Business travel was back in full swing in the U.S. in 2005. “We
saw signs of that in 2004,” John Heilner told BTN in January 2005 when he was VP
of Management Alternatives, a Connecticut-based travel management consulting
firm that was acquired by GoldSpring Consulting in 2015. “We are no longer
seeing much of the ‘travel-only-when-necessary’ mandates from senior management.”
A CWT poll showed that 60 percent of travel managers expected more travel for
their company in 2005 compared to 2004.
(Note: Hurricane Katrina would upend travel for some weeks in September; meetings in Louisiana and the surrounding region would suffer terrible losses. Business travel, however, continued unabated across most of the region, with suspensions focused on the most impacted cities like New Orleans.)
Hotels Stave Off Overwhelming Business Demand
Hoteliers had been feeling that groove for months. They were
also coming to terms with new revenue management strategies, with the
realization that fixed corporate pricing combined with high business travel
volume was crowding out other lucrative business they’d like to capture—like leisure
travel, like groups and meetings travel. The moves started in 2004 to put
pressure on corporate programs by discontinuing fixed consortia rates for travel
management companies. Plus, hoteliers had exercised the upper hand for the 2005
negotiation season, with rates rising more than 10 percent in certain markets, according to reporting from BTN and other sources.
But that wasn’t the end of it. In the January 17 issue of
BTN, a cover story announced that hotels had “begun to restrict the amount of
volume they accept from corporate accounts, specifically in high-demand cities on
midweek nights when business travel demand is greatest.”
It was the beginning of what eventually play out as
rate-fencing and hoteliers creating menus of room types (even if the rooms seem
identical)—at least partially for the purposes carving out volumes that would
be eligible for corporate rates and those that would not. But that would take a
few years.
By August, however, a BTN headline read “Hotels Float Rate
Change: Chains Attempt to Expand Dynamic Pricing to Corporate Travel.” It was
the first in a long line of salvos to the corporate market that dynamic rates
would serve them better than what hoteliers called an “annualized corporate
rate” that was set at a fixed level intended to “cover” the effects of seasonal
demand.
Then-global program manager at Limited Brands Sam Schisler
told BTN: “Very much like the airlines with their restructure, the hotel
companies are starting to look at what other options are out there besides set
negotiated last-room availability rate or non-LRA rate.” Jim Kilroy, then-VP of global agency sales
for Starwood Hotels (acquired by Marriott in 2016) called negotiated static
rates “no longer that relevant” in a market where online travel booking sites
had made abundantly clear to consumers and corporates how wildly rates can
fluctuate with demand cycles.
Still, major buyers tread cautiously. “I think you have to
be really careful on how you set the parameters,” then-corporate travel manager
for Tokyo Electron America Kevin Maguire said. “If (the rate) floats, it can be
weighted and hurt more than it helps.” It’s a conversation the industry still
has today, even as re-shopping tools and more sophisticated rate auditing tools
are in play.
Airline Fare Restructure Makes Headlines Everywhere
But what did Schisler say about airlines? Oh yes… airlines
were drastically changing their pricing models in ways that impacted corporate
programs as well. It came in a wave of changes out of the gate in 2005.
Airlines remained financially embattled in 2005 to be sure,
and analysts were surprised when Delta Air Lines, still on the brink of bankruptcy,
entered 2005 with a simplified rate structure. It introduced simpler and lower
airfares—including business fares—nationwide, eliminated Saturday night stay requirement
to access lower fare buckets and reduced the ticket change fee from $100 to
$50.
Pushed to fare restucturing by the clear migration of consumer
volume toward low-cost airlines like Southwest, JetBlue and Airtran, Delta bit
the bullet as one way to stem the tide of shifting market share dynamics.
The fare reform completely scrambled Delta’s corporate
contracts, however, with the newly reduced consumer rates undercutting
negotiated corporate discounts. “To bring corporate contracts in line with such
changes,” wrote then-BTN airline editor David Jonas, “ negotiated discounts
will be reduced and could be de-emphasized, but not entirely eliminated for
many accounts.”
Buyers weren’t all up in arms, though, as the reduced rates
looked like they could be a boon. “This could give divisions an opportunity to
be more flexible to travel,” said then-Pfizer global travel director Phill
Dunphy. But corporate discount structures would immediately change as new fare
categories ushered in what would shake out as single-digit discounts for
corporates. Delta also discontinued its meetings fare program.
A slew of changes across all the major U.S. domestic
airlines followed. American Airlines immediately matched Delta’s fares in
January, but was not clear on how it would alter corporate contracts until
March when it largely replaced complex corporate contract terms with single
discounts.
