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CWT Solutions Group, Carlson Wagonlit Travel`s consulting department, just released its 2004 European Air Trends Survey* dedicated to Low Fares (“Low Fares” are new much cheaper fares introduced by major network airlines, but also less flexible with restrictions). This Survey shows that the Low Fares phenomenon is impacting the air travel market most.
In its previous Survey, released in June 2003 at the peak of the Low-Cost Carriers “boom”, Carlson Wagonlit Travel (CWT) demonstrated that, despite the huge advertising impact of no-frills carriers, the Low-Cost effect was not really affecting the business travel segment.
The main findings of the 2004 Survey are:
- The Low Fares** market share is rising rapidly and is already much higher across EMEA (12%) than the Low Costs ** one (2%).
- Low Fares offer an average attractive saving of 35% on most EMEA city pairs, whereas Low Costs offer 55% of average savings available only on 9% of EMEA city pairs.
- Integrating Low Fares into a Corporate Air Programme and taking full advantage of them requires the Travel Manager to use specific tools
- Usage of Low Fares is here to last and even to increase within Europe, as it is beneficial for both companies and network carriers
Low Fares now account for 12% of flights purchased by companies in Europe
In its 2004 European Air Trends Survey, CWT highlights a trend that neither companies nor airlines had fully anticipated: the success of Low Fares. These discount fares and special offers promoted actively by large network airlines on a daily basis can be from 15% up to 80% cheaper than fully flexible fares, 35% off in average. The Low Fares now account for 12% of flights purchased by European companies, up to an estimated business volume of some € 500 million per year for European carriers!
However, the average figure of 12% corporate market share for Low Fares over Europe hides a contrasted picture from one country to another, from 0.6% in France to 19.1% in the UK.
The CWT Solutions Group’s survey also confirms the difficulties low-cost carriers (LCCs) are having penetrating the business segment: they account for only 2% of tickets purchased by European companies, a market share clearly surpassed by Low Fares.
Low-cost carriers continue to have trouble penetrating the corporate travel segment despite their attractive pricing. Several factors explain that situation, including their limited coverage of business routes.
Why are business travellers more increasingly using Low Fares than LCCs?
Pascal Jungfer, Vice President CWT Solutions Group EMEA, explains: Loyalty towards traditional flag airlines` is a big influential factor here. Other factors encouraging the use of Low Fares include the flight frequency, which is higher at network airlines, and the type of airport served: many LCCs take off from airports which are too remote from major European cities.
Business travellers are also less keen on flexibility, a trend very much in favour of Low Fares. Many of them, after having given up on extra comfort in favour of economy class on domestic and intra-Europe flights, are now starting to drop the only luxury that psychologically justifies paying a standard fare**: the possibility to change their schedule. They have no particular reason to change their morning flight and don`t mind a return flight at a set time, even if it means paying a penalty if they need to change flights.
Does the success Low Fares are enjoying mean that network airlines have won the price war against the Low-Cost airlines?
The answer is no, because the Fares phenomenon is relatively complex. For example, a business traveller boarding a Low-Cost Carrier pays 55% less than if he travels with a standard fare on a traditional carrier. A 55% saving is a lot, even higher than with a Low Fare, which provides a maximum of 35% saving on the average standard business fare, on regular flights. But on the other hand we see that offering the cheapest fares does not automatically translate into the biggest slice of the market.
The airline pricing competition is specially strong on key intra-European routes such as London-Edinburgh, Amsterdam-Geneva, Barcelona-Dusseldorf, Dusseldorf-Munich. These are the market segment where traditional network carriers focus on fighting off LCCs with their Low Fares, while LCCs are fighting hard to get more business clients on the same key routes (where they have up to 8% of the corporate market, as of today).
Integrating Low Fares into a Corporate Air Programme and making the most of them requires for the Travel Manager the use of specific tools
What is really surprising there, is that neither the companies that buy business travel nor the airlines appear to have quantified the impact of the changes in the travellers’ behaviour. Furthermore, the breadth of new and complex offers available across the fares structure is not properly monitored. Travel Managers have increasing needs for figures breaking market shares by type of fare, for figures showing the new fares exponential growth and the savings they incurr for companies.
In between the travellers, the buyers and the suppliers, travel management companies such as Carlson Wagonlit Travel interact their expertise between travellers, buyers and suppliers: they are the only players able to identify the best travel policy in the new air-travel market, based on a successful mix of fares negotiated with airlines and spot purchases that take advantage of last-minute discounts.
For a better insight into this subtle mix, the low-fare market can be seen as an air-travel mart, which is extremely sensitive to current events (such as Iraq war, SARS, terrorist attacks), and which also offers purchasing opportunities that change every day. Companies are not equipped to follow these fluctuating offer nor to select the best one for their travellers in real time.
To make the most of all opportunities, Travel Managers and Purchasing Managers now need tools optimising the usage of fares. For example, the CWT Solutions Group’s AirDynamic** provides charts presenting current and potential savings offered by Low Fares, and a comparison with the savings obtained by other companies on average (in comparison with negotiated fares**); this tool allows a unique selection process between the different airfares available. says Hervé Joseph-Antoine, Director Air Consulting at CWT Solutions Group EMEA.
To identify and book these Low Fares and also the Low Cost Carriers fares, CWT has developed innovative solutions and tools such as CWT Webfares**.
The long-lasting impact of low Fares: No turning back
Who benefits from the low-fare “phenomenon”?
Well-informed companies, certainly. And, surprisingly, traditional flag airlines: their Low Fares are encouraging business travellers to fly more due to the attractive offerings; they also attract large numbers of passengers from regional airlines or Low-Cost Carriers towards the large network carriers.
But how long will this last? Given ongoing pressure from LCCs and the changing mindset of business travellers, it is unlikely that airlines will return to the previous status. British Airways, BMI, Lufthansa, Swiss, Iberia, Alitalia have now all launched their Low Fare offering. Lately Air France has launched its own Low Fares on April 1st to compete with other airlines. In the competition area, it is also worthwhile underlining the increasing interest from the Rail companies (France, Spain…) in business travellers looking for cheap fares.
Hervé Joseph-Antoine concludes: “Adoption of Low Fares is due to increase within Europe : it would not be a surprise to see them reaching a 20% to 25% share on the business travel air market at the end of this year. The airline landscape is definitively on the move and there is no turning back, a situation that results in a big change but also in a lot of saving opportunities which we can help companies seize.
Low Fares today already result in a 4% contraction of corporate airline spend, an opportunity that companies can at least double providing they take the right approach.”
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
