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Domestic, International Airfares Lowest Since 2005

August 25, 2009 By: George Dooley

Corporations are continuing to scale back on business travel spending and frequency, despite domestic and international airfares remaining the lowest since 2005, according to American Express Business Travel (AEBT). AEBT released its Q2 2009 Business Travel Monitor (BTM) data, finding that the average domestic booked hotel rates remained flat year-over-year, but decreased two percent from Q1 to Q2.

Car rental rates posted a slight decrease of 3 percent in Q2 2009, both from the previous quarter and the prior year.  In addition, airlines are switching gears and are competing heavily to gain the business of a smaller pool of business travelers.

The Business Travel Monitor revealed that international and domestic airfare prices decreased year-over-year in the second quarter of 2009. Mixed results are seen in hotel rates year-over-year where rates decreased internationally and remained flat domestically.

Highlights of the Q2 BTM included the following:

*    Average International Airfares Paid Decreased 19 Percent Year-Over-Year

*    Average Domestic Airfares Paid Decreased 18 Percent Year-Over-Year

*    Average International Booked Hotel Rates Decreased 12 Percent Year-Over-Year, but Increased 6 Percent from Q1 to Q2

*    Average Domestic Booked Hotel Rates Remained flat Year-Over-Year, but Decreased Two Percent from Q1 to Q2

*    Car Rental Rates Posted Slight Decrease of Three Percent in Q2 2009 both from the previous quarter and the prior year

"Despite widespread discounting and trading down in business travel, we are seeing a leveling in pricing and even an uptick in some areas in our Q2 versus Q1 data, as well as, in our monthly BTM data," said Christa Manning, director, eXpert insights and research, Global Advisory Services, American Express Business Travel.

The Business Travel Monitor, the industry’s pricing benchmark published by eXpert insights, the newly created research arm of Global Advisory Services, tracks a variety of travel expense categories including published and purchased airfares captured across hundreds of domestic and international routes.

"With demand still down significantly versus last year there are many savings opportunities in the market for savvy procurement and travel management professionals. Its a critical time for companies to have an aggressively managed business travel program to help lock in competitive rates and effectively control costs while keeping travelers on the road,” Manning said.

There are several factors which led to the decrease in international airfares paid, AEBT said. One key factor is that companies are employing the cost saving measure of requiring travelers to use of coach class seats instead of business class. In the second quarter, 36 percent of booked travel was in business class versus 50 percent in the second quarter of 2008. Another reason for the drop is that airlines are making lower cost fares more available as they compete internationally and deepening corporate discounts on the majority of fare classes in Q2 2009.

Airfares continued to fall due to a drop off in demand as economic conditions remained challenging, as they have since late 2008. The decrease can be attributed to lower fares becoming more available through the airlines, and corporate policies requiring travelers to book further in advance for those lower fares.

New hotels expanding globally increased supply and drove international average booked rates in 2008 down by five percent. So far this year, average room rates are up six percent from Q1 in Q2 internationally, which can be attributed to a number of European cities seeing increasing occupancy which pushes rates upward.

Slowing demand for domestic hotel bookings and increased availability pushed prices down nearly three percent in North America last year. This year Q1 to Q2 average room rates have decreased two percent.

Manning said, “If buyers haven’t looked at hotel rates since the end of last year, now is an ideal time to analyze hotel rate potential savings for 2010 corporate programs. There is an opportunity to secure significant discounts based on continued market pressures, but companies will have to negotiate effectively as hotels compete aggressively for the business buyer and resist further rate drops.”

In Q2 2009, the overall cost of car rental decreased slightly from Q1, which can be attributed to difficult economic conditions which have led to changes in company and traveler behavior. An overall lower demand and reduced pricing is the net result of these conditions, AEBT reports. Also contributing are slightly reduced inventories at the rental car companies and rental firms aggressively negotiating with corporate buyers to lock in more consistent volumes of business.



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