By the time American had gotten to its corporate strategy, Continental,
had not only changed its fare structure in Feburary but had also rolled out
changes to corporate contracts and Northwest was working on the same process. United,
in April, rolled out a three-tier domestic corporate pricing structure for all
corporate accounts. At the same time, United was still tying up loose ends on
its bankruptcy. It restructured its corporate sales organization and relaunched
its small business rewards program as it embarked on a strategy to migrate
corporate bookings to lower-cost distribution channels.
As early as February, corporate clients—especially those whose
programs included negotiated fares in lower-priced fare buckets—were realizing
that they were likely to pay marginally more for airfares as their discounts
came down. But the trade off in lower fares for slightly higher fare buckets
and definitely in business class fares largely neutralized the impact for most
companies.
Buyers expressed concerns, however, that as rates inevitably
increase, “we have taken a lesser discount … and all of a sudden fares will
increase and we will have less discount to leverage.” They also began to
question the relevancy of secondary and tertiary airline deals, given the diminishing
discount “let’s just push to a primary and maybe one secondary, and simplify.”
The fare changes in one sense did their job (along with some
capacity discipline that evolved over the course of the year from the likes of
Delta, Continental and others): Airline load factors in 2005 landed at over 77
percent, which represents one of the strongest single-year jumps for load
factor in the 20 years stretching from 1995 to 2015, according to the U.S.
Bureau of Transportation Statistics.
They didn’t improve revenues, however. Most major airlines continued to turn in lackluster results in 2005 and some were disastrous. Delta filed for bankruptcy in September. As fuel prices rose steeply in the second half of the year, fares followed, as buyers had feared, with their single-digit discounts.
Car Rental Firms, Too!
Car rental firms, ere on the move in
2005. Hertz, Cendant and other major car rental companies increased rack rates
to consumers by about 5 percent in the back half of the year. Cendant, then the
parent company of Avis and Budget, increased corporate contracted rates by 7
percent to 8 percent in September.
There were so many other dynamics in play in 2005, including
airline distribution changes driven by new entrants. Check out the timeline
below. BTN employed some AI to help us with the timeline summaries for 2005. It’s
the first time we’ve done this, and we gave these summaries a fine-comb review
for accuracy, but if you see anything amiss, do let us know. It’s a learning
curve!
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January
Delta Air Lines introduces a simpler, lower-fare structure that undercuts corporate discounts and fare restrictions. While offering business travelers cost savings and greater flexibility, the reform affects traditional pricing models and airline relationships.
TSA starts to test its Secure Flight system by comparing airline passenger name records with government watch lists, while stretching the pilot phase of its Registered Traveler program to collect more data.
Hyatt Hotels Corp. enters the all-suites market by acquiring AmeriSuites to compete more directly with the likes of Marriott, Hilton, and Starwood; expand its multi-brand portfolio; and offer more diverse options to corporate clients.
A number of hotel chains like Hilton, Millennium, and Shangri-La increasingly limited the volume of rooms available to corporate accounts in high-demand cities, to maximize profit and combat rising market rates. Large and small hotels alike aim to lower overbooked negotiated rates, and buyers deal with less inventory in various ways.
US Airways and United Airlines both receive extensions in their Chapter 11 bankruptcy proceedings. US Airways faced operational issues, union negotiations, and competition from Southwest. Meanwhile, United soldiers on with fleet downsizing and labor agreements, amid concerns about their long-term survival.
More and more carriers work with payment providers to reduce card fees. They did this by offering incentives like rebates and discounts for using alternative payment methods like UATP, helping both airlines and corporate clients save on airfares.
February
In a class action settlement, American Express agrees to refund its cardholders millions in foreign exchange fees assessed between March 1997 and October 2004. However, corporate cardholders had to apply individually for the refunds.
Major U.S. airlinesupdate their networks to cut unprofitable domestic routes, instead focusing on core markets and international trips. Low-cost carriers like Southwest and JetBlue keep expanding services to compete with legacy carriers in big business destinations.
United Airlines’ proposal to incentivize travel agencies to shift bookings to new distribution systems gets mixed reactions from TMCs. Some praised the opportunity for cost savings and efficiency, while others wondered about content availability, logistics, and the economic impact on relationships with global distribution systems.
Continental Airlines simplifies business pricing by aligning negotiated discounts with actual published fares instead of airfare classifications, a tactic also adopted by Northwest. American Airlines and other carriers continued to adjust their corporate contract terms in response to fare reform.
