Business travel costs rising as demand recovers

Travel costs are set to rise over the next 12 months as demand for international travel increases and the global economy recovers, industry veterans have warned.

The comments come as airline giant Qantas announced a 72% drop in first half net profit yesterday, along with plans to scrap many of its first class seats on international flights.

Helen Logas, chief executive of corporate travel agency Travelcorp, says she has already noticed some increases.

“There have already been a couple of increases, I guess the difficulty is that last year during the downturn a number of very low fares came out and the airlines have begun to feel the cost of that. So costs have risen compared to last year, and they are starting to get back to where they were.”

But Logas says she cannot venture a guess on how long it may take for air fares to reach their pre-crisis levels, saying demand will be the major factor.

“It really depends on the demand and how things play out across the year. But saying that, two weeks ago we came into the office and it was like the downturn was over – it was out of control.”

“That’s what happens in the industry, all of a sudden companies decide the crisis is over and it goes back to normal. For at least two or three weeks now it’s been a lot busier than it was for the past eight months. Whether that’s sustained or not, we’ll have to see.”

Tina Killeen, general manager of Sydney-based Spencer Travel, says she has already noted a number of increases from several airlines.

“I’ve definitely seen increases across the board, not just from Qantas but other airlines. I don’t think any airline could survive on the fares they were offering last year.”

“There are still a lot of spot specials out there they seem to be releasing with not much notice, and there are still many sales out there. But they are released just short times before the actual flights, and the number of sales has declined.”

Killeen suggests the industry could see a return to pre-crisis levels before the end of the year, particularly for popular destinations such as the United States.

“I think on busy destinations on the US, we could see rates rising to as much as $2,000 by the end of the year, perhaps even as a minimum.”

“These fares will go up fairly quickly because the flights are filling up. Last year you could call and leave at the last minute and get on for any price, but now we’ve got people booking three or four weeks in advance and we’re struggling to find a flight for them.”

The comments come as Qantas announced air fares would rise over the next year, with demand expected to increase after a shocking year, which saw the company lose 72% in net profit for the six months ending December 31.

Chief executive Alan Joyce told the Australian Financial Review prices would increase over the next year, as current levels cannot be sustained.

“Airfares and yields are improving. They have to improve going forward on international markets because most of the international industry, as I mentioned, is losing money.”

Additionally, the company is set to reduce the number of first-class seats on its long-haul fleet, to be replaced by a 27% increase in the number of premium economy seats.