15 predictions for business travel in 2008
— -- Business travelers will remember 2007 as a year of brutal flight delays, crowded airplanes and higher prices. 2008 promises to be even worse.
Several fare hikes and strong travel demand helped the U.S. airline industry finish the year with a profit and all major airlines now out of bankruptcy for the first time in seven years according to the International Air Transport Association (IATA). But IATA also believes that rising oil prices and a softening U.S. economy amid declining home values and eroding consumer confidence will cause airline profits to plummet again this year. Airlines shelled out $135 billion for fuel in 2007 and IATA's projected $78 per barrel oil price in the coming year will add another $14 billion to airline operating costs.
With $190 billion in debt still on their books, the airline industry will soon be in financial trouble again and their degenerating condition will have a profound effect on business travel in 2008. Here are my predictions for the coming year:
1. They used to fly here
Sharply higher oil prices and the softening U.S. economy will slow travel demand in 2008. Most major U.S. airlines are already reducing capacity on domestic flights and business travelers will most likely see more service cuts in the year ahead (RELATED STORY:Airlines cut U.S. schedules despite strong demand). Southwest is the only major airline hedged against $100-per-barrel oil at $51 per barrel for 70% of its projected fuel consumption in 2008. Other U.S. airlines unprotected from the oil price run-up will simply reduce frequency or eliminate unprofitable routes altogether and ground airplanes to avoid an unprofitable year (RELATED STORY:United may ground planes as fuel costs rise).
2. Late again
With more than one in four flights arriving late, 2007's airline on-time performance was the second worst since the FAA starting reporting on delays. With no significant plans to fix the infrastructure in the coming year this will only get worse. Capacity reductions on less heavily traveled routes or during off-peak hours are unlikely to provide much relief at the nation's most congested airports.
3. Standing room only
Airline load factors are already at record levels and empty seats are a rare commodity. Capacity cuts in 2008 will only worsen this situation.
4. That airplane may be older than you
1,041 new airplanes were delivered last year and 1,281 more will roll off the assembly line in 2008, but few of them will enter service on domestic U.S. flights. Most large U.S. carriers have deferred upgrading and replacing their fleets for a better day (RELATED STORY:U.S. Airlines Put Off Buying New Planes). The U.S. fleet is rapidly aging, with 35% of airliners now over 25 years of age according to IATA. Older airplanes with more frequent maintenance problems feed further flight delays and cancellations. Older airplanes are also less fuel efficient than newer models and these added costs will be eventually be passed along to passengers.
5. That pilot may be younger than you
Exploding aviation growth in other world regions coupled with the rise of low cost airlines and fractional (private) jets has created a pilot shortage and is responsible for some flight cancellations this past year, particularly at regional airlines. Consequently, less experienced pilots are moving up the ranks, which is disconcerting, although it must be noted that all pilots must still meet specified minimums established by the Federal Aviation Administration. The situation has become so dire than Congress increased the mandatory retirement age from 60 to 65 late last year, but don't expect this to fix the shortage any time soon and expect more cancellations on regional airlines in 2008.
6. Oversold, late, and more expensive too
BCD Travel predicts published airfares to rise as much as 4% in 2008. American Express projects domestic economy fares to increase as much as 5%, while long-haul business class fares are expected to rise by 10%. With capacity cuts and skyrocketing oil prices, these estimates may be extremely conservative.
7. A more expensive room at the inn
PKF Consulting projects room rates to rise by 5.3% in 2008. Both American Express and BCD Travel project meeting costs to increase by 8% to 10%. These rate hikes are a result of higher operating costs and few new hotel rooms coming into the market. New hotel construction is underway but those rooms won't bring lower occupancy rates and rate relief to business travelers until 2009 and beyond.
8. Maybe you should take a taxi
American Express forecasts rental car prices to increase by 2% to 4% in 2008 while BCD Travel projects rental car rates to jump 5% to 7%. With states and municipalities continuing to bombard car renters with excise taxes and fees to fund local projects, you can be assured of paying more for that car rental this year.
9. Hold the lobster; give me the mac and cheese
As if higher air, hotel, and rental car rates are not enough, the National Restaurant Association projects a 3.6% rise in menu prices in 2008 and a 5.1% increase in food and beverage revenues in hotels.
10. Save us from exploding terrorists and batteries
The new year has just begun and already there is a new rule against carrying lithium batteries aboard airplanes. How many people actually know if their electrical gadgets use these deadly, exploding batteries? Now in its third year, the Registered Traveler program is barely operational at only a handful of airports, none of which are among the top 10 U.S. airports where security wait times are often the worst. Expect no relief from airport hassles this year and more confusing rules and restrictions when the next threat is uncovered and panic ensues.
11. Courting the business traveler
With higher operating costs more airlines will court business travelers this year than ever before. Even Southwest has revamped its pricing scheme and boarding process to favor higher paying business travelers with their "Business Select" product. (RELATED STORY:Southwest hopes changes add up to ch-cha-ching)
12. The British are coming…and the French and Germans too
Open Skies begins in less than three months and four major U.S. airlines (Continental, Delta, Northwest and, US Airways), currently locked out of London's Heathrow Airport, will likely shift some flights to this already congested airport. Meanwhile, major European airlines and discounters alike will likely open new routes across the North Atlantic. Secondary U.S. gateways, with little or no trans-Atlantic flights today, may well be the biggest beneficiaries of open skies. Unfortunately, most major U.S. airlines have already pressed every airplane capable of jumping the pond to into transoceanic service and will have few options to add new transatlantic service when open skies arise.
13. Old World consolidation
In the waning days of 2007, Air France bought a minority stake in financially strapped Alitalia, paving the way for additional European consolidation. While the big six U.S. airlines are unlikely to find a favorable merger climate anytime soon, consolidation is underway in the European Union and will continue there in 2008. European airlines may also take a minority stake in some U.S. airlines, like Lufthansa's recent jetBlue investment, giving these global carriers an even greater competitive edge in the open skies era (RELATED STORY:JetBlue and the global battle for air supremacy ).
14. International premium class bargains
Foreign airlines have invested millions of dollars in upgrading their first and business class long haul services over the past few years and now the U.S. airlines are following suit (RELATED STORY:U.S. airlines spruce up their luxury offerings). These investments are poised to compete for the lucrative international traveler. Look for intense competition by year end which may produce fare wars once open skies begins. Although Maxjet grounded its fleet last month, the all business class international flight concept is working well for Silverjet and other airlines, and we may see British Airways and other airlines launching similar services sometime this year.
15. The Asian travel boom
While U.S. airlines are shrinking, air travel is booming in Asia and the Middle East with most new aircraft deliveries going to carriers in these regions. China Southern Airlines will soon be among the world's largest airlines with 400 aircraft. China Eastern Airlines and Air China will soon have 300 aircraft each in their respective fleets. Since 1990 China has built 47 new airports and upgraded or expanded 90 existing facilities according to McGraw Hill. Beijing is now among the top 10 busiest airports in the world and six Asian airports are now among the top 30. Although the U.S. accounts for 30% of all enplanements, 60% of the incremental demand for jet fuel is now coming from Asia according to IATA. And Asia is projected to overtake North America and Europe as the largest market by airline passengers in the next 18 years according to Airports Council International.
Source: Airports Council International Traffic Forecast
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at travel@usatoday.com.
Fellow business travelers, what are your predictions for 2008? Make a list below …