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If work travel shrinks, here's who may suffer

As the economy cools, companies are starting to shrink their travel budgets - a move likely to put further strain on struggling airlines.

Hotels, car-rental agencies and restaurants, which with airlines employ about 4 percent of U.S. workers, will feel the pinch.

Travel bookings are holding up. But corporate travel managers are taking a more active role in keeping on-the-road spending in check:

- Employees are increasingly being asked to provide an economic rationale for their trips.

- Rules that require employees to book the lowest fare, stay in preapproved hotels or double-up in cars and rooms are being enforced more strictly.

- Executives are pushing alternatives to meetings, such as phone- and Web-conferencing.

"They expect you to be smart," said John Flynn, a sales representative for a San Diego health care software company. But while maintaining a tight budget is a priority, so is knowing when it's important to pay clients a visit. "There's no replacement for that."

Chicago accounting firm Grant Thornton International, for example, has spent the past two years trying to more aggressively reduce travel costs, especially on the administrative side. That has meant shunning expensive regional flights in favor of driving or taking a train and relying more heavily on online employee-training sessions and video conferences. Still, travel costs remain Grant Thornton's third-biggest expense after personnel and facilities, said Cheryl Geib, national director of travel and meetings.

For companies striving to tamp down their travel spending, deciding how far to go and how quickly to act is not easy.

Executives want to keep sales staffs on the road to drum up new business rather than pull back preemptively and give competitors an opening. That's why airline bookings don't typically fall until economic conditions have slowed noticeably.

Any reduced spending by corporate travelers, who typically pay more per ticket than leisure travelers, is bad news for airlines.

Companies in industries that have been hit hard by the mortgage crisis, such as construction, building supplies and finance, are starting to consider cutting back on travel, said Jack Riepe of the Association of Corporate Travel Managers.

"Your view of the impact of a potential recession depends on how close you are to it," Riepe said.

Because corporate America has permanently done away with some of the travel excesses of the 1990s, there may be less fat to cut this time around.

Airlines

Effect on consumers:Airlines increased business- and first-class fares by 12.4 percent during the first half of February compared with last year, according to Sabre Travel Networks. Economy fares climbed 6.2 percent.

Earnings reports:The nation's biggest airlines provided a mixed picture on the forecast for business travel. Southwest Airlines Co. chief financial officer Laura Wright says the low-cost carrier, an increasingly popular option for business travelers, began "seeing domestic weakness about a year ago" and has cut its 2008 capacity growth target to 4 or 5 percent, about half its original plan. On the other hand, American Airlines, the largest domestic airline, says advanced bookings are up 0.8 percent for the first quarter compared with last year, a typical rate of increase for this time of year.

What's next? A recession could lead to further industry restructuring, including new partnerships, consolidation or even a return to bankruptcy for the weakest carriers, says John Heimlich, chief economist for the Air Transport Association. The trade group expects the industry will post a profit this year - its third since 2000 - in part because of aggressive capacity cuts that have slashed the supply of seats. But optimism is tempered.

Rental cars

Effect on consumers: Airport rental-car rates have jumped at least 20 percent each week this month compared with a year ago, according to Abrams Consulting Group.

Hotels

Effect on consumers: Hotel room rates jumped 5.9 percent in 2007, says Smith Travel Research.

What's next? Growth in room demand this year will be weaker than the average 2.1 percent but will grow by 1.2 percent, says Bjorn Hanson, consultant with PriceWaterhouseCoopers.

[Last modified February 27, 2008, 00:07:19]