Tough days for business travel
Business Journal, Vol. 15, No. 10, June 2, 2003
Meridium’s Bonz Hart: ’We are having to be careful; we are a heavy-traveling company’
Meridium’s Bonz Hart: ’We are having to be careful; we are a heavy-traveling company’
Hard times call for drastic measures as Blue Ridge region businesses adjust to the new reality of business travel
By Ben Calloway
Business owners in the Blue Ridge Region are learning to adapt to what may be new trends affecting how their employees travel. Hit by the multi-pronged effects of a grim economy, war, terrorism threats, disease and exorbitant rates for airline travel, some of the region's businesses have cut back their travel budgets and learned that they can get a lot done without leaving town. Others have found that their time on the road can be used more efficiently than in the past.
Travel industry veterans say there is little improvement expected in the near future for most who use domestic and international transportation. The Travel Industry Association of America in Washington, D.C. says 26 percent of business travelers traveled less or not at all this year compared to 2002. Travel budgets have been reduced by 39 percent of businesses and 29 percent have reduced travel because of its high cost.
The risks in international travel are especially real, says Bonz Hart, president and founder of Meridium Inc., a Roanoke firm which sells process management software to petroleum and chemical businesses. "We are having to be careful; we are a heavy-traveling company. We have people in Saudi Arabia and we have worked all the way through the Iraqi war and in Venezuela."
Hart says that his firm is taking extra precautions like having security personnel move employee groups from terminal to terminal. It also has accepted the help of knowledgeable Meridium clients in foreign countries. The outbreak of Severe Acute Respiratory Syndrome (SARS) in Asia forced the company's Korean clients to ask Meridium to postpone its annual April software conference in Houston, but the commitments already had been made.
Looking for bargains
"There is a lot of uncertainty out there. Our clients know that and they appreciate that we still come to their countries to work, in Qatar for instance. The distances and the dangers make it an additional concern on the part of employees' families," Hart says. "Venezuela also has caused some challenges because of the volatile relationship between the government and the nation's oil business."
Hart says that he has no clients in the region and that "most new refineries and chemical plants are being built overseas because of stiff environmental compliance costs in the U.S. They are still good plants but they just are not built to U.S. standards."
International travel to service his customers is costing a lot more for business class, "seven or eight times the price of a regular ticket," Hart says. "The airlines are being very aggressive on fares so, if we have the time, there is a difference of hundreds of dollars that can be saved by driving to Greensboro, Lynchburg or Raleigh. If we are flying six to 10 people to a conference, it is simpler and cheaper to rent a van and drive to Greensboro. Air travel pricing policies simply are counter-intuitive. It's like saying 'The more you travel, the more we are going to charge you.'
"Traveling coach meant saving thousands per person on our trips to Australia. We find a big difference in fares out of Lynchburg and we get some flights in Charlotte, going to Houston that are $300 or $400 cheaper," Hart says.
Viewing the condition of air travel in the U.S. today, Hart says he is hearing business people praise low-cost upstart airlines like JetBlue because it is in the forefront of a change in the air travel industry. "Two things could happen in the airline industry: the conventional airlines will get their costs under control, or Jet- Blues will take their market share. That's one reason we support the effort to get a low-cost carrier into Roanoke.
"I've been to meetings in Texas with other software companies who say their cost of doing business is less because Southwest, a low-cost airline, was there," Hart says. "Typical trips on other airlines cost two to three times more. Southwest is smart and effective and there is no 'mystery' to selecting a fare. You look at two or three choices and you decide."
Nearing the bottom
Airlines in the U.S. are suffering from multiple problems but may be nearing a bottom on the fall in seat bookings, according to Mark Courtney, airport manager at Lynchburg Regional Airport.
"Airlines are going through all sorts of ways to adjust by reducing capacity, parking some planes and negotiating new contracts. But they have the twin problems of declining revenues and high labor costs," Courtney says. "Bookings are weak, with double-digit falls in April compared to a year ago. "The slowing means smaller communities are disproportionately impacted by the decrease in service occurring in most states, causing some of our customers to fly out of Roanoke or Raleigh, N.C. Still, the upgrade to jet service on Delta was successful due to revenue guarantees from the U.S. Department of Transportation." Seating capacity was down 35 percent in Lynchburg in April, Courtney says, but improved to 28 percent after the new jet service arrived.
The Iraqi war caused business travelers to defer trips but things are starting to look better and Lynchburg Regional is working to maintain fare parity, especially with Roanoke, Courtney says. He expects more "fare sales" will help stimulate travel demand. "To get the industry humming again, we need to see improved consumer expectations for the economy and we need to see the business traveler returning to the skies."
