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Rationalizing Economic Hope In Fractions Of A Percent
By Mark Williams
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After examining the entrails and the cosmic signs, experts have concluded
that the U.S. economy left the recession stage well over a year ago. A
spending forecast jointly developed by ACTE and Runzheimer
Internationalearlier this year reports the number of U.S. companies that
are holding steady with their travel expenditures -- coupled with those
that are actually increasing their travel budgets -- exceeds the still
sizable percentage of companies cutting travel spending. Recent headlines
herald flights restored to Asian cities as passenger traffic increases. Low
cost carriers are ordering more planes to fly to more destinations.
Why then the long faces?
Despite all of the happy portents cited above, the top ten carriers in the
United States are again posting record losses for the second quarter.
Airlines in Europe and Asia are facing similar challenges as the global
economy moves forward in fits and false starts. While the rest of
international commerce can look at 3/10's of a point as progress, the
aviation industry cannot. Considering that the U.S. domestic air travel has
lost more than $15 billion since 9/11 (and continues to add to that amount
every day), a gradual return to profitability over the next 5 or 10 years
presents a less than rosy picture. (I have it on good authority that
business travel is likely to kick in $15 billion this year, or next.)
It cannot be denied that low-cost carriers are doing a booming business.
And they are booming at a time when a boom is a rare commodity. Some are
adding legroom. Others are jazzing up meals. And others still are offering
entertainment options -- at much lower prices than their major competitors.
Naturally, this success easily translates into the trend most likely to be
predicted for the future. And in a future that promises plane travel on the
order of bus travel, it's a happy thought. But everything takes on a
different shape when you alter the perspective. The time will come when
shiny new airplanes require greater maintenance... When pilots, flight
attendants, and mechanics require more money... When fuel and insurance
costs begin to squeeze amenities... And when telecommunications are as
instant, cheap, and clear as tap water... Then we'll see what low-cost
travel really costs.
In the meantime, it's important to remember that while the major carriers
were busy losing all the money aviation ever earned for the second time in
20 years, they developed a vast hub system, made it possible to get from
one rural neighborhood to another on the other side of the country (and
back again) in the same day, and pioneered a vast reservations network,
that is the basis of all travel today. The hub system is now scorned. But
for 25 years, its malls, restaurants, and clubs were the mainstay of the
business traveler. And none of it was developed at low-cost. It's easy to
knock the big carriers today -- and some still baffle us with the
conclusions they draw -- but their contributions cannot be overlooked either.
It saddens me to think that major carriers are distracted from the process
of reconstruction and growth by the need to compete with low-cost airlines,
and against themselves with profit-resistant discount pricing. It appears
that we have again returned to the brink of price wars and the shortsighted
strategy of market share. Is this industry doomed to repeat the lessons of
1992? I can assure you that this time, there will be no dot.com bubble to
stimulate business. There will be no corporate bulldozing when it comes to
reporting profits and company value. We're going to have to think our way
out of this one. And for the airlines, that's going to mean airfare
rationalization.
Major U.S. carriers are already restructuring their flights, renegotiating
with their unions, and telling airport authorities what they're willing to
pay to stay at certain facility. In essence, this is overhauling their cost
models. Now it's time to rebuild the pricing model. End the price wars. Let
frequency and service determine value. Recognize the business travel for
guaranteed revenue -- not the highest revenue charged.
Sincerely,
Mark A. Williams
ACTE President
Association of Corporate Travel Executive
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ACTE
Over 2,500 Business Travel Professionals Working Together to Advance the Industry
ACTE's Core Purpose:
To Advance the development and growth of the business travel professional worldwide
ACTE's Strategic Intent:
To be the leading worldwide network of business travel professionals.
ACTE US and Canada
515 King St, Suite 340
Alexandria, VA 22314
Tel: 1-703-683-5322
Fax: 1-703-683-2720
[email protected]
ACTE EMEA
Avenue des Gaulois 7
B-1040 Brussels, Belgium
Tel: 32.2.743.1589
Fax: 32.2.743.1550
[email protected]
ACTE Asia Pacific
37/F Singapore Land Tower
50 Raffles Place
Singapore, The Republic of Singapore 048623
Tel: +65-6728-3820
Fax: +65-6728-3820
E-mail: [email protected]
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