SubscribeThe airline industry has long relied on the business travel market as a major (and often principal) source of profit. In recent years however the demand for business travel has been undergoing significant change. The liberalisation of the EU market and with it the arrival of low cost airlines in the EU has brought new competitive conditions to the market place.
Business travellers making short haul trips have increasingly adopted low cost services with 71% of UK business travellers indicating that they used low cost airlines for business trips in 2004/5 (Company Barclaycard, 2005).
While business travellers have increasingly made use of low cost carriers, the number of short haul European business trips that are taken in business class has fallen dramatically from a high in 1991, at over 60% of all business trips, to less than half that in figure (25%) in 2003 (BA, 2003). This trend is likely to continue and British Airways forecasts that as few as 15% of short haul business trips will be taken in business class by 2006.
This dramatic change in behaviour may be partly explained by a fall in the value placed on the business class product. A regular survey of business travellers indicates that only 15% of this important group believe business class products provide value for money (Company Barclaycard, 1998 and 2003/4).
The reduced value placed on business class products and also the increase in usage of discount economy tickets and low cost airlines implies that the business class product is now either over specified for the market or that the discount economy tickets and low cost carrier products offer sufficient product benefits for the needs of a significant element of the business travel market.
Airlines have aimed business class and fully flexible “full economy” tickets at the business travel market. These tickets offer the traveller the ability to change the bookings taken at short notice, and to take refunds if the ticket is unused. The cost of these tickets is significantly higher than non-changeable, non-refundable discount economy tickets. The traveller is essentially paying the airline to offer this flexibility. The airline charges a high price for this ticket flexibility as it insures itself against the traveller asking for a full refund or for not turning up on specific the flight he/she was originally booked – thus reducing the load on the flight.
While the business class product has fallen in popularity, business travellers have increasingly adopted low cost airlines for their travel needs. The low cost airlines have used the internet as their prime method of distribution and this sales medium has introduced a level of fare transparency to all travellers.
A study of business travel market adoption of low cost carriers was undertaken in 2001 in which business travellers and their corporate travel managers were similar in their attitudes towards low cost carriers – they liked the price of the service but did not like these airline’s limited schedules and their restricted ticket flexibility provided (Mason, 2001).
Since 2001 some low cost carriers have more seriously targeted the business travel market and have addressed these concerns. EasyJet for example has increased the frequency of its services on business oriented routes. On its routes from London the airline has increased its average weekly return frequency per route from 25.1 in the summer of 2001 to 36.3 in the summer of 2003. The airline has also introduced a method of allowing ticket flexibility.
These low cost airlines sell one-way tickets and only offer one price in the market for a particular flight at any one time. The lowest fare is offered when the flight is made available for sale. As the departure nears and the flight is filled up the price will be raised. The airline does not offer any refunds for flights that are not taken. However, to offer flexibility, passengers are allowed to pay an administration fee (10) and the difference between the fare paid for the ticket and the price currently available for the flight that the traveller wishes to change to. This flexibility combined with increased flight frequency offers a realistic alternative to business class or full economy tickets.
While business travellers demand ticket flexibility, little research has been undertaken into the usage of flexibility. Pilot studies suggest that business travellers only change their flight arrangements in 20% - 30% of trips. If this figure is right, the potential cost savings of paying for ticket flexibility only when needed (such as provided by the ticketing policy of low cost carriers) is massive.
Research Objectives
We were therefore interested to better understand the value of ticket flexibility and how much this ticket flexibility is used. This study examines the degree to which the ticket flexibility is used by business travellers. This study also investigated whether there is a relationship between the reasons for a business trip (e.g. sales and marketing, conference/expo, internal meetings, etc.) and the necessity to change a traveller’s booking. The value of ticket flexibility is also examined.
Methodology
To investigate the research objectives a survey of business travellers was conducted. Subscribers to business traveller magazines and newsletters were invited to participate in an online survey. 264 responses from the UK, Continental Europe and the US were collected in a three week period.
Demographic and behavioural data were collected from each respondent. Travellers were also asked whether they had changed their tickets on the last time they made a business trip, whether they had changed tickets before travel or during the trip and the reasons for changing the flight arrangements.
To investigate how much travellers are prepared to pay for ticket flexibility, the survey included three hypothetical scenarios which travellers had to indicate how much they would be prepared to change their tickets. The respondent was asked to imagine that they had been on a business trip for three days and that they were travelling home on a Friday night. For all three scenarios the traveller is asked to consider how likely the company is to pay the additional amount.
- In the first scenario the traveller has secured a £50,000 contract, that the meeting has finished early – how much would the traveller pay to take an earlier flight home?
- In the second scenario the traveller is told that the meeting is running longer than expected but that he/she is are close to reaching an agreement for a £50,000 contract but there are a few minor items to agree. How much is he prepared to take a later flight home and secure the contract?
- In the last scenario the traveller is asked to imagine that that the trip was an important internal company meeting which finished early, the traveller arrives at the airport in time to catch an earlier flight home. How much would he pay?
Results
64% of the sample was US based, 27% from the UK and 9% from continental Europe. Respondents made on average 21.6 air trips per year for business purposes and of those 15.4 were to short haul destinations. 80% of the respondents were male. 34.3% of the sample were aged between 45 and 54 years old, 24.2% were 55 years or above, with travellers aged between 35 and 44 representing just 22.3%.
Purchase Behaviour
The purchase behaviour of the sample shows that the principal reason for making a business trip is to attend an internal company meeting (30.0%) followed by sales and marketing trips (24.0%) and then attendance at a conference or expo (21.3%). 71.5% of the sample used a major airline for their last business trip with 20.2% using a low cost airline and just 8.4% of sample using a regional carrier. It is clear that low cost airlines now represent a real alternative to traditional carriers for business trips.
