For most of us, recessions have silver linings. As we watch our RRSPs and RESPs wither, we take small comfort in great sales. Unless we’re business travellers. Who ever heard of a business-class seat going on sale? Same for the executive suite, the meeting room and the large, client-friendly rental car.
But recently, the travel industry has opted for the unthinkable. From upgrades to free Wi-Fi and slashing rates for five-star rooms, deals are popping up everywhere.
“We’ve seen more and more hotels accommodating executive travellers to get them upgrades,” says Susbir Singh, president of FCM Travel Solutions Canada. “With airlines, we’re getting more freebies, more access to lounges.”
And the prices, he says, have dropped to post-9/11 levels. As an example, he points to Air Canada, whose business-class fares are getting closer to its Tango Plus fares, aimed at leisure travellers. He mentions a recent Toronto-Barcelona listing for which the difference was just $150 – a trifle compared with the $1,000 or more that would have separated the two classes only months before.
The same goes for hotels, where prices have been rising steadily for more than a decade. According to Smith Travel Research, the average luxury-room rate is down 16 per cent worldwide, to $266.18. As more customers move from five-star to four-star rooms, chains such as Hilton, InterContinental and Starwood, which owns the St. Regis and W brands, are actually lowering rates and services to downgrade five-stars to four-stars and keep their clientele. Four Seasons has come up with a meetings package which, in addition to free breakfasts and Wi-Fi, includes 10 per cent off banquet menus, one free room for every 30 room nights booked and 10 per cent of expenses returned as a credit against the next booking.
The big price tags on premium travel services have always been fundamental to the way large travel businesses work.
“The people who are in the premium seats and the premium suites, they’re paying the bills that keep the businesses running,” says Caleb Tiller, senior director of marketing and communications for the National Business Travel Association. So when those rates start to tumble, it’s a sign that a whole business model is in danger of falling apart.
The danger is real. Leisure travel is down 5.5 per cent this June over last (the latest numbers available) – but business travel is down 21.3 per cent. Last year, jet fuel rose to $180 (U.S.) a barrel, more than double the previous year’s level, just as travel budgets at companies around the world were slashed.
And it’s not going to get a lot better very soon. According to a recent study by American Express-CFO Research Services, 87 per cent of large companies in the U.S. and Canada planned to spend less on business travel this year than last (almost half said the cut would be more than 10 per cent).
This pullback is hitting the airlines hardest. Three all-business-class airlines went out of business in under a year, and a fourth, the new OpenSkies, has been up for a possible sale since July as owner British Airways simultaneously seeks approval to cut 3,700 jobs. There are no takers in sight.
“This industry is in a massive crisis,” the International Air Transport Association’s director-general, Giovanni Bisignani, said in a press briefing yesterday. He estimated airlines will lose a total of $11-billion (U.S.) for fiscal 2009. Though he sees certain segments of the industry improving slowly, he said business travellers in premium seats “will take six, eight, nine months to start flying again” as cautious corporations slowly gain the confidence required to increase spending.
Not surprisingly in this climate, bargains and promotions are everywhere. British Airways is offering “business opportunity grants” to small- and medium-size businesses in the U.S. to enable 100 of them to fly for free. Marriott’s in on it, too, offering $1,000 worth of free accommodation, at the same time as it offers free BlackBerrys when you book at some locations with the American Express Open Business card.
But don’t expect such deals to be on permanent offer. According to the IATA, passenger numbers have shown unpredicted, and modest, signs of recovery – but that recovery comes with a cost, and one that can’t be borne long-term. Airlines have bucked the odds and put passengers in seats, but at the expense of revenue; executives are still booking themselves into economy seats, and revenue from premium seats (including business class) was down 40 per cent in June.
Even the most novice business owner can see the erosion can’t continue. Whether the recession lasts or not, you can’t squeeze perks from a stone.