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What's Happened to Travel?

In North America and around the globe, major air carriers find themselves overextended, due in part to the global economic downturn following the bursting of the "techno bubble" 18 to 24 months ago, terrorism, war & fighting in several regions, as well as recent health issues including Norwalk and SARS.  As a result, business and consumers alike have cut back or delayed much of their planned travel, leaving the air carriers with large numbers of empty seats on flights and airports far from crowded.

At a macro economic level, the airlines have sustained very significant losses.  The large carriers now find themselves with expenses beyond their revenues, significant debt loads, and no recourse to go to capital markets, making further debt their only option. A number of major carriers have gone through bankruptcy and restructuring, some are in the midst of this process, and others are expected to proceed into creditor protection in coming days.  For a few carriers, it is their second or third effort at restructuring.  While centered in North America at the moment, analysts predict that European and Asian carriers will undergo similar restructuring in order to match the lower cost structure and as government support to flag carriers is further restricted.

Recognizing their individual business situations, carriers are cutting staff, grounding aircraft, using smaller planes and in some cases dropping service to smaller cities.  This has had repercussions on service to the traveler and to firms purchasing travel.  Fewer staff means much-increased work load for the lucky ones who are still employed by the carriers, while customers see slower response times, less willingness to accommodate special requests, reduced promotion budgets, and fewer deals.

At the same time, more discount carriers are entering the markets while established discount carriers are increasing their shares of specific markets, focusing on profitable, high-volume routes and specific regions, while offering the traveler low to mid-range fares without the frills or perks.  However, discount carriers provide only a limited flight schedule in a regional or domestic service area and without agreements to partner carriers for a broader and international selection of destinations for the traveler. 

Among the trends for the short-haul sector, there is a shift to the "rubber tire market", or road travel, as well as to rail travel, matched by a decline in air travel.  Responding to the longer time needed for check-in, security and all, the traveler is looking to ground modes for several hour trips – a noticeable increase from past practices.  For long-haul travel, air continues as the preferred mode while fewer firms or travelers are buying full-fare, business or first class tickets.  Most are asking for the lowest price available, and are accepting off-peak departure times or including a Saturday-night stay in order to qualify for the best prices. 

A recent federal government White Paper identified three key priorities: safety and security, a market-based system, and respect for the environment. There is a clear government focus on improving air and rail capacity and allowing regional competition. Impacts of the policy paper include a move toward full cost recovery of airport rental fees.  At the same time, the federal burden of costs including airport rent & improvements, air navigation & security services, non-revenue space and services provided to federal employees at airports, as well as GST & fuel taxes are being questioned by many in the industry. 

Analysts predict more carrier failures over the next year or two, both in North America and Europe. Possible scenarios for Air Canada include merging with one of its smaller brand carriers (e.g. Jazz or Tango) and dropping some international commitments to become financially viable again. Other likely scenarios for the industry are the increase in "sneaker connections", in which people combine unconnected flights with different discount carriers, as well as a very fragmented airline inventory and a growing reliance on charter for moving larger groups to destinations receiving only limited scheduled air carrier service.

The emerging buyer trends include on traveling on the lowest fares available, sourcing through both a Global Distribution System, GDS (e.g. Sabre) and the Internet, and the use of ground modes for short to medium distances.  Driven by companies that have well-defined policies, many organizations are establishing limits on Web browsing by their staff for travel bookings; e.g. maximum ten minutes to complete a booking before referring to a travel agent.  Finanicial approval processes (e.g. Purchase orders) are being adjusted so that staff & travel consultants have sufficient authority to buy instant purchase fares on the web, rather than incur a price increase while seeking purchase approval. 

Many organizations are using supplementary flight insurance (includes cancellation) for at least a portion of their ticket purchases.  Paying for ticket purchases by corporate credit card in order to have automatic coverage for flight accident, flight interruption, lost or damaged baggage and such is now almost universally adopted.  After experimenting with travel buying on the web, many medium and smaller travel buyers are returning to travel agency partners; this reflects a recognition of both the cost in time required to complete web bookings and the recognition that many of the best priced fares are accessed through the GDS. 

Working with a travel management service, association can encourage their members to purchase travel to events well in advance, benefiting from the lower cost 14 & 21-day or longer advance purchase fares and the Saturday-night stay requirements.  As well, knowing that a fare promotion is underway, an association can alert its traveler to get their bookings complete within the time window of the seat sale.  Decisions on where an organization will hold its future events are beginning to reflect air travel access and costs.  Event planners are researching and comparing alternative sites on the basis of total costs for travel & housing, including airport and transiting passenger fees. 

Further recommended practices include the use of non-traditional carriers, self-managed connections between carriers, setting an alternative date for an event, prior to actually cancelling the tickets so that participants can rebook and retain the invested value in their existing ticket.  Travelers are using express kiosks to speed check-in at airports and selecting early departure times. Best practices for conferences include registering with a primary carrier, combining several events under one convention number and early bookings on "challenging routes". Group bookings are also effective.

Looking to the future, analysts are predicting more changes in the months ahead that are expected to lead to a more solid industry for the medium to long term, with prices stabilizing at levels below today’s full economy & business rates. 

How do you know if your organization would benefit from having a travel management partner?  The following chart describes some travel-related characteristics of associations, and based on the organization's need level in that area, whether that would indicate the potential for added value (ü) or not (Ö) from working with an expert travel management service.

The preceding information is presented in a very generalized form of necessity.  The applicability will vary depending on your Association’s specific mandate, travel needs, policies and practices.  Questions or comments are welcomed.  

Duncan Grant is Director of Sports and Association Relations of Algonquin Travel & MKI Conference Management in Ottawa ON. Duncan can be reached at duncan.grant@mki.algonquintravel.com.

 

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