Buckle up: 2008 is going to be an interesting year
By Susan Avery -- Purchasing, 4/10/2008 6:00:00 AM
Those are words of Frank Boroch, managing director, at Bear, Stearns & Co., speaking at the NBTA Business Travel Financial Forum in New York recently.
In a forecast on the airline industry presented at the National Business Travel Association event, Boroch addressed mergers of domestic carriers (such as Northwest and Delta), fare hikes and capacity reductions. “Because demand for business travel is relatively inelastic, airlines' corporate customers continue to bear the brunt of higher fuel prices,” he said.
Boroch also said that “the country needs a functioning aviation system to facilitate economic prosperity” which tied into comments by J. Randolph Babbitt, director at Oliver Wyman in New York who posed the question, “Are U.S. carriers ready to compete on a global stage?” Barritt was referring to the U.S.-EU Open Skies agreement, which creates new opportunities for carriers.
While domestic airlines have streamlined processes and cut costs over the years, they still need to rationalize capacity and eliminate redundancy, he said. As an example, he pointed out that there are 17 different ways to fly from Boston to Dallas. What's more, the domestic industry is fragmented, the airlines have weak balance sheets (with no new planes on order), and there are new carriers entering the market.
“European carriers are strong,” he said. “With opportunities to reduce non fuel costs now limited and restructuring nearly complete, it looks like the merger route will be the way to go for the domestic industry.”
Ken McGill, executive managing director, travel and tourism, at Global Insight in Waltham, Mass., led off the event with a presentation on the economy.
“The global economy is mostly a good news story,” he said, pointing to 25 consecutive quarters of growth. “It is slowing, but it won't go negative.”
The growth is broad and inclusive he said, explaining that economies in the Asia Pacific region and Europe are doing well. “The U.S. economy has already slipped into a mild recession, but will snap back quickly.”
He concluded with a look at the travel sector in the U.S. “Inflation has altered behavior in ways other than reducing the number of trips travelers take,” he said. “Travelers are taking more day trips and planning fewer overnight stays. They're also looking at alternative lodging options such as extended stay accommodations.”
In the hotel forecast portion of the event, Bjorn Hanson, managing partner, global hospitality industry, at PricewaterhouseCoopers in New York and Mark Lomano, president, Smith Travel Research in Hendersonville, Tenn., agreed that despite a decline in the rate of growth of demand for hotel rooms, it isn't likely that travel managers will see significantly lower room rates especially in the top 25 markets that includes such cities as New York, San Francisco, Miami, Boston and Washington, D.C.
Hanson suggests travel buyers remember fees charged by hotel properties when they prepare for negotiations. Hotels earned more than $1.7 billion in fees and surcharges last year, and this figure has been growing annually since 2002, he said. An example: Tips for staff.
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