The Credit Squeeze Compresses Travel, Too

Date: October 20 2008
Source: The New York Times
Website: http://www.nytimes.com/2008/10/21/business/21road.html?_r=1&oref=slogin

BY the calculations of many astute readers of this column, I am actually $100 richer than I previously reported.

I introduced this inaccuracy in last week’s column when I calculated that an airline change penalty of $150 that I would pay to cancel a $375 flight left me with $125 to apply toward a new ticket — rather than the correct total, $225.

Good-natured e-mail poured in guffawing at my dumb mistake in third-grade arithmetic. But hey, these days someone with a virtual $100 windfall is whistling a happy tune. Because that extra money is going to come in handy.

The cost of business travel is up — not so much because of jet fuel, which is now half the price it was in the summer. Airlines have cut capacity and are trying to keep prices up so they can operate profitably at sustained oil prices of $80 to $100 a barrel. And hotels, particularly top-tier brands, have resisted discounting, at least until the last couple of weeks when demand fell off.

At the same time, corporations, feeling the pain of the credit crisis, are moving quickly — emphasis on quickly — to curtail spending.

The Business Travel Coalition, which represents corporate travel buyers and suppliers here and internationally, surveyed travel managers last week and found a sense of real urgency. More than a quarter of nearly 200 travel managers surveyed said that their companies had recently started emergency cutbacks, on top of the cuts already in place this year.

More than a third reported an immediate freeze on all travel. Nearly a fifth said they had mandated new reductions in travel spending.

Incidentally, the videoconferencing industry, which had failed for a decade to live up to its promise of significantly replacing actual business travel, is definitely poised to benefit, especially now that technology has evolved to the point where videoconference meetings using high-end systems can provide virtual reality. Fully half of the company travel managers surveyed said they were planning “additional strategic investments” in this technology next year.

Meanwhile, the National Business Travel Association, the major industry group, has just released its own comprehensive survey of more than 230 companies. It found that a typical domestic business trip costs up to $175 more now than it did this time last year and that the extra cost for international trips is as much as $400.

According to the association’s survey, these are among the steps corporations are taking:

Cutting air travel across the board and sharply reducing travel for conferences and conventions.

Encouraging travelers to “combine multiple trips into one.”

Eliminating premium-class travel on domestic trips and sharply curtailing it on international trips.

Using more videoconferencing. Three-quarters of the companies said they were using videoconferencing to replace or augment some business travel.

Strictly enforcing travel policies and booking procedures.

Prohibiting stays at four- and five-star hotels in favor of midprice brands.

The hotel crackdown is rumbling hard through the luxury hotel niche. The high-end hotel industry, already reeling from a loss of corporate meetings and conferences, is now facing a significant drop in demand for rooms, people in that industry tell me.

“We’re never seen cancellations like we’re seeing right now,” said an executive who works for one high-end chain and who wouldn’t speak for attribution. “One problem is that the name of the hotel itself conveys luxury, and even top-ranking executives are afraid to put it on their expense accounts.”

Lalia Rach, the dean of the Tisch Center for Hospitality, Tourism and Sports Management at New York University, said that “there’s incredible uncertainty now affecting everyone,” including the highest-end business travelers. .

In the relatively lush times in recent years, the five-star business hotels benefited from and proliferated because of “those who aspired to luxury and pushed up into that category,” Ms. Rach said. “That part of the market is going away, and the speed with which this is happening is amazing.”