Business Travel News - January 28, 2008 - (Page 16)

AVIATION Fuel Costs Drive Domestic Fare Growth BY JAY BOEHMER SOUTHWEST TRIMS SOME FREQUENCIES, ADDS ROUTES Domestic airlines aggressively hiked airfares in the second half of 2007, and airfare analysts expect the trend to continue in 2008. As tightened capacity has kept the supplyand-demand equation in domestic carriers’ favor, and the surging cost of fuel puts further pressure on airlines to raise prices, there seems little relief in store for corporate travelers this year. According the Bureau of Travel Statistics Air Travel Price Index, airfare pricing actually was lower in the first half of 2007 than in the same period in 2006. Though BTS has yet to release full-year fare data, they most certainly came up in the second half of the year, according to airfare analyst and CEO of FareCompare Rick Seaney. “It’s been kind of brutal the last four of five months with the cost of fuel going up,” according to Seaney. “We’ve seen close to 12 increase attempts since Labor Day weekend the year, they remain well above the historical average and serve as the primary driver for fare increases. By JP Morgan airline analyst Jamie Baker’s calculations, each $10 per-barrel increase in oil “necessitates an $18 per-passenger increase in revenue,” assuming a constant passenger count. “Each $10 per-barrel hike in oil necessitates an $18 per-passenger revenue increase.” JAMIE BAKER JP Morgan airline analyst RICK SEANEY FareCompare CEO in 2007, with nine of them being mostly sticky. We’re just off the first increase from United Airlines for the year.” United Airlines rang in the new year with a $5 to $10 oneway increase on many of its routes, and legacy competitors quickly matched the increase, citing growing fuel expenses. Though oil prices have retreated from the $100-plus high that started Also growing in prominence are fuel surcharges. Once reserved for long-haul international flights, they increasingly are appearing—and growing—in the domestic market. Several domestic carriers recently instituted or raised domestic fuel surcharges. FareCompare this month said United initiated a $50 roundtrip fuel surcharge on most of its flights. Though many legacy carriers matched the increase, the effort ultimately failed to take hold, and United rescinded. However, FareCompare on its Web site said the fuel surcharge was “unprecedented” in its cost, since most fuel surcharges eke up $5 or $10 at a time. However, Seaney said the net effect is the same as a fare hike and is included in FareCompare’s overall analysis. “There’s no difference between fuel surcharges and base fare increases. Calling it a fuel surcharge is simply a marketing strategy. It’s part of the base fare. People know that fuel is up and therefore the airlines call it a fuel surcharge—it’s a fare hike,” Seaney said. While many airlines test the market by filing for fare increases, only to rescind them when competitors do not match, the industry has had an easier time making hikes stick in Continued on page 18 Business Travel News Southwest Airlines in May will reconfigure its route structure, eliminating 57 roundtrip flights while adding 40 roundtrips to what it deems growth markets, including Denver. CEO Gary Kelly said Southwest is eliminating frequencies, not citypairs, and redeploying aircraft to meet demand in other markets. Such cities as Chicago and Phoenix will lose some frequencies, while Denver and Austin, among others, will pick up new routes. “The bottom line on overall capacity is sort of a net zero,” Kelly said in a BTN interview this month. “We had previously projected that we would be growing our available seat miles by about 4 percent to 5 percent, and that remains true.” Kelly added that Southwest also will grow its fleet at a more modest pace, expecting to add between five and 10 additional aircraft in 2008. “The fact that we are adding fewer aircraft to the fleet this year makes it easier for us to go in and do a pretty GARY KELLY thorough pruning of our flight schedSouthwest Airlines CEO ule,” Kelly told BTN. “That does create available aircraft time. At least as we’re growing slower, we have ample opportunities to redeploy that aircraft. Obviously, Denver was the big beneficiary of that.” Southwest in the past year has aired concerns over an economic slowdown that is expected to drag on domestic air travel demand, and last year trimmed its growth rate. Still, the carrier is one of the few in growth mode domestically, as many legacy carriers are adding service abroad and trimming capacity within the United States (BTN, Sept. 24, 2007). FLIGHT LOG U.K. UPS CARRY-ON BAGGAGE ALLOWANCE The U.K. Department for Transport this month amended its maligned policy that allowed passengers to bring only one carry-on item through airport security checkpoints in the United Kingdom. Most large U.K. airports, including Heathrow, Stansted, Manchester, Edinburgh and Glasgow, have adopted the amended policy, which allows one carry-on bag and one personal item through security. London’s Gatwick Airport is expected to adopt the standard in March. Several carriers, including British Airways and American Airlines, cheered the change, which is consistent with baggage allowances in the United States. EOS FILES TO BOLSTER DOMESTIC CHARTER BUSINESS All-premium-class transatlantic carrier Eos Airlines last month filed a request with the U.S. Department of Transportation to gain a domestic United States operating certificate. However, Eos founder and chief of strategy Dave Spurlock this month said not to expect Eos to launch scheduled transcon service anytime soon. Rather, he said, “As a course of business, we’re going to gather every route right, both for scheduled business and charter operations.” Spurlock said that in addition to the carrier’s scheduled New York-London service, it operates its 48-seat premium class aircraft on a charter basis. “You’d be shocked to know how successful we run a little cottage charter business with tremendous demand for taking this airplane,” he said. “We’ve pretty much flown it all over the world.” —Jay Boehmer 16 Monday, January 28, 2008 www.BTNonline.com http://www.BTNonline.com

Table of Contents for the Digital Edition of Business Travel News - January 28, 2008

2008 Hotel Rate Hikes Appear On Par With 2007
Business Travel News - January 26, 2008
Buyers Air Merger Concerns
Contents
GSA Deploys End-To-End Travel Technology
Marriott Adopts Regional, Account-Based Sales Focus
BTN Delivers New Look, Keeps Focus
Carlson Taps Joly as CEO
BA To Launch Transatlantic Carrier
Amex Europe’s Herrick Augurs Growth
Savings Smorgasbord
Fuel Costs Fire Up Domestic Fare Hikes
Extended Stay CEO DeLapp Gives Recap
Fine-Tuned Expense Tool

Business Travel News - January 28, 2008