With flight frequencies declining at many airports and the cost of air travel soaring, the implications are anything but positive for meetings destinations. In parts of the country where distances between cities are far apart and train travel is not a viable alternative, the impact of this fall’s airline cutbacks stands to be especially acute.
In fact, no matter where they are located, destinations that are heavily dependent on tourism are particularly vulnerable to declining air service and rising fares, according to airline analyst Michael Boyd, president of the Denver-based Boyd Group.
“If you are a destination that depends on discretionary visitor dollars, you are in trouble,” he says. “Hawaii is in trouble. Florida is in trouble. Las Vegas is in trouble. Tourism destinations are hit the hardest of all because people can choose not to go there.”
Citing figures from Official Airline Guide (OAG), a London-based company that monitors air service, Boyd notes that U.S. markets overall have seen a drop of 9.5 percent in air service this year, while global air service has declined by 7 percent. Among the domestic airports hardest hit is Honolulu International, where, largely due to the demise of Aloha Airlines and ATA, the number of flights in November 2008 is down by 310 a week from those of a year ago.
“The airlines are not cutting back due to a lack of demand,” he says. “They have the demand. It’s just that, with the cost of fuel, they can’t afford to serve that demand. On top of cutting back, they have to raise fares.”
Even more serious than the cutbacks in service has been the corresponding rise in airfares—an average increase of 7 percent in U.S. markets in the past year, according to Boyd.
“And, of course, the fare is just the down payment these days,” he says. “There’s a $15 charge to check your bag, a $10 charge if you don’t want a middle seat in between two sumo wrestlers, even a charge if your child wants a drink of water.”
Deepest Cuts
When it comes to looking at where flight cutbacks are the most severe, it’s not size, whether pertaining to the destination or the airline, that matters. Analysts note that both legacy carriers and low cost carriers are cutting back on service, and that they are doing it at large hub airports and small airports alike.
Analyst Robert Mann, president of R.W. Mann & Co. in Port Washington, N.Y., says that secondary hub airports such as New York/La Guardia, Washington D.C./Dulles and Cleveland have been hard hit by service cutbacks by American, United and Continental, respectively. But while these cutbacks may bring some hardship, it is minor compared to what is being experienced by smaller destinations, some of which are completely losing air service.
“Anyplace that relies on the 50-seat jet is heavily affected,” Mann says. “That kind of service is not profitable any longer, so some places are losing it entirely. For instance, since American has pulled out of Albany [N.Y.], the only way to get there is by train or the throughway.”
As for the major hubs, they are being hit with the steepest rises in airfares as well as some of the deepest cutbacks in service, according to Boyd.
“It’s the hubs that are really affected, popular routes like San Francisco-Los Angeles and hub airports with frequent service like Dallas and Chicago,” he says. “The airlines aren’t getting out of these markets, except on purely feeder routes, but they are trimming back a lot of the frequencies.”
While in the past, airports could rely on low-cost carriers such as Southwest Airlines to jump in and fill gaps in lost service from other airlines, these carriers are making service cuts as well. In August, Southwest announced it will be cutting back overall service by about 6 percent starting in January, affecting service in such destinations as Baltimore; Nashville, Tenn.; Oklahoma City; St. Louis; El Paso, Texas; Phoenix; Oakland, Calif.; Los Angeles and Salt Lake City.
“Energy costs affect the low-cost carriers too,” says Mann. “In fact, they have even smaller margins than other carriers, so it hurts them even more on a percentage basis. So this means a further erosion of fare competition.”
Meetings Grounded
Meeting planners are noting that rising airfares and reduced service are having an impact on both on the number of meetings held and where they are taking place.
“Most of my clients are doing local events that people can drive to,” says Hannah Greenberg, director of conference services for Meeting Mavericks in Cherry Hill, N.J. “Airfares are a major reason. When attendees who have to pay their own way look at airfares, many of them change their minds about going.”
Greenberg adds that the unpredictability of airfares and the rate in which they are fluctuating are also putting a damper on meetings attendance.
“I was doing some ticketing for my staff and found a fare of $138. Within six hours when I went back online, the fare was $700,” she notes. “All the airlines that serve the destination had at least doubled their fares. So I can understand why when attendees who haven’t secured their fares see what they have to pay, think twice about the meeting.”