Delays in hotel contract negotiations were largely due to buyer resistance to higher room rates and demands for guaranteed availability. Many buyers were still finalizing agreements as the lodging market rebounded and hotels gained more pricing power.
After acquiring PeopleSoft in December 2004, Oracle vows to corporate clients that it would continue to support PeopleSoft technologies, including its expense reporting, for the next decade. The company also said it would integrate the top features of both PeopleSoft and Oracle applications.
March
To enhance expense reporting, Marriott says that starting in April 2005, it would transmit line-item folio details from 1,500 properties to select MasterCard corporate clients.
American Airlines simplifies its corporate agreements by reducing complex terms to single discounts, following industry-wide fare reforms.
Following IATA’s relaxed fare purchasing rules, buyers and TMCs are finding cheaper itineraries. Yet multi-sector itineraries may still need careful review to avoid costlier combinations of net and published fares.
Updates in automated fulfillment have enabled corporate clients using OBTs to achieve touchless rates averaging 90 percent.
Sabre launches Travelocity Business, which adopts GetThere’s new online ticket exchange, void, and refund technologies.
Marriott’s Bruce Wolff shares how the hotel industry regained control over pricing and distribution. Hotels eliminated room blocks, made best rate guarantees, and switched from third party merchant sites to direct bookings, for lower margins and better price integrity.
United Airlines, US Airways, and Independence Air get revised financial terms to aid in their bankruptcy proceedings, with each airline working on restructuring.
The move by global distribution systems to display complete hotel pricing stalls, with few hotels participating. This leaves travelers and buyers frustrated with inconsistent pricing.
American Express starts transmitting detailed hotel transaction-level folio data to corporate card clients from six hotel chains, marking its entry into the e-folio market.
U.S. low-cost carriers are quickly expanding in both local and international markets, targeting corporate travelers with more routes and enhanced services. Legacy carriers attempt to maintain market share by growing their own budget operations.
Lufthansa and NetJets partner to combine scheduled flights with private jet services for first and business class passengers. This would offer seamless connections between the carrier’s long-haul flights and NetJets’ services to over 1,000 EU airports.
TSA’s Secure Flight program continues to be tested, with mixed views from industry experts, travel managers, and data privacy advocates.
April
At the 2005 Corporate Travel World conference, talks focused on the evolving business travel distribution landscape, with a focus on content aggregation, the impact of emerging distribution systems, and the challenges of handling costs and supplier relationships amid airfare reforms, fuel costs and business travel recovery.
Rising taxes on airport car rentals prompt some travel managers to suggest off-airport alternatives, but the added time and effort often makes this strategy difficult for travelers.
Keeping up with growing simplification, United Airlines discounts all fares through a 3-tier corporate pricing model.
May
United Airlines and other carriers are using platforms like ITA Software and G2 SwitchWorks to lessen costs and control content distribution. TMCs and GDS operators are adapting to these emerging systems, creating competition and possible shifts in pricing and content access.
At the Association of Corporate Travel Executives conference, experts discuss the growing data security and potential misuse risks of RFID-enabled passports. ACTE president Greeley Koch said the group’s members have been almost unanimously against the update. U.S. State Department official Frank Moss said these passports will only be issued after addressing privacy and security concerns.
U.K.-based TMC giant Hogg Robinson Group acquires New York-based Sea Gate Travel Group,
United Airlineswins a court ruling allowing it to offload underfunded pension plans to the federal government.
US Airways and America West are rumored to merge.
June
US Airways and America West Airlines’ proposed merger hopes to attract more corporate business through competitive pricing and an expanded network.
Southwest Airlines challenges the Wright Amendment flight restrictions to expand its services and foster competition in the region.
Taking a cue from W Hotels, Starwood plans to launch the midprice XYZ brand to appeal to luxury-focused but cost-conscious clients. XYZ eventually rolled out as Aloft, many of which feature a W XYZ Bar.
Following airfare reforms, carriers test a $499 fare cap as published ticket prices go up, raising the costs for business travel.
Orlando Airport privatizes its registered traveler program in an effort to streamline services and increase efficiency for frequent visitors.
July
A proposed House bill aims to stop the rollout of GSA’s End-to-End travel technology program, stating concerns over cost and efficiency.
Several U.S. and foreign airlines expand international capacity to collaborate on routes and improve service offerings.
Six SkyTeam alliance members, including Delta and Northwest, make their case with the U.S. Department of Transportation for antitrust immunity.
For the first time in years, major car rental firms raise their published rack rates.
Small merchants accused major credit card companies like Visa and MasterCard of colluding to fix interchange costs, which could impact businesses and consumers by raising transaction fees. After a long-running case, they arrived at a $5.5 billion settlement agreement in September 2018.
