Beware the Bubble: Corporations Ready Themselves for Airfare Spikes When Routes Reopen 🔒

Thanks to travel bubbles, corridors and growing numbers of pre-flight testing schemes, airlines are gradually winding their operations back up. There’s a double dose of optimism with recent vaccine breakthroughs, too.

Things are looking up, but the next obstacle for their corporate customers will be to navigate rising airfares, particularly for long-haul flights in premium cabins.

Destinations such as Singapore and Hong Kong are among several striking reciprocal deals — and airfares are already spiking before the travel bubble officially opens. According to the Straits Times, they’ve already risen up to 40 percent, citing one passenger who had to pay an extra $640 to move a previous booking to December.

“We’re seeing high prices, and the airlines are having to manage demand carefully,” said Adam Knights, regional managing director, UK, Europe and Middle East, at corporate travel agency ATPI. “Prices will go up quite significantly in the short term, because demand will outstrip initial supply.”

Accrued Demand

While most domestic and intra-regional economy fares tend to be relatively flat or decreasing compared to the same period in 2019, one global travel manager working in the retail sector, based in Amsterdam, said he was already seeing big rises in long-haul, business-class fares. “If there is going to be accrued demand for these flights in the bubble, then airfares will rise and many people will still want to have access to the front of the cabin. Those fares can rocket,” he warned.

The corporate travel sector finds itself in a precarious situation.

As early as March, GoldSpring Consulting Associate Chris Pouney said when the opportunity to travel does come back, “responsible procurement” would be essential. But at that point few would have predicted the pandemic’s now long-term impact of widespread airline layoffs, bankruptcies and more recently consolidation.

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“Airlines will use all the tools available to them as they scramble for survival in the coming months and this will result — and some will argue rightly — in fare spikes on routes of high demand,” Pouney said. “In addition to adjusting the number of seats available in each booking class, airlines unlike hotels can move capacity to routes to ensure maximum capacity and yield is achieved.”

Today, in procurement terms, Pouney describes supply as “rare” and company travel buyers have two options. “Where we have high and critical need for the route, form or enhance relationships with key suppliers, perhaps through agreeing to mandate a single supplier, agreeing a minimum number of sectors,” he said.

“Where demand is lower, or the route is not a critical one to the buying company, we would be looking to seek alternate supply, and challenge down the demand. Examples would include setting rate caps which must not be exceeded, or insisting Zoom is used.”

‘We Can Handle It’

One travel buyer, working in the entertainment sector, told Skift he has already accounted for much lower volumes of travel next year, which mostly involves UK-U.S. business-class trips, so there’s no risk of blowing the budget just yet.

“When we do reopen the offices and start to return to travel, the approach will be cautious and phased, initially permitting ‘critical travel’ only. If travel were required, the airfare would be the least of our worries,” he said.

“As we do get back on the road, I expect less volatility over time, and since my projected volume for 2021 is about 30% of 2019 levels, we can handle some overpriced fares as the market returns somewhere closer to normal. It’s likely that advance booking will be short to begin with, so we’d expect to pay higher fares anyway.”

Tapping In To More Technology

Companies will also be looking to specialists to automatically track and book the lowest airfares, and one technology platform in the field has seen demand for its services soar.

While FairFly‘s revenue has dropped significantly, its CEO and founder told Skift the company had an “amazing” third quarter.

“It’s a very weird year. Weird is only the beginning if I had to give it a headline,” said Aviel Siman-Tov. “In terms of clients signed, we grew 240 percent this year. It doesn’t translate into new revenue, but once the pandemic is over it will take us to a good place. I think we’ll finish this year with 300 or 350 percent growth.

“Once travel comes back, prices will fluctuate way more than before. Before, savings weren’t a key focus, but now company travel managers are trying to save any dollar they can without changing the course of the business.”

However, GoldSpring’s Pouney remains wary the nervousness factor will continue to play a part. With the likes of Apple reportedly offering $500 daily bonuses to employees to encourage them back to China, it’s an issue that’s unlikely to go away anytime soon.

“I do smile at many flowcharts I’ve seen that show the starting point as ‘traveller requests travel’. What if they don’t want to travel? And what if it is critical to business success that they do? Companies could be faced with the double headache that people required to do mission-critical travel don’t want to go, and airfares spike,” he said.

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