Traveling at the eleventh hour
Myth-busting last minute travel
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.
The true cost of airfare
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.
Average Airfare by Year
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.
- When considering travel options, travelers need to factor in the price of ancillary fees when booking. Fees to check bags, upgrade a seat and board early may add up to the price of a first class ticket on some airlines, which the traveler would obviously prefer.
- Although prices are anticipated to remain stable, in the event that fares do fall as a result of macroeconomic factors, travel managers should seize the opportunity to revisit primary and secondary contracts. At that point, airlines will be more likely to agree to discounted fares.
- The more volume your company gives an airline, the more leverage you’ll have when negotiating rates, including ancillary and change fees.
Don’t miss your window of opportunity
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.
Booking Behavior of Business Travelers
What’s on the horizon?
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 or just in the nick of time?
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.
Average airfare by booking window
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.
BOOKING AT LEAST 8 DAYS IN ADVANCE
Booking eight to 14 days in advance of flight is
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.
- Booking a one-way ticket based on a known departure or arrival date can help optimize last minute travel costs. For example, in markets where lower one-way fares are an option and only the return date is unclear, it makes sense for the traveler to at least book outbound travel to lock in savings and book the return flight at a premium later.
- If there is a good chance plans will change, a traveler should consider booking refundable tickets, even on a non-preferred carrier. That way, the traveler will have the ability to cancel and eliminate change fees if a more desirable fare is found at a later date.
- Reward employees for consistently booking within policy and avoiding booking at the last minute.
Time of year
Every season has its price
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.
Average Airfare by Month – Booking Window
Percent Difference in Airfare Between Booking Windows
- When travel is flexible, travelers should opt not to travel during summer months with peak fares, especially if travel costs make up a large portion of your overall budget.
- If employees must travel at the last minute during peak summer months, they will spend less of a premium to travel last minute, which may make it easier to justify the cost.
- When booking large events, consider doing so during off-peak months or in alternative locations.
Where high volume equals high price
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.?
Average Airfare – Busiest Airports (Top 25, and 26+) & Booking Window
- Comparing fares when traveling to and from major cities with smaller to mid-sized airports could save your company a substantial amount of money on last minute travel. Even though your travelers may have to drive a bit farther to and from a lower volume airport, it often takes less time to check in, go through security and arrive at the gate. The key is determining if the airfare savings are greater than the incremental dollars spent on gas or a car service.
- It may also be possible to gain more leverage negotiating with airlines and rental car companies at smaller airports, due to lower demand.
You can still save, even at the last minute
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.
- Provide rewards for smart travel booking
- Establish and enforce travel policies
- Negotiate optimal rates with frequently used airlines
- Use travel booking tools
- Configure settings within your travel booking tool to notify travel managers when employees are booking within a seven-day window
- Use mobile apps and self-service check-in kiosks to cut down on travel times
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.