So This is What it's Come to: Enterprise Rent-a-Car wants to send employees from various Georgia and South Carolina offices to its 2008 national meeting in Orlando. The managers weigh their choices: Fly attendees from their small-town airports to Atlanta and hope they make their connections; have them drive a few hours to Atlanta, then take a direct flight to Orlando; have them make the seven- to nine-hour drive to Orlando. Or, charter a flight for them.
A couple of years ago, the first two options would have been considered, the third discarded, and the last one laughed at.
In 2008, the last option won out — for this meeting, anyway.
“Because the meeting's travel costs are incurred by our local and regional offices, people have become very active in investigating all the different ways to get there and at what price,” says Amanda Armstrong, meetings manager for St. Louis-based Enterprise. While they found a solution to their problem, that won't always be the case when the confirmed — and drastic — changes that airlines are making come into effect. For 2009 and beyond, planners will need all the help they can get even to find sufficient airlift, let alone get their people in and out on time, without hassle, and within budget.
“Right now, we just have to deal with very full planes and some delays,” says Wayne Wallgren, president of Dallas-based meeting and event firm WorldWide Incentives Inc. “But come the new year, it's going to be a whole different game — one we have not seen before.”
What's Going on Here?
It was a harbinger of things to come when most domestic airlines could not profit even in the robust economy from mid-2004 to mid-2007. At that time, the price of oil, which dictates jet-fuel prices, held steady between $55 and $60 per barrel. Planes were fairly full and discount carriers such as Southwest, Frontier, Midway, AirTran, and Alaska Airlines were keeping the big carriers in check by competing aggressively in both large and small markets.
Then the bottom fell out. The economic bubble deflated, the number of leisure travelers shrank, and oil prices spiked because of rising demand in the Far East and political turmoil in the Middle East.
With oil prices jumping more than 70 percent between early 2007 and summer 2008, airlines did what they had to do to survive. On top of fare hikes, most carriers imposed several fuel surcharge increases, which at press time averaged $302 for roundtrip flights between Chicago and London (despite a major rollback in the price of oil in mid-October). They've also adjusted plane sizes to the demands of individual routes and are making fewer trips to and from fewer cities, resulting in a significant loss of seat inventory in many markets. (See map, opposite page.) Most have imposed $25 fees for the first checked bag, plus fees for pre-assigned seats and other small conveniences. To compound the problem, several smaller carriers, including Aloha, ATA, and Skybus, went out of business this year, further narrowing flight choices. In just over three months in mid-2008 ticket prices paid by business travelers went up 12 percent, according to the American Express Business Travel Monitor.
Some observers say the mushrooming credit crisis that's brought on spending cuts at most organizations has killed the airlines' ability to push up prices any further. “In 2008, airlines hoped to cut capacity 10 percent while raising prices 20 percent,” says Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa. “The problem is, very few people are buying at those prices. This means that the recent fare hikes are coming off the table. It also should mean that airlines will chase any business they can and will be more aggressive in going after group business.”
Nonetheless, the travel landscape may never again be what it was even just a few months ago. Airlines have declared they will cut seat inventories by another 10 percent for 2009. Even profitable Southwest has said it will cut 196 flights from its 2009 schedule, a 6 percent reduction.
“A big problem for meetings is that we don't know where more seats are going to disappear,” Mitchell says. “If you are planning six or nine months out, how can you be sure a destination is still going to work for you as the meeting draws closer?”
Then there are those fees — for everything from checking bags to booking an aisle seat to ordering a snack — which are only expected to continue. As US Airways President Scott Kirby puts it, “The industry is evolving to an a la carte model. Airlines can't continue to operate as they did.”
At the National Business Travel Association's annual meeting, held in Los Angeles this summer, Montie Brewer, CEO of Air Canada, justified his company's policies during an airline CEO panel. “People who incur costs should pay and the people who don't incur costs should benefit,” he said. “Frequent flyers who come through with a briefcase, check in the at the kiosk, get onto the plane, get off, and we don't have to do anything should benefit because they're low-cost customers for us. If someone comes on with two heavy bags and a complicated itinerary, why is the guy who isn't generating any expense funding the checked baggage of the other person?”
It doesn't look as if corporate groups will have any negotiating power as far as these fees are concerned, either. “I have not seen anyone successfully negotiate out the baggage fee,” said Mitch Cwanger, American Express Advisory Services senior practice leader for air, at the NBTA conference. He is, though, advising clients to ask for a first-bag fee waiver.
