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Business travellers are disappearing
Question:
> Passengers to suffer clipped wings > By Amon Cohen / Financial Times > Published: March 10 2003 18:31 | Last Updated: March 10 2003 18:31 > Business travellers are disappearing.
That’s because they aren’t feeding us like they used to.
Response:
Passengers to suffer clipped wings By Amon Cohen / Financial Times Published: March 10 2003 18:31 | Last Updated: March 10 2003 18:31 Business travellers are disappearing. Numbers started to dwindle when the dotcom bubble burst two years ago, then fell precipitately after September 11 2001. A tentative recovery got under way this time last year but since the turn of 2003 the threat of war in the Middle East has renewed the reluctance to fly, especially among Americans. Evidence for a renewed downturn is growing. Continental Airlines reports that the number of miles flown by passengers last month was 6.6 per cent down on 2002, already well down on 2001. A survey of 250 US travel buyers by the Association of Corporate Travel Executives found that 32 per cent of companies had already cut travel further, in anticipation of a second Gulf war, and that 82 per cent intended to curtail trips if hostilities commenced. Gabriel Eshaghian, manager of global airline and car rental programmes for PwC, confirms gloomy prognoses outlined recently by the big airline reservations systems, which revealed poor advance bookings. "Airlines are telling me that advance bookings are looking awful, especially on transatlantic routes, where they are as much as 50 per cent down," says Mr Eshaghian. Hotels are suffering, too. PwC’s hospitality and leisure practice reports that hotels in New York saw their revenue per available room in January fall 6.6 per cent on the previous year. Initial reports for February indicate a drop of 9 per cent. Rather than delight in the prospect of slashed travel costs, business travel buyers are worried. They fear employees will be severely inconvenienced by reduced frequencies and smaller networks – and some suppliers could go out of business. Cuts have already emerged. Swiss International Airlines, the successor to Swissair, launched in late 2001 by the Swiss government, is withdrawing 20 aircraft and axing or curtailing about 50 routes after seeing business plummet since November. "The forecasts for 2003 remain poor and there is no improvement in sight," says the airline, which has noted a continuing retreat by business travellers to economy class, especially on short-haul routes. In the UK, British Airways has cut services to the Middle East and is pondering a move that would have great resonance for the entire travel industry, says Matthew Davis, director of global consulting for American Express. "The question marks raised by BA over whether to continue its Concorde service are a sign that the top end of the market is beginning to change," he says. Airline sources say frequencies on general transatlantic services will be scaled back rapidly if a war starts, just as in the aftermath of September 11. United Airlines has said it may reduce its overall network by 10-12 per cent. In the US, travel managers worry about an even more drastic possibility. "Travel managers here are questioning the fate of several airlines and making contingency plans to hedge against the risks," says Mr Eshaghian. "It would be bad if airlines went under. We want to see a healthy, competitive landscape." He also notes that airlines’ customer service levels have "plummeted". United and US Airways are already in Chapter 11 bankruptcy and American Airlines has said it could go the same way if it is unable to make substantial cost savings this year – something all carriers will find hard to achieve while fuel costs are soaring. Hotels also face a glum outlook. "We will see a rise in bankruptcies and sales of assets," says Sean Hennessey, director of PwC’s hospitality and leisure practice. Another buyer worried about weakness of suppliers is Nadine Dewart, Netherlands-based European travel manager for BMC Software and chair of ACTE Europe. "Suppliers are in crisis management at the moment and some are offering short- term discounts to win market share. Our worry is that they will go out of business," she says. And the buyer’s market does not stretch to everyone. Although some suppliers may hold fire sales, others will hold the line because they believe the business people who are still travelling are manifesting an inelastic demand. If they have to travel even in the present climate, suppliers may as well charge them full price, especially as they are less likely to buy in bulk. "On the one hand, corporate travellers have the upper hand in negotiations because of weak demand," says Mr Hennessey. "On the other, because companies are travelling less, they have less volume to offer the hotels. One answer is to consolidate, with even fewer suppliers." This solution may not work for airline negotiations, where, paradoxically, companies may have to expand their list of preferred suppliers, says Scott Gillespie, chief executive officer of Ohio-based travel management consultancy Travel Analytics: "Airlines are going to reduce their networks, which makes it likely buyers will need more suppliers to meet all their travel requirements," he says. Few industry observers see any sign of an upturn. Mr Gillespie says US businesses have permanently reduced their travel by 10-15 per cent since September 11. He thinks a war on Iraq, and its likely consequences, could wipe out another 5 per cent in the long term as intensified anti-western feeling would damage international trade. Ian Hall, director of European travel for Unilever, agrees. "I do not see travel volumes coming back," he says. "People are saying it will bounce back as it did after the 1991 Gulf war but there was not a threat of terrorism last time and a concern about when or where it would happen. The market place has changed and we are finding other ways than travel of communicating."