Low Prices Alone Won't Fly in Biz Travel

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Getting more bang for the buck is the ticket for business travelers as corporations keep a tight rein on costs despite improving economic conditions.

"Because the economy is turning around, business travel is turning around," said Barry Kotar, senior VP-general sales manager at Northwest Airlines. "But the customer is looking for value."

That means airlines, hotels, and car rental companies are remaining price competitive, but striving to establish a point of difference by piling on extras.

"Corporations and their travel budgets continue to be under intense pressure. Also, the American consumer has grown increasingly value-conscious and brand-image insensitive," said James O'Donnell, chairman of Seabrook Marketing, a Houston travel consultancy. "The result across all categories including travel is much smarter shopping by customers and a greater value focus by [marketers]."

Hotels are trying to outdo one another with free breakfasts, frequent flier bonus points and easier access to business-related services.

Hyatt Hotels Corp., for example, is spending $6 million promoting its Business Plan product offering an in-room fax, and a copier and printer on every floor, plus free local phone calls and breakfast. BBDO, Chicago, is the agency. ITT Sheraton Corp. is also testing in-room personal business centers (AA, March 7).

"We're making a significant investment in the business travel market-the largest in five years-because it's at such a critical juncture," said Cindy Frisina, Hyatt's advertising director.

"Two years ago, value was the lowest price," said Ed Stahl, VP-director of advertising and marketing programs for ITT Sheraton. "Today, value is a good price with some services people are more dependent on."

Even the lower-end economy chains, such as Choice Hotels International, Fairfield Inn and Super 8 Motels, are boosting their ad budgets and adding extras to try to keep the business travelers won during the economic downturn.

"It's a pretty damn competitive market right now," said John Boatright, senior VP at the Martin Agency, Richmond, Va., and vice chairman of the Association of Travel Marketing Executives. "More dollars are being allocated to sales and marketing activity as the economy comes back. You've got to get out there and scratch and claw or you're not going to get it."

Price, though, is still critical for airline competition.

"The fact of the matter is on short- and medium-haul trips, low fares are more important than anything other than schedule frequency," Mr. O'Donnell said. "What you see today is the growth and success of Southwest Airlines, which markets both low fares and frequency. Southwest's strategy is being implemented or at least talked about by other carriers."

Continental Airlines and USAir are moving to everyday low pricing. Delta Air Lines and United Airlines are also preparing to launch lower-price products.

In addition, airlines are scrambling to come up with their own point of difference. Northwest and partner KLM Royal Dutch Airlines this spring launched World Business Class, an international product targeting business fliers whose travel budgets cannot accommodate first-class fares. American Airlines is experimenting with business class service in three European cities.

Scheduling, though, remains key. American is positioning itself as a premium long-haul airline offering value for business class fliers. It's adding flights on certain heavily traveled business routes like Chicago to Dallas; Chicago to Los Angeles; and Dallas to New York.

Temerlin McClain, Dallas, created a recent print ad with the headline, "We mean business in New York," pointing out that American has more non-stops to key business centers.

In the car rental business, value can be established with better and faster service in addition to competitive rates. Most companies with travel managers have negotiated contracts for flat per-day rates with unlimited mileage, according to Runzheimer International, a Rochester, Wis., travel management consultancy.

"The tie-breaker is the service before, during and after the rental," said Geoff Corbett, exec VP-sales and marketing for National Car Rental System/Interrent, Minneapolis.

Several companies, including General Motors Corp., McDonald's Corp. and PepsiCo, said their business travel will be up this year, while Toyota Motor Sales USA expected a decrease (see story on this page).

While the overall outlook for business travel has improved, only slow growth is expected.

"In our travel intention survey, businesses still are very cautious," said Doug Shifflet, president of D.K. Shifflet & Associates, a McLean, Va.-based market research company specializing in travel. "Even though the economy and people's personal situations are improving, their intention to travel on business has not moved up."

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