The respondents were asked to indicate the type and class of travel for their last ten short haul business trips. There are significant differences in the three markets examined (see Table 1).
Table 1: Traveller location and use of ticket types
UK travellers had the most spread pattern but were most likely to use discount economy travel. These travellers also made significant amounts of trips in business class and on full economy tickets. Travellers in continental Europe were most likely to use full economy tickets for their trips. They also made a significant number of trips with discounted economy tickets but indicated they made a low proportion of trips with the less prevalent low cost carriers. US travellers most commonly used discount economy tickets or low cost airlines.
Advance knowledge of a trip
A commonly held view is that the need to travel for business travel is not known long in advance. Fully flexible tickets from traditional network carriers are priced at a high level irrespective of how far in advance the ticket is purchased. If a traveller needs to purchase a flexible ticket there has been no incentive to book early. By contrast the low cost carriers’ one-way sales policy means cheap tickets are available up until perhaps two weeks prior to the flight with the price of the ticket rises significantly in the last two weeks. Business travellers that use low cost carriers now see an incentive to book earlier when they have advanced knowledge of a forthcoming business trip.
The results of the survey show that travellers know that they need to arrange travel on average 24 days in advance of the trip and book the trip some 18 days in advance. Significant differences exist in the length in advance travellers know they will be making a trip between the various reasons for the trip. Table 2 shows that conferences visits are planned the most far in advance while other reasons seem to have, on average, a two and half week lead time with tickets bought about two weeks in advance.
Table 2: Advance notice of trips
Ticket Flexibility Usage
The survey sought to investigate how often ticket flexibility is used and required by business travellers. 67.8% of the respondents did not change their tickets on their last trip. This figure is somewhat below the 70 - 80% indicated by the pilot survey, but does show clearly that in the majority of cases travellers do not change their flight arrangements. For travellers with business class or full economy class tickets this amounts to paying for ticket flexibility which is unused and therefore wasted.
Of those travellers that did make changes to their flight arrangements 39.2% made changes prior to beginning their trip with 60.8% making changes once the trip had begun.
A statistical test was performed to see whether the reason for the business trip had any influence over the need to change flight arrangements. The test showed that the need to change flight arrangements is independent of the reason for the trip.
An examination of the reasons for changing flight details shows that travellers that make changes to their flight arrangements do so for business oriented reasons in 74% of occasions with 26% of changes made for personal reasons.
Table 3: Change to flight arrangements
These results show that business travellers only need some form of ticket flexibility in only 23.5% of trips for business reasons, while they change their tickets for personal reasons on 8.4% of journeys.
The value of ticket flexibility
To investigate how much travellers are prepared to pay for ticket flexibility travellers were asked to describe their likely behaviour under the different the three scenarios described earlier. For each scenario the maximum amount a traveller would pay to take a one hour, two hour or three hour earlier or later flight was determined. Average prices that travellers would be prepared to pay were calculated and a summary of the findings are shown in Figure 1.
Figure 1: Value of ticket flexibility
The profiles for scenarios one and three are nearly identical. The value of saving time for personal reasons (getting home from a business trip one, two or three hours earlier) is fairly low at around £18 per hour saved. In the first scenario the traveller has just secured a valuable contract while in the third an internal company meeting has finished early. It is interesting that the respondents did not distinguish between these two scenarios.
In the second scenario the traveller is asked to indicate how much he/she would be prepared to pay to take a later flight so that he/she can attempt to bring the sales meeting to a successful conclusion. Here we can see the value of this work-related time is valued much higher than the personal time. The travellers indicated that they would be prepared to pay nearly twice as much as the original price of the ticket (£100) to extend the meeting if they thought they could secure the deal.
The business travel market is often described as being price inelastic as a result of the company bearing the cost of the travel. The travellers were asked to rate on a five point scale (1 = very likely, 5 = very unlikely) the likelihood of their company to reimburse the cost of changing the ticket.
Table 4: Likelihood of company prepared to pay for flexibility
In Table 4 we see that the travellers thought it much more likely that the company would reimburse any cost incurred to change tickets to extend a business trip (under Scenario 2) than to return home early (under the other two scenarios). While the profiles of both the first and third scenarios are similar the respondents seem to be slightly more confident that the company would repay the cost of a ticket change under the scenario when the traveller has won as substantial contract (Scenario 1) than when he/she is travelling on internal company business.
Conclusion
The results have shown that travellers do not change tickets to a great extent. It has also been shown that the need to change ticket is not related to the purpose for which a business trip is being made. For business related reasons tickets are changed on less than a quarter of all short haul trips.
The research has shown that to extend a business trip for business purposes travellers are confident that their company will bear the cost of changing a ticket and value at a reasonable level (up to nearly 200 for three additional hours) but that the value of personal time when travelling is fairly low (about 18 per hour). This low value can be attributed to the fact that travellers are not sure whether the company would bear any additional ticket cost for personal reasons.
The introduction by low cost airlines of a method of offering ticket flexibility means travellers only have to pay for flexibility when they need to use it. The increased fare transparency afforded by the wide spread availability of air fares on the internet has also contributed to the reduced, relative value of business class and full economy class tickets for short haul air travel.
References
British Airways (2003), Results webcast, British Airways
Company Barclaycard (1998/9, 2000, 2001, 2002, 2003/4, 2004/5),Travel in Business Survey, Company Barclaycard
Mason, K.J. (2001), “Marketing Low Cost Airlines to Business Travellers”, Journal of Air Transport Management, Vol. 7, No. 2, pp 103 – 109
