Airfare increases expected to hit business travelers hard
Friday, February 22, 2013
Executives face many challenges in today's business world. The necessity of corporate travel has never been greater, as companies seek to diversify into emerging markets and consolidate their position domestically. For frequent business travelers, the costs of heading overseas or even to other cities can soon mount up, with accommodation and airfare being two of the most substantial expenses facing executives. While alternatives to chain hotels such as serviced apartments and corporate housing can save organizations money without compromising on quality, many firms have far fewer choices when it comes to corporate airfare. According to USA Today, a recent attempted fare increase could place further strain on budgets already stretched thin by ongoing economic uncertainty.
The news source reports that many major U.S. carriers recently moved to increase business-class airfares. While a similar rate hike failed to take off last week, some experts in the commercial aviation sector speculate that the latest attempt to raise prices could be successful. Delta Airlines was the first carrier to propose an increase in corporate fares earlier this week, raising domestic prices for round trip journeys. Several other airlines have followed suit, including US Airways, American Airlines and United Airlines. However, the success of whether the latest bid to raise fares will be adopted by all major carriers will in large part be determined by Southwest Airlines, which is seen as a barometer of the likelihood of the fare increases' success.
During 2012, major carriers in the U.S. raised fares seven times. While many airlines attempt to hike rates frequently, market conditions often prevent such moves from being implemented.
"Airlines are not bashful about trying to hike domestic prices, trying on average every three weeks," Rick Seaney, chief executive officer of airfare comparison website FareCompare.com, told the news source. "Luckily for consumers they are not really good at getting them to stick."
Despite this, the latest fare increase seems likely to take effect. While the price hike may seem negligible, business travelers could see a substantial difference, with rates expected to increase by between $600 and $1,500 for business-class seats.
Supply and demand
Although major airlines have an obvious financial motivation for increasing corporate airfares, market conditions have applied additional pressure on carriers during recent months. According to The New York Times, fuel surcharges have been largely responsible for the significant rate increases on international routes. For example, seats being sold in British Airways' Club World business class section between London Heathrow and Hartsfield-Jackson Atlanta International Airport earlier this week cost $3,408, $1,158 of which was specified as a fuel surcharge.
Hidden taxes and additional fees are becoming a serious problem for corporate travelers. As the price of jet fuel continues to rise, major airlines are likely to continue aggressive pricing policies that pass fuel surcharges to consumers. In particular, certain routes in the Asia-Pacific region have seen substantial increases due to surcharges, with some carriers such as Cathay Pacific almost doubling fares between New York and Hong Kong.
Unfortunately for frequent fliers, the situation seems unlikely to improve in the coming years. The news source reports that in January 2010, a gallon of jet fuel cost around $2.05. This rose to $3.30 per gallon last week, suggesting that airlines will face continuing pressure to deliver high-quality services without driving away loyal customers. With corporate airfare fluctuating widely from one minute to the next, budget-conscious organizations and executives will have to adapt their travel plans to compensate for the rapidly changing landscape of the commercial aviation sector.