There’s a commonly held belief that airfares continue to rise every year, even if the price of oil is dropping, and that the cost of last minute travel follows suit. But the truth may surprise you. There’s more to the cost of last minute travel than meets the eye.
To understand the true cost of last minute travel, you have to crunch the numbers to see how they affect your planning and bottom line. Fortunately, we’ve got the data and have done the analysis.
Concur processes more than $70 billion in business travel and expenses annually. This report looks at the costs associated with approximately 22 million U.S. domestic round trip airline bookings from 2011 to 2015.
While the total amount spent on air travel has increased significantly, ticket prices aren’t the reason why. In fact, our data shows that between 2011 and 2015, the cost of airfare actually went down by $5 per ticket.
Compound annual growth rate of ticket prices from 2011-2015
So, you might be wondering why airfares seem so much higher these days. It’s pretty simple. Airlines have been making up for the relatively flat ticket prices by charging incremental fees for services like extra leg room, checked luggage and onboard sales of food and beverages. This ancillary airline revenue amounts to big bucks. According to a report by IdeaWorks Company, worldwide ancillary revenue has grown steadily over the past five years, from $22.6 billion in 2011 to $38.1 billion in 2014, an increase of nearly 69%. Even JetBlue, which used to offer a complimentary checked bag per flight, has started to charge customers purchasing lower-tier tickets.
Total airline ancillary revenue increased 21% from $31.5 billion in 2013 to $38.1 billion in 2014.
IdeaWorks Company - press release July 13, 2015 - "2014 Airline Ancillary Revenue Leaps to $38.1 Billion, Up Nearly 21% in a Year"
With nearly $40 billion in airline revenue coming from ancillary fees, it’s never been more important for managers to track these costs as part of the price of the overall flight. By creating policies and tracking employee spending, it’s possible to avoid surprise charges and have a much clearer picture of travel spending.
Even though we live in a completely connected society, advances in technology haven’t really helped us become better planners when it comes to business travel. In fact, planning horizons have remained relatively stable over the past few years.
The data indicates that planning windows aren’t getting any wider. Which makes sense when you consider a robust economy and the willingness to use last minute resources to close big sales or win new customers.
Last minute travel is one of those inevitabilities of life. We’d all love to plan our trips far in advance – but sometimes it’s just not possible. So, if we accept that booking at the last minute is going to happen, we can begin to understand the impact of timing on the premiums paid and how to make the best of a less-than-ideal situation. We define “premium” as the incremental amount paid over and above the average price paid for a ticket purchased more than 14 days in advance.
We all lead busy lives, and as time goes by, technology and business just keep moving faster. Which means our window for planning keeps getting shorter and shorter. But if a business traveler has the luxury of advance notice, the best bet is to book at least 15 days in advance of departure and, if that’s not possible, at least eight days out. Booking travel within a week or less incurs a premium that’s considerably higher. But there’s a plus side. If a traveler must book less than a week in advance, the cost savings will be negligible whether the flight is purchased six days, three days or one day before the flight.
cost increase compared to booking 15 or more days ahead
Savings compared to booking within 7 days
By enforcing a travel policy that encourages employees to book at least eight days prior to departure, you’ll be able to save an average of $148 per ticket.
Timing is everything. It’s how you close the big deal, negotiate new terms, pitch the next big idea and launch products that’ll change the world. But to get there, you have to be ready to seize each and every opportunity. Which means employees have to be able to travel whenever, wherever. But that doesn’t mean that savings opportunities don’t abound.
As we’ve already established, whether you book greater than eight or fewer than seven days before travel is a big factor in the overall price of a ticket, but so is the time of year. We know there are certain times of year, like summer and winter holidays, when airfares are almost always higher. But what’s interesting is that the premium paid for last minute travel during these times is relatively lower compared to the overall cost of the flight.
The premiums to purchase airfare within seven days of travel are lowest in June – about 8 percentage points lower than the average of premiums throughout the year. However, airfare in June is 9% higher than the average for the entire year. Which means, while you’re paying less of a premium in June, you’re paying more for airfare. The highest premiums for booking travel within seven days of a flight are during the months of January and August.
Let’s get straight to the facts. When traveling among the largest cities in the U.S. – which typically house the busiest airports in terms of passenger volume -- flying at the last minute is more expensive in absolute dollars. Prices paid by travelers flying out of a major city are generally higher and your company is paying even more by flying at the last minute. Which begs the question: how much can be saved by flying out of smaller regional airports versus the top 25 busiest airports in the U.S.?
Booking last minute travel is just one of those inevitabilities of the modern business landscape. But regardless of whether last minute travel is the result of true need or poor planning, there are ways to keep costs down and improve efficiency within your organization.
We’re interested to see how the airline industry changes and adapts to trends in the future. With additional fees becoming commonplace, airline apps becoming more and more sophisticated, and gas prices continuing to fluctuate – the only constant we can expect from this industry is change.