"Airline industry could see rise in business fliers"

Monday, December 6, 2004
 
Airline industry could see rise in business fliers
Continued abundance of cheap fares is likely to propel overall boardings at
Indianapolis International by 5.7%.
By Ted Evanoff
The Indianapolis (IN) Star


No one knows if the airlines' bargain fares will continue into next year.
But corporate travel managers and analysts say if business and leisure
ticket prices do go up, fares won't rise much -- and it won't slow the
passenger traffic gains at Indianapolis International Airport.

"We haven't been seeing any indications from our travel services that prices
are going to go up," said Daniel Schluge, controller at Indianapolis-based
OneAmerica Financial Partners Inc., parent of American United Life Insurance
Co. The company expects to spend $4.4 million on travel next year, a gain of
almost 5 percent over 2004.

Cheap fares and a generally fair economy lured leisure seekers to vacation
destinations and even brought business fliers back to airports after the
2001 travel slump, when terrorist attacks and the cooling economy chilled
air travel.

Airlines were left with more seats than passengers. Carriers resorted to
ticket price cuts that by 2003 turned into an industrywide fare war.

With those bargains expected to ease only a small amount, Indianapolis
International Airport should be busier in 2005 than in 2004, when traffic
increased 8 percent to a projected record 4 million passenger boardings.

For 2005, airport officials forecast 4.23 million boardings, a 5.7 percent
gain. Business travelers are expected to account for almost half the
bookings, creating a steady uptick in business-related tickets.

Business travel represented about 45 percent of the airport's travel mix
this year, up from about 30 percent in 2002 during the depths of the travel
slump. Over the years, the travel mix at Indianapolis International
generally has been 40 percent business and 60 percent leisure, said airport
spokesman Dennis Rosebrough.

While unusually low fares have filled planes, the cheap rates also have
helped drain airline profits and usher Indianapolis-based ATA, US Airways
and United into bankruptcy. Analysts figure the entire industry in 2004
could lose $5.5 billion.

Losses are so severe that some analysts figure many airlines will look for
ways in 2005 to stop cutting costs and start making profits. ATA is seeking
such solutions, and to do so, the bankrupt airline scrapped a proposed route
to the Caribbean island of St. Thomas.

Another way: Bump up the price on what now are give-away prices meant to
fill airliner seats. For months it has been cheaper to fly to Florida from
Indianapolis in a Boeing 737 than drive a 12-miles-per-gallon sport utility
vehicle.

"I'm assuming it's going to stabilize and they're going to start getting rid
of some of these junk fares," said Ray Neidl, airline analyst in New York at
Calyon Securities.

So far, OneAmerica hasn't seen any sign of rising fares. Average ticket
prices paid by the Indianapolis insurer, which dispatches managers and
salespeople around the country every week, dropped almost 11 percent to $350
through March, compared with $394 a year earlier.

Schluge, who oversees the insurer's corporate travel budget, has earmarked
$4.4 million for travel in 2005, a gain of $200,000, or 4.7 percent, for
air, hotel and car rental costs.

Part of that increase reflects higher lodging rates. For example, the
Marriott hotel chain says its room rates nationwide in 2005 will rise 3
percent to 5 percent.

Even though rates may rise, company travel doesn't look like it may subside.

Group travel for events such as corporate incentive rewards at golf resorts
are projected to increase more than 10 percent next year, to $5 million , at
Ambassadair Travel Club.

"It's just grown substantially. We have lots of groups outside Indiana,"
said Sally Brown, president of Ambassadair, an ATA sister company in
Indianapolis that generates $27 million a year in revenue.

The same trend is reflected in leisure travel. Low fares seem to have
unlocked pent-up demand for vacations among the club's 78,000 members
nationwide, Brown said.

"I think they need it more than they just want it," Brown said, noting
international flights will increase about 5 percent for Ambassadair.

Of the 14 major airlines flying to Indianapolis International, four are
discount carriers that account for more than a third of the traffic -- ATA,
Southwest, America West, Frontier.

Their low fares are a reason as many as 10 percent of the vehicles parked at
the airport have license plates from other states, particularly Ohio,
Illinois and Kentucky, Rosebrough said.

ATA's bankruptcy and plans to scale back operations to focus on Indianapolis
also will unfold in the coming year. Analysts say other carriers will step
in and fill any void in Indianapolis service left by ATA if its Chapter 11
bankruptcy reorganization fails and the airline shuts down.

Northwest Airlines, for example, announced just before ATA filed for
bankruptcy that it would almost double its Indianapolis flights to 39.


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