United Kingdom


 

The effect of rising oil prices on business travel

The rising price of oil and continued unrest in the Middle East is far from encouraging for business travel. As travel demand increases airfares will continue to rise. What does this mean for your business?

 

With Brent crude currently trading at around $115 USD per barrel, airlines have indicated that they may be forced to combat high oil prices by implementing or increasing fuel surcharges on certain routes - especially international ones...

 

Why it matters

 

Higher travel costs - caused by capacity constraints colliding with an increase in demand. Fuel surcharges are another price increase and are not currently eligible for corporate discounts or refunds.

 

Limited options for travellers - load factors will continue to be high as planned capacity growth is held back. Last-minute travellers will have limited options for scheduling and seating, making advance purchase key.

 

Return of fuel surcharges - many airlines have reinstated or increased fuel surcharges to offset rising fuel costs. Fuel surcharges are not included as part of the actual airfare, making them non-negotiable as part of a corporate airline contract.

 

The future

 

Some protection for international routes - airlines are not limiting capacity on all routes. Growth is still expected on many international routes as airlines enjoy higher yields on these flights.

 

Potential impact to demand - as oil prices continue to impact many industries, some organisations may need to contain travel through a return to increased demand management efforts, or find alternatives to travel, like telepresence or videoconferencing.

 

Fuel hedging - many airlines have long participated in fuel-hedging to lock in fixed prices and protect themselves from price fluctuations. Hedging does not guarantee the lowest price for fuel, as sometimes prices can dip below the original ‘lock in’ price. An airline’s fuel-hedging success is critical to both its operating costs and pricing strategies.

 

Source: CWT Industry Watch February & March 2011