Two big changes driving airlines crazy
Business travel may grow, but bring lower profits
By Chris McGinnis
CNN Headline News
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(CNN) -- Last week, American Express released results of a worldwide business traveler poll showing nearly 85 percent plan to travel the same amount or more next year. Another group, the Business Travel Coalition, surveyed 110 U.S. companies and concluded that the decline in business travel may have bottomed out.
This is great news for everyone because increases in business travel are proof that companies are expanding, which ultimately means economies are growing. But during the past two years, business traveler behavior has fundamentally changed, and that's not such great news for the airlines.
Travel agents' role
Executives used to just pick up the phone and call a travel agent to make reservations, and would usually agree to whatever fare the travel agent suggested. The travel agent was working for a commission paid by the airlines. Many travel agents are going to disagree with me on this one, but I'll say it anyway: It was in the travel agent's best interest to sell a higher-priced ticket -- that's because the higher the fare the traveler paid, the higher the commission the agent earned.
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What's different now is that airlines no longer pay commissions to travel agents. Instead, the business traveler pays the agent a $25-$75 fee to help find the lowest fare possible. With travel agents working for a fee paid by the traveler instead of the airline, it's in the agent's best interest to find and book the lowest fare, period.
Because of this fundamental shift in the way that business travel is booked, the airlines are now finding it difficult to get business travelers to pay higher fares. Airlines are going to disagree with me on this one, but I'll say it anyway: The airlines brought this on themselves when they stopped paying travel agent commissions.
Online travel juggernaut
Nearly half of all business travelers now book some or all of their trips online. The ability to do so is making it increasingly difficult for the major "legacy" airlines to foist unreasonably high fares on business travelers.
Research shows that when business travelers can see all their flight and fare options, as they do when booking online, they end up choosing fares that are about 20 percent cheaper than they would otherwise. Why? Because it is in their best interest to do so. These days, every employee knows that by saving money on travel, they could be saving their jobs. That makes them more willing to use discount carriers or cheaper, more restrictive leisure-travel fares on the majors.
So while there are still a few expense-account fat cats out there flying in first class and holing up at five-star hotels, most business travelers now behave a lot more like vacationers, where low cost is king.
