Fuel surcharges highlight need to reduce business travel expenditure

Tuesday, November 20, 2012

Fuel surcharges highlight need to reduce business travel expenditure

Tourists are often hit hard by the hidden costs of traveling by air. Rising fuel prices, heightened competition between carriers and increased demand all affect how much customers pay in fees and surcharges. However, corporate travelers are hardly immune to these factors. While choosing to stay in serviced apartments and corporate housing is one way for savvy travel managers to reduce the costs of business travel, fuel surcharges are putting the squeeze on everyone from Main Street to Wall Street.

A complex problem
According to The New York Times, many airline carriers are using fuel surcharges as a way to increase their fares, particularly for seats in business class. As a result, these hidden fees have become a flashpoint between major airlines and corporate travel managers seeking to maximize the return on investment of business travel.

"Airlines can use fuel surcharges as indirect fare hikes and masquerade them as fuel surcharges," Henry Harteveldt, co-founder of the Atmosphere Research Group, told the news source. "It is a way for an airline to indirectly raise its fares without signaling to its competitors that it’s trying to raise fares. The base fare is almost a form of pricing camouflage."

While many experts in the aviation industry claim that airlines are being dishonest about fuel surcharges, some corporate travel managers see the fees as a means to negotiate a discount on the base rate. Michael Steiner, an executive vice president of the Ovation Travel Group, told the news source that many corporate travel professionals are using the increase in fees as leverage to secure discounts on everything from in-flight Wi-Fi to baggage handling fees.

Steiner added that fuel surcharging policies used by many major airlines can push the price of an executive-class flight up by between 10 and 50 percent. He also noted that fees associated with accommodations represent just 20 percent of the total cost of airfare, highlighting the importance of saving money by staying in corporate apartments.

An uncertain future
Fuel surcharges are seen as highly controversial by many experts in the aviation industry due to the lack of transparency surrounding such policies. However, fluctuations in the price of fuel are not the only problem facing the business travel sector.

According to data from the Global Business Travel Association (GBTA), the looming threat of the fiscal cliff could also have serious implications for global trade and economic recovery. If the government fails to address expiring tax regulations and automatic reductions in federal spending, the U.S. will enter a recession. As a result, the GBTA predicts that this would contribute to a decline in business travel spending of as much as $20 billion over the next nine quarters - equivalent to more than 32 million canceled business trips. If this scenario comes to pass, airlines will likely respond by further increasing fares to maximize profit margins in the face of declining demand for executive-class seats.

"This research shows that we must seriously consider both the near-term ramifications of the fiscal cliff and the long-term implications of expanding government debt," said Michael W. McCormick, executive director and chief operating officer of the GBTA. "Either way, the fiscal cliff is a wake-up call for leaders looking to craft smart economic policy going forward."

Even if the government takes action to avoid a fiscal cliff scenario, airfare is likely to remain a point of contention between carriers and corporate travel managers. If action is taken to address the expiring tax regulations and reductions in spending, the global business travel industry could see an increase in spending of up to $5.5 billion, further fueling demand for flights. As a result, carriers could continue to manipulate their fares, posing problems for savvy executives seeking to maximize return on investment.