Pamela Milan, an independent meeting planner based in Beltsville, Md., is finding that clients are also looking for destinations closer to home, in some cases switching to regional meetings from national ones. Some are also making a bigger use of webcasts in order to reduce the number of flights that attendees have to make.
“What with the airlines cutting back and imposing baggage fees, it’s really making life difficult for people,” she says. “It’s especially a nightmare for planners as we have to travel with a lot of stuff.”
In general, the nature of business travel is changing as companies grapple with rising costs, says Mann, who observes that more people are opting for train travel in areas such as the Northeast Corridor between Boston and Washington, D.C. where rail service between cities is a viable option.
“The airlines have always looked upon business travelers as elastic—people who will pay whatever they have to for non-restricted fares,” he says. “”Now, however, we’re seeing companies bulk purchasing tickets at lower rates that are nonrefundable. Even when a Saturday night stay is required, they are purchasing these tickets.”
Hotel, Destination Impact
For many hotels and destinations, there is a definitely link between airline seat availability and fares and their own business. A recent study by PKF Hospitality Research reports that U.S. hotels could face a decline in lodging demand in the wake of airline cutbacks that would be worse than those experienced post 9/11.
“Based on our findings that a 1 percent decline in available airline seats results in a 0.39 percent decrease in hotel demand, if airline capacity is reduced by 10 percent as some have suggested, then lodging demand would fall off 3.9 percent,” says Mark Woodworth, president of PKF Hospitality Research. “To put this in perspective, the decline in lodging demand experience in 2001 was just 3.3 percent.”
The PKF study also stated that the cities most likely to be adversely impacted by declining air service are Miami, Orlando, Phoenix and Denver, primarily because they are either major leisure destinations or geographically isolated from other large metropolitan areas.
The impact of reduced air service and increased airfares is already taking its toll on group business in Hawaii, according to Christi Lewis, group sales manager for Starwood Hawaii, which operates 12 hotels on the four major islands.
“We’re seeing hesitancy for bookings for 2010 because people simply don’t know what will happen,” she says. “Plus we didn’t have a lot of citywide [convention] bookings for 2009 and 2010 anyway, so the airline situation compounds that. Where we’ve really lost business is from the Midwest and East Coast because people there are more likely to go the Caribbean. So we’re focusing on the West Coast more than ever.”
To encourage meetings business, Starwood Hawaii has launched incentives that include master account credits of $5,000 to $10,000 on bookings of 250 to 500 room nights. And the company is sending the message that planners will find their most favorable group rates in years.
“Our rates are now at post 9/11 level and there’s a lot of flexibility,” she says. “You can name your price.”
At the Krism Group, a site selection firm representing 239 hotels and resorts worldwide, a Bottom Line Boosters promotion has been launched that awards up to $50 for every flight booked to attend a meeting at participating properties. The airfare credit is applied to the master hotel bill for the meeting and is valid for meetings booked and held before March 31, 2009.
“There is definitely growing concern among our [hotel] members about airfares and service cuts,” says Jim Schultenover, president of the Krism Group. “The concern is especially being felt in secondary and tertiary destinations—not only about accessibility, but in the lack of competition to keep airfares down.”
Even in Las Vegas, where hotel occupancies are still the nation’s highest, there is some concern over rising airfares and the fact that flight service into McCarran International Airport is down by over 15 percent from a year ago.
“We have a strong situation with McCarran and we’re monitoring the situation closely,” says Kris Tibbs, senior research analyst at the Las Vegas Convention & Visitors Authority. “Our hotel occupancies are down 2 percent year to date since June, but still relatively high compared to national averages. Gas prices are also a concern as we’re a 47 percent air market, with the rest a drive market.”
Cloudy Future
How long will airlines continue to cut back on service? According to industry analysts, the situation is likely to get worse before it gets better.
“There are going to be more cuts announced for 2009—the airlines have not wanted to reveal their hands too quickly,” Mann says. “Of the airlines, United has been the most aggressive about publicly announcing their cutbacks. By summer 2009, they will have eliminated 100 aircraft since 2007, a drop of 17 to 18 percent in overall service.”
With the cost of jet fuel accounting for 40 percent of operating costs, the future of air service in inexorably linked to whatever happens with fuel prices, he adds.
“The answer will have to come with a new energy policy and we will have to see other transportation users switch to alternative fuel,” Mann says. “We’re already seeing some city transit switch to hybrids and other alternatives. Airlines don’t have this option, but other types of transportation do.”
