first half 2008 review.
– Economy Lowest fluctuations: Oil Impacted Price Increases in Q1 Tempered by Demand Affected Decreases in Q2 –
– Business and First Class Airfares and Hotel Rates Stable –
American Express today announced the launch of its Business Travel Monitor for Europe, Middle East and Africa (BTME), providing clients with industry leading insight into quarter-by-quarter industry trends and pricing developments for the core travel categories. According to the first report, which will be available in October, while the lowest restricted Economy airfares for long-haul routes from Europe rose in the first quarter due to the steep rise in oil prices, the price rises were tempered in Q2 due to a fall in demand. Notably, other classes of service, as well as domestic and short haul routes, remained relatively stable across Europe.
Joakim Johansson, Vice President Advisory Services, American Express Business Travel EMEA, said, “Trading conditions for airlines have become increasingly difficult in the first half of the year, and 24 airlines filed for bankruptcy in the period, just under half of which were based in Europe. While prices have fluctuated in Economy class throughout Europe, fares in other classes, on average, have remained relatively stable. This is despite the pressures in the industry and the impact of Open Skies driving down Business Class fares significantly on certain key routes.”
He continued, “In the current economic environment, demand is understandably high for the robust insight and benchmarking which our Business Travel Monitor delivers. It is a vital tool for travel managers and procurement professionals, enabling visibility to drive control and efficiency in travel management programs now and for the future”.
Rising Oil Prices Take Their Toll on Q1
The rising oil price pushed up fares in the cheapest class, Economy Lowest, by 7.1%. It was notably the fuel-intensive long-haul services to Latin America and Caribbean (+29.2%) and North America (+15.5%) that drove the fare increases.
In the UK, Economy Lowest fares rose by 11.3%, one of the highest increases in Europe. This was primarily driven by higher prices on long-haul routes to Latin America and Caribbean (+17.3%) and North America (+20.8%). Business Lowest fares were also higher by 6.2% in Q1.
The other fare classes changed little with pricing on domestic, short- and long-haul services all relatively stable.
Falling Demand Reverses Q1 Increases
Fares for Economy Lowest reversed in Q2, as consumer demand fell back. This class saw a quarter-on-quarter fall of 12.5%. The fall was experienced in all categories, including domestic (-11.5%), short-haul (-11.7%), and long-haul fares to Latin America and Caribbean (-26.6%).
In the UK, Economy Lowest fares were markedly down in Q2 (-20.2%), fares to North America fell by nearly a half (-49.1%) and to Japan, Asia-Pacific & Australia and Latin America and Caribbean by around a quarter (-22.0% and -25.9% respectively). Domestic and short-haul services were notably flat.
Fares in the other classes remained surprisingly stable, in view of the turmoil in the marketplace.
Year on Year
Year-on-year, the main change was again in Economy Lowest, where fares were 10.9% cheaper than they were in Q2 2007, though Business Lowest fares were also down (-4.3%).
Fares in the UK have changed little year-on-year, the biggest change being in Full Economy, where fares were 9.0% higher than in Q2 2007. Fares in Economy Lowest fares have decreased 7.8% in the same period. Both of these are reflective of the ability of airlines operating from the UK to continue to increase fares for higher paying business travel customers where travel demand is still strong, while cutting leisure fares to compete with no-frills low cost carriers.
The Impact of Open Skies
The operational start of Open Skies in early Q2 illustrates the impact that competition can have on fares. Average business class fares on routes with new competition decreased:
London to Newark; -25%
London to New York-JFK; -24%
London to Los Angeles; -9%
London to Seattle; -9%.
Hotel Rates Stabilise
After years of consistently high growth, rates in the European hotel market are stabilising and in many places the Average Daily Rate (ADR) paid by American Express clients is decreasing.
This trend was clearly evident in the ADRs in Q1 and Q2 of 2008. In Q1, 41 of the 48 city rates we monitor showed an average increase of 6.9% year-on-year. This trend reversed in Q2 with 30 of 48 cities showing year-on-year rate decreases of 3.6%. Notably, Stavanger in Norway showed the largest increase across Europe (+26.3%) while Paris recorded the largest drop (-37%). Paris, along with Rome where there was an average decrease of over 30% (-32.4%), were particularly affected by the relative strength of European currencies compared to the US dollar, reducing in-bound leisure traffic from North America.
The effects of the downturn in the financial sector hit cities like London, Frankfurt, Edinburgh, Geneva and Paris, which all saw decreases in ADRs. London – which is most exposed to the financial sector problems – showed a very small increase in Q1 and was down 7.7% year-on-year in Q2.
The strength of the oil industry world-wide was a major factor in the strong ADR growth seen in Norwegian cities and in Aberdeen, Scotland. German cities with strong industrial business bases (like Dusseldorf, Cologne and Hannover) also showed solid ADR increases.
Karen Penney, Vice President Business Solutions, American Express Global Commercial Card, commented: “In parallel with the challenges that currently impact the airline industry, we now experience that the European hotel market is entering a new phase, with slower demand and lower rates. After years of strong growth, our analysis shows that rates paid by American Express customers are decreasing in many core European destination cities.” She added: “Particularly we notice that the financial sector downturn is making itself felt, with hotel rates decreasing in most European finance centers, such as London, Frankfurt, Paris, Geneva and Edinburgh.”