Airlines struggle as business travel plummets

From Peter Viles
CNN Financial News

NEW YORK (CNN) -- Many big-spending business travelers have either stopped flying or are suddenly shopping around for cheap fares, creating a nightmare for the major airlines.

"With the corporate restructurings going across America, and on a global basis, companies found the easiest cost to cut was the air travel budget," analyst Julius Maldutis said.

Business travelers also began to discover they were paying five times more for flights than leisure travelers, and consequently have used the Internet to find lower fares, he said.

In the first quarter, first-class bookings dropped to 2 percent of all corporate bookings, down from 3 percent a year ago. Full coach bookings dropped to 7 percent from 12 percent, while discount bookings rose, from 84 percent to 91 percent of all corporate bookings.

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The squeeze appears to be worsening as summer gets under way, which prompted the top five U.S. airlines to slash airfares Monday. Industry revenue fell 11 percent in May, the worst monthly performance in 20 years.

The hotel industry has been hit hard as well. Business demand for rooms in big cities started dropping in March, and the slump appears to be accelerating.

Analyst Jason Ader of Bear Stearns says the second quarter will be the industry's worst in 15 years.

"Large Fortune 500 companies and small businesses across the board are sending fewer people away. Video conferencing is becoming prevalent, and I think, to some extent, you'll see that continue into the third and fourth quarters as well," he said.