The narrowing advantage of advance purchase
By Mike Eggleton, Senior Manager Analytics & Research
Managed programs and travel policies have long promoted the benefits of booking flights 14+ days in advance of the trip to get the best possible fare. Booking in advance has been an effective cost-containment strategy in certain regions. But, changing dynamics prompted us to check if a 14+ day advanced booking strategy is still the best approach today.
Last month, Airlines Reporting Corp. (ARC), revealed some changes in price variances across advance purchase windows. Its report found advance purchases today do not yield the same savings that they used to when compared to last-minute bookings (0-2 days before travel). They looked at the top 15 U.S. business travel destinations across more than 2,000 corporate travel agencies to get a complete view of corporate travel.
While the analysis found that average ticket prices were generally lower when purchased earlier, there were some surprises in the findings as well. Savings averaged around $47 for purchases made 3-7 days before departure; but that’s just a 7% saving vs. last-minute bookings. And, the savings available if you book 14-days in advance, instead of leaving it to the last-minute, have fallen significantly, from $250 to $200 over the last year. That’s a 20% drop in savings per ticket.
Why the change? Our previous blog post discussed the recent drop in oil prices, and why a recovery won’t likely happen anytime soon. Lower fuel costs encouraged airlines to add capacity, but in some markets demand has not kept pace, and carriers have struggled to fill aircraft. To stimulate demand and increase load factors, airlines have begun offering lower fares closer to departure. Thanks to higher change fees, they can do this without the risk of travelers claiming refunds on earlier bookings and then re-booking closer to departure at the lower fares. This, coupled with changing market conditions and active use of digital devices, suggests that managing advance booking within travel programs may not be as straightforward as it once was.
In the past, the relationship between price and advance purchase was a relatively smooth curve. Today, even though it follows the same overall trend, there’s more variability. Strict advance-purchase policies never were a one-size-fits-all solution and are even less so today. It may be time to take a look at how your advance booking policies affect your program. If your policy isn’t yielding the results it did in the past, consider re-adjusting it — it’s an easy way to increase traveler compliance and satisfaction, without incurring a negative impact on your budget.