Air Travel Goes Coach at More U.S. Companies

By Mark McSherry

Recent fare increases and the weakening U.S. economy could hit the bottom lines of airlines in the United States as more companies are requiring their executives to fly economy instead of business class.

In times of economic strife, companies usually try to keep profitability steady and margins intact. Cutting executives’ travel and entertainment costs is often the first step companies take.

While bookings for major U.S. airlines have held up well through the recent spate of the airline industry’s fare increases, analysts warned that could change.

For airlines in the United States, this would be another blow as they battle increases in fuel prices and the effects of a weakening economy.

“We are seeing some companies that have altered their policy or are in the process of reviewing it,” said Dale Eastlund, a director at the consulting division of Carlson Wagonlit Travel.

“Say instead of a five-hour business class policy, you have to be traveling eight hours” before being allowed to book a business- class seat.

That would be bad news for carriers like American Airlines and United Airlines that have invested heavily in their first-class and business-class cabins to attract business travelers.

“The most-coveted travelers are business travelers, because business travelers pretty much subsidize the rest,” said Rick Seaney, chief executive of FareCompare, an air fare research site.

Rising fuel prices and the weak U.S. economy have stalled the U.S. airline industry’s modest recovery from the 2001-2006 downturn. Oil prices remain around $100 a barrel.

Major U.S. airlines have attempted nine fare increases so far this year, six of which were kept, according to Seaney. Fare increases last only if they are broadly matched by rivals.

Companies are definitely going to feel the pinch, said Eastlund of Carlson Wagonlit Travel, and the airlines are going to start evaluating which routes they will continue operating.

Big airlines are beginning to shrink to cope with much tougher operating conditions. On March 18, Delta Air Lines said it would cut 2,000 jobs and scale back flights. Delta, the No. 3 U.S. airline, which has been unable to seal a merger with Northwest Airlines, will offer voluntary retirement and buyout packages to 30,000 employees.

Delta’s main rivals are also planning to cut capacity. UAL, parent of United Airlines, said last week that it would shrink its fleet by up to 4 percent this year to offset the rising cost of jet fuel.

“Higher ticket prices in the fourth quarter continued into the first quarter and, certainly, as companies look at their budgets that may impact what we see through 2008,” said Rob Greyber of Expedia Corporate Travel North America.

Originally published by Reuters.

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