Who's Been Hit Hardest?
Varying cities have varying stories — and solutions. Take Tallahassee, Fla., which was hit with a 30 percent drop in seats. “Those seats were mostly on Delta from Cincinnati, but we still have lots of flights through Atlanta and Miami,” says Katie Kole, director of sales and marketing at the CVB. She is counting on drive-in meetings from companies located in cities within a five-hour radius, like Atlanta, Orlando, and Mobile, to make up the difference.
The story is better in cities with a large corporate base, such as Charlotte, N.C., where seat capacity has dropped just 2.7 percent because of its concentration of Fortune 500 firms. In St. Louis, business travel represents “a greater proportion [of travelers] than for cities that rely heavily on leisure travel, so we will not have drastic cutbacks,” reports Kitty Ratcliffe, president of the city's CVB.
How will all this affect site decisions? In the end, many meeting managers may resort to using the same cities as often as possible — the ones that offer the transportation options, scheduling flexibility, and cost control they require. That's how Enterprise's Armstrong is managing: “We are now looking at the biggest cities in the middle of the country as much as we can. First, it gives more people the option to drive. Also, we don't want people flying coast to coast when it can cost half as much to come to the Midwest and half the travel time, too.
“If we're giving attendees a six- to eight-hour window to travel, we don't want them coming to a destination that doesn't have a lot of directs from several cities,” she adds. “Many employees are coming from small cities, so they will already have a connecting flight. We also have folks coming from offices in Canada, the U.K., and Germany. So a smaller city probably won't have enough flights from enough destinations.”
As a result of fewer overnight flights from the East Coast, Ira Almeas, president of Impact Incentives and Meetings in East Hanover, N.J., observes that clients traveling to Europe may need to create an “overnighters” budget that allows West Coast attendees to fly into East Coast hub cities, then travel the following day to their final destination. What's more, he says, “some groups might need to consider a charter flight from a central airport. It could be more costly, but it might be the only way to get large groups to their destination.”
WorldWide Incentives' Wallgren says these in-depth air analyses are essential in today's climate. “We scour the attendee list to see who might have trouble coming to or from smaller airports and thus might miss part of the event. With less money to bring in some people a day early, the choice is to route them through a different hub city — or not to use that destination. You can't just assume that tight connections will be made because the next connection might be much later or even the next day.”
Compounding the problem are new three-night minimum stays targeting the tickets purchased by business travelers. Research firm Harrell Associates found an 87 percent rise in minimum stays across 280 routes served by six large airlines. As a result, meetings scheduled for three days and two nights might choose to spring for the third night rather than pay much higher airfares. What's more, it's possible that an imbalance of Thursday-to-Sunday meetings will develop, skewing planners' ability to negotiate rates. An unpleasant but less costly alternative is meeting on a Saturday-to-Tuesday schedule.
All of this “is forcing a paradigm shift in how we planners make decisions,” Wallgren concludes. “Until people figure out how to handle all of this and it becomes the new norm, things are just going to be ugly.”
Sidebar : Hotel Rate Relief
Believe it or not, there is some good news out there: The virtual disappearance of leisure travelers and cutbacks in business travel at many companies have left some cities with a lot of empty hotel rooms.
“For 2010, we have booked half our meetings and are running more RFPs right now, and we are taking advantage of a real rate drop,” reports Amanda Armstrong, meeting manager for Enterprise Rent-a-Car, St. Louis, Mo. “I think they [hotels] see that pharma and other staple industries are moving toward regional meetings and using technology instead of live events, and that's giving us opportunities.”
“I am getting several calls a day from hotels that say they're having a fire sale or that another group fell through, so let's make a deal,” adds Kimberly Fields, meetingspecialist for Hawthorne, N.Y.-based Quintiles Meeting Services. “It's in big cities, too, like Dallas, Atlanta, and Ft. Lauderdale [where Fields just landed a $219 room rate for a January event at a renovated property] — and not just on sleeping rooms but meeting space. Even my chain-level contacts are offering 5 percent off the master bill, a bunch of upgrades, comped breaks, and double loyalty points across a large number of their hotels.”
“It used to be that airfare was low and the hotel rooms were high,” she adds. “It's flipped now, and that's how I can keep travel costs from blowing out the budget.”