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Companies Expect to Stay Tight With Budgets

An uptick in corporate travel in 2004 is possible, but cost consciousness and using the Internet for savings rule out a return to the salad days.

September 23, 2003|Toni Stroud | Chicago Tribune

A rebounding U.S. economy may spark a comeback in business travel growth next year, industry surveys show. But don't expect a quick return to the higher travel levels seen a few years ago, because terrorist attacks, economic woes, cost cutting and other developments have taken a heavy toll on corporate travel budgets, experts say.

For the first time in many months, industry studies hint at a business travel turnaround. Corporate travel budgets will rise 6.5% in 2004, management consulting firm Runzheimer International predicts. Almost two-thirds of companies are optimistic about corporate travel growth through 2005, said PhoCusWright, a Connecticut-based consultant for the online travel market.

"We are guardedly optimistic," said Peter Yesawich, managing partner of Yesawich, Pepperdine, Brown & Russell, an Orlando, Fla.-based travel marketing firm that coauthors the annual National Business Travel Monitor.

But any silver lining must be bright enough to shine through the clouds of terrorism, security concerns, reduced services, airline bankruptcies, war, disease epidemics, corporate belt tightening and an economy that began to falter even before the Sept. 11 attacks.

Two-fifths of North American companies said they decreased 2003 travel budgets from year-before levels, while 34% said their budgets remained the same, according to a survey conducted by Wisconsin-based Runzheimer and the Assn. of Corporate Travel Executives. The budget cuts, which averaged 14%, were attributed to fewer trips, use of online booking systems and increased use of technological alternatives to travel such as Webcasting and teleconferencing.

"Those who are traveling are traveling and purchasing differently," Yesawich said. "One, they don't want to overpay. And two, they're using the Internet as a planning tool."

Bottom line: No more devil-may-care price structures and plush expense accounts.

"New market dynamics and political developments have created an environment of mergers, acquisitions and corporate downsizing that is reshaping the entire industry," said Carol Devine, director of corporate travel at Burlington Northern Santa Fe and chief executive of the National Business Travel Assn., a trade group for corporate travel managers and frequent business travelers.

Companies will continue to emphasize cost-cutting measures, while airlines, hotels and rental car agencies will continue to consolidate and reorganize, Devine said.

An NBTA survey in late June found that 44% of responding corporations require senior-level executives to fly coach, while about 60% use alternative airports to save on airfare and 70% book flights on low-fare airlines. The survey found 78% using more mid-priced hotel brands instead of luxury ones.

Even as demand recovers, Yesawich said, pricing pressures will continue. Those pressures are playing out, perhaps most dramatically, in the air.

In May, for the first time, a low-fare airline ranked first in domestic passengers. South- west Airlines carried more than 6.5 million passengers in May, beating Delta Air Lines, with fewer than 6.4 million passengers, Bureau of Transportation Statistics data showed.

Of the 16 domestic airlines the bureau tracks, only five -- JetBlue, American Eagle, AirTran, Southwest and Spirit -- operated at a profit during this year's first quarter.

Meanwhile, established "network" airlines continue to hemorrhage dollars as they backpedal on unpopular policies and seek ways to lure the dwindling number of elite fliers.

In August, American, Continental, Delta, Northwest and United backed off the "use it or lose it" policy they imposed a year ago on low-fare, nonrefundable coach tickets. That policy required travelers to notify the airline in advance that they would miss the ticketed flight, pay a $100 change fee and immediately reschedule an alternative flight -- or be left holding a worthless ticket. The new rule still requires travelers to cancel reservations on the ticketed flight, but they have up to a year to reschedule and pay the change fee.

Seeking to lure business travelers who haven't a moment to lose, Continental in July began allowing cell phone users to place calls after landing -- pending permission from flight attendants -- rather than wait for the jet to arrive at the gate and open its door. To entice executives whose companies are willing to bankroll their comfort, Northwest is rolling out a new business class on international routes that will feature fancier meal service and a "lie-flat" seat with all-digital entertainment options.

Bargain hunting by business travelers will continue to pressure profit margins of airlines, hotels and car rental companies.

"It will be hard for suppliers to make the kind of margins they did before," Yesawich said, partly because of the transparency of prices found on the Internet. About 65% of business travelers use the Web to plan, if not purchase, their travel, up from 55% last year, he said.

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