Air price drop stems from oil-related capacity increase
Cheaper oil means lower operating costs for airlines, and they’ve responded—somewhat surprisingly—with capacity increases that improve pricing for travel buyers. “Airlines’ carefully crafted capacity discipline has waned because of the temptation to put more planes in the air amid lower oil prices and anticipated demand,” explained Olivier Benoit, senior director and global air practice leader for Advito, the consulting arm of BCD Travel.
Robust demand has yet to materialize, however, so the increased capacity has led to greater availability of lower booking class inventory. “That’s had the effect of lowering prices for corporate travel buyers,” Benoit said. This is among business travel insights contained in Advito’s recently released Industry Forecast Update, which delves into air, hotel and other business travel trends.
“Airlines are showing significantly less revenue with significantly higher margins, which could lead to more opportunities to negotiate better fares on competitive routes in the short term,” Benoit said. Longer term, pressures from low-cost carriers should keep pricing in check in most markets. In the Industry Forecast Update, Advito predicts regional airfares will drop by 3% in North America and by 1% in Europe.
In this dynamic environment, it’s essential for travel buyers to stay abreast of broad air trends through reports like the Industry Forecast, Benoit said. “But it’s also important for them to examine their internal data,” he advised. “The key to success is to regularly monitor air program performance. Gauge spend against volume on an ongoing basis, and do a deep dive into your data at least once a quarter.”
Timely insights allow travel buyers to take timely action, he said. “You can discuss contract-related issues with carriers before a problem grows. You can quickly address traveler issues, such as non-compliance, and use engagement strategies to nudge travelers back on track.”
Want to know more? Read the full 2015 Industry Forecast, and ask your account manager how BCD Travel and Advito can help you prepare for the future.
