The collapse of the global economy "has a massive trickle-down effect on business travel," said Susan Gurley, the group’s executive director.
She noted the jobs that have been eliminated from companies in recent months, which means "literally thousands of business travelers now removed from business travel circulation."
Hardest hit has been travel for company meetings, conferences and training. Travel for internal meetings was down by as much as 30 percent in January compared with a year earlier, said Harris of Travelocity Business.
"Sales [travel] is still hanging in there," she said. Businesses still value face-to-face meetings with clients, particularly as competition for deals increases.
Even vital trips like sales calls are changing. The use of nonrefundable tickets for domestic trips, which are typically the cheapest fares available, is up 50 percent among business travelers, Harris said.
"That means they’re absolutely sure they have to go," she said, because of the penalties for making changes to such tickets.
Rush to coach
Airlines are reporting an exodus of travelers from business and first class to coach seats in the back of the plane. It’s been particularly evident on international flights, where premium seats can cost thousands of dollars more than coach.
"As corporations are tightening their travel budgets, we are seeing a double-digit decline in international premium traffic year-over-year," said John Tague, chief operating officer at United Airlines, in a recent conference call with analysts.
Edward Bastian, president of Delta Air Lines, said his airline was experiencing similar trends.
"Business travelers are purchasing their tickets further in advance to take advantage of lower fares, and they’re flying the front cabin much less often," he said.
That’s likely part of the reason some airlines are scaling back on long-haul flights to Asia, which are aimed primarily at business travelers.
American, for example, recently delayed the launch of a new flight from Chicago to Beijing. Several other carriers have also delayed new service to China.
Most experts don’t expect a rebound anytime soon.
"We had some hope that it would pick up in 2009," said Scott Kirby, president of U.S. Airways, in a conference with analysts.
"It has not."