The cost of flying has some surprising numbers, despite the attempts to go elsewhere for better fares. Courtney says that in 1982 it cost about 15 cents a revenue mile to fly, while in 2002 it cost less than 10 cents, a 45 percent decrease in inflation-adjusted terms. To bring the market back into equilibrium, revenues need to increase. Losing a major airline to bankruptcy might free a 20 percent share of the market and provide some breathing room for survivors, Courtney says, but it would lead to higher prices and leave service gaps in smaller cities.
"Losses in the industry are unprecedented, like AMR, the parent of American Airlines, which lost $1 billion last quarter. It is painful to reduce over capacity and it already was bad before 9/11," Courtney says. "The major airlines need high revenues to support their high costs. Their pricing and distribution systems need revamping to even them out and make them less complex. Nowadays it may cost more to fly from here to Atlanta than to fly to Los Angeles."
Reduced fares
Airports in North Carolina are more than willing to compete for the passenger's business with reduced fares but it has an impact beyond their own state, Courtney says. "It is really frustrating for us when our passengers drive to Raleigh to get a fare that the airline there is losing money on.
"But if low-cost carriers become the predominant mode of travel in this country the smaller areas will suffer or even lose service. We need a route system that can profitably serve small cities. Regional jets help but they are much more expensive on a per-seat basis and fly shorter legs. When you add distance, you reduce operating costs."
Business is feeling the restrictions at a painful level but those in the business of travel have a broader view of the situation. Mel Ludovici, president of Martin Travel in Roanoke, says business is down 15 percent from last year, which was no great shakes itself.
"All these things have certainly had a negative impact, to say the least. But the underlying issues are the economy and the difficulty in flying," Ludovici says. "A lot of our short haul business has been cut out because people would rather drive than be strip-searched at an airport."
Ludovici says the end of the war in Iraq has had a modest positive effect on overall travel but there remains a problem of public confidence in air travel. "There are not too many airlines for this country when the economy is strong, even though you see some of them flirting with or in bankruptcy. There are too many seats for right now, but if we get people making more money and improve the economy those seats can be used."
Poor management
Despite their problems, the airlines are not totally victims of outside influences and Ludovici says he worries about the federal government subsidizing poor management with tax dollars. "If there is good money out there to be made in air transportation there will be investment in airlines, much as JetBlue and Primaris are doing.
"On the horizon we see air travel as the backbone of American commerce and an integral part of daily life. It won't fail. We just need to loosen up some dollars. Regardless of how you purchase it, there has not been a better time to buy travel because it is truly a buyer's market. The supply far exceeds the demand," Ludovici says.
Joyce Bradford, retail district manager at AAA Travel in Lynchburg, says that while many different factors have affected travel, a core problem is that the industry still has not rebounded from the effects of 9/11.
"Travel trends since then have undergone tremendous change to embrace more domestic travel. Our clients generally do not travel to Asia so SARS is not a big issue with them. But some still are apprehensive about getting on a plane," Bradford says. "People still are going on cruises and we are seeing some pickup in business as a seasonal effect. But more people are driving on their vacations and more are driving to Florida and getting on a cruise ship, rather than flying. There are big discounts being offered on all-inclusive, seven-day cruises and the cruise portion costs less than the flight to Florida."
Bradford says that she can't help but think that if the airlines cut fares in half "you'd see a lot of that fear go away. International rates to Europe and elsewhere already have been cut unbelievably and this is the high season for travel there. In some cases it is cheaper than flying to the West Coast of the U.S."
'Closer to home'
Discretionary income lost to three years of a tough economy and a losing stock market is another reason for the decline in travel, Bradford says, and travel businesses are feeling the pinch.
"Our volume is not bad and people are still going to take vacations. What we are finding is that they are going closer to home and taking shorter and less expensive trips. However there still are those people who sign up for trips to Russia and the Far East," Bradford says. "Sales are down but they are not down further because we had a long-term strategy and we saw the trend before 9/11. It has not hurt us as bad as it has others."
The people whose job it is to sell the Roanoke Valley as a business location say they are forced to do their job smarter but the work is getting done, despite the problems of travel. Philip Sparks, executive director of the Roanoke Valley Economic Development Partnership, says he travels 60,000 miles a year and has seen some organizations lose as much as 90 percent of travel budgets.
"We have been very fortunate that our travel budget has increased but we are combining trips and making our travel arrangements well ahead of time in most cases. Going out of Roanoke we have flown to Toronto, Canada for $229 and even on short notice we got to New York for $789, which was better than Greensboro and Charlotte prices. At those rates we were pleased. Rates are good if reservations are made 14 or more days out, but really go up if you don't."
A hotel room in New York City that normally costs $400 now goes for $189 a night, Sparks says, "and only about a third of our floor was filled. Travel into Roanoke does not seem to have been affected because we have had our second best January for incoming prospects since 1994. In the last 12 months we have announced 950 new jobs and $71 million in investment as a result of development efforts."