The American Civil Liberties Union implores Congress to end the Secure Flight program, claiming that it subjects travelers to privacy violations and unnecessary screenings.
August
In favor of dynamic corporate rates, hoteliers offer new pricing models that move buyers away from fixed annual or seasonal rates.
Amidst financial troubles, Navigant International defends itself against a possible buyout. CWT acquires Navigant in 2006.
The Federal Aviation Administration refuses the Federal Communications Commission’s suggestion to end a 14-year-old ban on inflight cell phone use.
Delta and Northwest Airlines face financial uncertainty from the possible effects of a Chapter 11 rule change, which could throw a wrench into their restructuring plans.
A buyers’ consortium of 12 midmarket companies led by Tokyo Electron America travel buyer Kevin Maguire nearly reaches success in securing negotiated hotel fares, with the group obtaining favorable rate quotes for business travel.
Cendant Car Rental Group raises its corporate car rate by 7 to 8 percent, translating to higher costs for travelers.
CSFB and Trondent develop new profile technology to improve corporate travel management and personalization.
September
The aftermath of Hurricane Katrina and rising fuel costs prompt the IRS to update mileage reimbursement guidelines. Meanwhile, hotel analysts predict slowed domestic demand and airlines see growing financial strains.
The SkyTeam alliance hopes to attract more multinational corporate clients through the launch of its integrated global program. However, the U.S. Department of Justice formally denies the group’s plea for the six-airline antitrust immunity.
During the National Business Travel Associationconfere nce, the main theme was globalization, with talks on the rising importance of managing international travel and expenses as businesses expand globally. In 2011, NBTA changes its name to Global Business Travel Association.
Delta and Northwest Airlines’ Chapter 11 bankruptcy filings give rise to speculation about mergers and acquisitions in the airline industry.
The Department of Justice criticizes the Secure Flight program as not ready to take effect, but TSA says it will move forward, with two carriers to partially launch the passenger prescreening.
October
Delta’srestructuring plans include reducing domestic mainline capacity and cutting jobs in attempts to regain financial stability.
The U.K. government will retroactively refund VAT on travel management company (TMC) fees, which could offer huge financial relief to the industry. This decision follows a legal ruling that VAT shouldn’t have been applied to those fees, and some companies could be reimbursed as much as $900,000.
Private airport programs expand across the U.S., and the federal government concludes its 14-month test of its Registered Traveler program. Such programs exist today as a public-private partnership between the TSA and the Registered Traveler Interoperability Consortium. The biggest program of its kind is Clear.
Major airlines cut flight schedules to reduce capacity and mitigate unsustainably high jet fuel costs.
Large and midsize corporate travel buyers test a new model by deploying the Rearden Commerce e-procurement platform for their travel and purchasing processes.
United Airlines plans to debut an Orbitz-based corporate portal, to streamline travel bookings and improve user experience for clients.
To address concerns about the possible avian flu pandemic, ACTE urges immediate steps to protect travel programs and ensure business continuity. ACTE establishes two task forces and is working with health authorities to educate travelers and their managers.
November
TSA has approved a nationwide, fee-based Trusted Traveler program that blends federal and private sector efforts to quicken traveler security screening.
Hotel availability is a key factor in business travel negotiations, with companies focusing on consistent room access for employees.
TQ3 CEO Marc Hildebrand emphasizes the company’s strategy to rebrand Global Network Entities to better serve corporate clients, develop service offerings and improve the travel experience.
Carriers are debating the U.S. Department of Transportation’s proposal to ease foreign ownership restrictions, with some supporting greater global investment while others voicing concerns on national control and competition.
December
American Airlinesrevamps its portal to promote direct bookings, with enhanced features and incentives for corporate clients to book flights via its own platform instead of third-party channels.
The US and EU tentatively ink a new air travel pact, but the deal faces regulatory and political roadblocks. Now known as the EU-US Open Skies Agreement, it was ultimately signed in April 2007, providing the framework for a more open transatlantic aviation market.
Timeline produced this week by AI and BTN editorial content and engagement manager Gianna Song
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Elizabeth West is the editorial director of the
BTN Group. She has reported on the business travel and meetings industries for
24 years. Beth was editor-in-chief of Meeting News from 2006 to 2008 and
director of content solutions for ProMedia Travel from 2008 to 2011, when
ProMedia was acquired by Northstar Travel Media and merged with BTN. She became
editor-in-chief of BTN in 2015 and editorial director of the BTN Group in
2019.
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