Higher Prices Change The Business Travel Paradigm

Higher airfare, new luggage fees, fuller flights and what seems like more cancellations all add up to a litany of added stress.

"It's really tough right now because overall it's very expensive," said a well-known business executive, noting that 45% of her business' expense now goes toward travel, up from 32% a year ago. She isn't the only business executive feeling the pinch of higher prices and trying to adjust her employees behavior accordingly.

In the past three reporting months, businesses increased their air travel spending by 12% from a year ago while the number of tickets purchased decreased by 1%, according to a cross sample of more than 80 clients with Ovation Corporate Travel, an independently owned travel management company. The trends make a lot of sense considering that recent airfare increases have come hand-in-hand with an overall economic downturn.
Michael Steiner, Ovation's executive vice president, said "We're seeing our clients' policies tightening around certain criteria such as approvals for trips, class of service, etcetera."

"Business travel is under rising pressure due to corporate cost control measures and the availability of improved alternatives such as Webcast meetings and conference calls," according to a recent report from research firms Global Insight and D.K. Shifflet.

For the second quarter, the firms predicts domestic business travel will drop off by about 0.8%, and then decline an additional 0.4% in the third quarter. The next year, however, looks even more challenging as the slowing economy and the impact of rising fuel prices begin to really take a toll.

So far the decline in business travel hasn't been significant, but in the past 60 to 90 days there has been a notable change in the way companies are thinking about their travel policies and the need for comprehensive travel insurance.

Some travel experts have also been pushing the idea of travel insurance to protect against unexpected flight delays or cancellations. The insurance typically cover lost luggage, the cost of changing a flight or staying over night in a hotel, and can cover medical expenses in a foreign country.

"I think there is a greater emphasis being placed on protecting the travel investment, particularly now with the higher costs and airlines doing less to help in the times of problems," said Mark Linton, president of national accounts at RBC Insurance.

Travel insurance typically costs between 6% to 10% of a trip's costs, and is more and more often quoted as part of an entire travel package, Linton said.

Further, annual insurance plans for business travelers have been proliferating in North America, particularly after the terrorist attacks on Sept. 11, 2001, which stranded airline passengers for days.