Fliers Pay More for a Fill-Up
Michael Steiner provides insight into increasing airline fuel surcharges and their impact on business travel.
Rising fuel surcharges have begun to become an issue in negotiations between airlines and corporate travel managers over the cost of airline tickets.
The charges were initially tied to the rising cost of fuel, but industry experts say they have turned into a way for airlines to increase fares.
“Airlines can use fuel surcharges as indirect fare hikes and masquerade them as fuel surcharges,” said Henry Harteveldt, co-founder of the Atmosphere Research Group and an airline and travel industry analyst in San Francisco.
“Airlines are quick to raise fuel surcharges when fuel costs increase, but slow to reduce the surcharges when fuel prices go down,” Mr. Harteveldt said. “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.”
Corporate travel managers say that while they have begun to raise the issue with airlines, the surcharges themselves are not being discounted.
“It’s one element that needs to get into the mix for negotiation but I have not seen any discounting on that,” said Michael Steiner, an executive vice president of the Ovation Travel Group, a travel management company in New York. Rather, he said, travel managers can use fuel surcharges to negotiate discounts on the base fare.
Mr. Steiner said companies had also been trying to negotiate lower fees for Wi-Fi, baggage, legroom and other amenities that airlines used to provide as part of the ticket price but for which they now charge extra.
The International Air Transport Association, a trade group for airlines, declined to comment on fuel surcharges. In an e-mail, a spokeswoman, Miriam Ashong, said the surcharges were “quite a sensitive topic and as such we cannot make any comments at the moment.”
Victoria Day, a spokeswoman for Airlines for America, the trade group for airlines in the United States, said in an e-mail, “For antitrust reasons, we cannot comment on specific fuel surcharges.”
Fuel surcharges, Mr. Steiner said, can increase the base fare by 10 to 50 percent. “Hotel costs are 20 percent of air cost and rental cars are 5 percent of air,” he said.
Carlson Wagonlit Travel, a business travel management group, has found that even as fuel prices fluctuated, the surcharges either stayed the same or rose. “Fuel dropped back down but carriers have not dropped fuel surcharges,” said Brent Eisenach, director of the CWT Solutions Group, Americas, based in Minneapolis.
The company estimated that fuel surcharges now represent about 7 to 12 percent of total corporate travel spending. “Fuel surcharges are one of the many variables to look at,” Joel Wartgow, senior director of the CWT Solutions Group, Americas, said. “They are one thing to evaluate if you are seeing increased costs year over year.”
Air transportation is often the biggest element in the cost of business travel, with hotels and rental cars representing a far smaller proportion. Hervé Sedky, senior vice president and general manager for global business partnerships and premium services at American Express Global Business Travel, said in an e-mail that “on average, we have seen companies spending slightly over 50 percent” of their travel and entertainment budget on transportation.
Because the cost of travel has risen, business travelers are spending more on fewer trips, according to the Global Business Travel Association. The association projects that total business travel spending in the United States will be 2.6 percent higher in 2012, reaching $257 billion by the end of the year. The increase, it said, is driven mostly by rising business travel costs.
At the same time, total business trip volume — the number of business trips — is expected to drop to 438.1 million this year, down 1.6 percent from 2011. The group said it expected business travel spending to continue to grow next year while the number of trips drops 1.1 percent.
According to the association, economic turmoil in Europe, slower growth in China and unemployment in the United States are all expected to curb business travel growth in the United States through the end of the year. Businesses are taking a cautious approach until there is greater economic certainty, the group’s report said. Companies are not cutting business travel spending, it said, but growth is “very modest.”
To drive down the cost of business travel, Mr. Steiner of Ovation Travel recommended negotiating a market share discount with one or more airlines. Corporate travel managers and travel management companies have been able to negotiate lower fares by promising a certain market share.
Booking in advance, typically 14 days, Mr. Steiner said, can save 15 to 20 percent on the price of an air ticket. He added that companies should identify nonessential travel, although some travel managers prefer to leave such decisions to the travelers and their supervisors.
Other advice from travel managers includes:
-Companies should decide which business travelers can book which class of service, like business class or coach, and make those rules part of the corporate travel policy.
-Companies should establish daily maximums that a traveler can spend while traveling.
-When possible, companies should use videoconferencing.
Also, Mr. Steiner said that travel managers should remember that the airlines might be willing to deal.
“The airlines say, ‘We will give a discount across the board’ if you book a certain number of fares in markets that are important to them.”
The New York Times