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BUSINESS AIRFARES EXPECTED TO RISE 4 TO 6 PERCENT IN 1994; OTHER TRAVEL EXPENSES TO INCREASE AT NORMAL INFLATION RATES

 NEW YORK, Nov. 30 /PRNewswire/ -- Following a year in which the major U.S. airlines continued struggling to establish reasonable prices, business airfares are expected to increase only a modest 4 to 6 percent next year over 1993 levels, according to the American Express Travel Industry Trends and Forecasts for 1994, released today. American Express airline industry experts predict that the industry will emerge in the black in 1994, and yet keep prices palatable for travelers.
 All other aspects of business travel and entertainment (T&E), including lodging, car rental and meal and entertainment costs, are forecasted to increase at or slightly above the nation's projected 3 percent inflation level, with lodging increasing 2 to 3 percent, and car rental and meal and entertainment expenses both expected to increase 3 to 4 percent.
 Despite the relative stability of prices, however, American Express predicts that the new tax law reducing the deductibility of business meals and entertainment from 80 percent to 50 percent will increase these costs after-tax by 13 percent per every $100 spent.
 "Although we don't expect drastic price increases from the T&E industry in 1994, it will be more important than ever before for companies to efficiently manage their business T&E spending," said James Yasinski, senior vice president, product management and marketing, Travel Management Services (TMS). "Negotiations are going to play a stronger than ever role in T&E management; however, discounts are going to be more difficult to obtain as vendors demand more volume guarantees."
 Airlines: Rising Operating Costs Squeeze Negotiated Discounts
 Although the airline industry will continue to face high operating expenses, such as landing fees, labor and equipment costs, and debt servicing, American Express' airlines relations executives say that steep competition from niche carriers and only a slight increase in passenger demand will hold down prices in the coming year. This should result in modest increases of 4 to 6 percent, compared to the 10 to 12 percent increase over 1992 forecasted by the end of 1993. However, corporate negotiators can expect greater restrictions on deals, which will hold discounts between only 5 to 15 percent, vs. 35 to 45 percent in past years.
 "Since maintenance and equipment costs continue to increase, airlines are still in a tight spot when it comes to pricing, but they realize that their prices must remain competitive," said Robert Harrell, vice president, American Express Airfare Management Unit. "As a result, airlines will continue to play hardball when it comes to negotiations with corporations. Expect a greater emphasis on service, such as liquor and food upgrades, rather than price."
 The top three domestic carriers -- American, United and Delta -- continue to increase their market share domestically (8 percent since 1991), and in international markets, where they have increased capacity by a collective 80 percent in the past ten years. As a result, carriers will continue to demand volume guarantees when negotiating with corporations, as well as a proof of ability to move market share.
 In addition, American Express forecasts the following airline trends for 1994:
 -- Regional carriers will grow as major airlines abandon smaller markets
 -- Domestic traffic will increase 2.7 percent (compared to 4.7 percent in 1993), while international traffic will only increase 4.8 percent (vs. 7.8 percent in 1993)
 -- In Europe, profitability challenges will hasten consolidation of carriers.
 The average business ticket price through the third quarter of 1993 rose 21 percent to $692, up from $570 a year ago, while the overall average fare paid rose only 9 percent to $521. These increases reflect a return to a more traditional price structure in 1993 after 1992's fare restructuring and discount fare wars. In addition, capacity decreases have curtailed discounts this year, and passenger facility charges (PFCs) at over 130 domestic airports added up to $12 per ticket.
 Hotels: Prices to Increase with Inflation
 The hotel industry this year will turn a $500 million profit due to higher occupancy levels, lower operating costs and reduced interest payments. Also contributing to this 1993 profit is the stabilization of new building, which is balanced by an increase of demolitions, as well as an increase in room nights.
 In fact, American Express projects 66.1 percent occupancy levels in 1994, up from 63.9 percent in 1993. As a result, the lodging industry is projected to increase the average room rate by 2 to 3 percent over 1993 -- the first time since 1987 that forecasted price increases keep pace with the predicted inflation rate. Due to varying degrees of economic recovery, above-average rate increases will occur in Arkansas, Louisiana, Oklahoma and Texas, while there will be below-average rate increases in Alaska, California, Hawaii, Oregon and Washington.
 American Express forecasts the following additional trends for the lodging industry in 1994:
 -- Productivity will improve, due to reduction in services and lower interest costs
 -- Brand segmentation will continue, while the economy segment expansion slows and the all-suite segment grows
 -- "Business class" rooms will become more prevalent
 -- Independent hotels will become more scarce as franchising and consolidation shape the industry
 -- Opportunities will continue for corporate/agency negotiations.
 "The future for the hotel industry is finally looking up, and we expect the industry to make a $1.2 billion profit in 1994," said Richard Gallagher, vice president, American Express Hotel Industry Relations. "This means that, while it's still technically a buyer's market, negotiations could be tougher than in previous years, with small to mid-size companies receiving lower discounts."
 In 1994, hotels may require more volume for the same discount, while challenging contracts not meeting volume commitments.
 "Occupancy levels should continue to rise, so companies need to lock in good rates now," said Gallagher. "In addition, companies should continue to focus on international hotel spending, since these overseas hotel rates are nearly triple the domestic rate."
 Because business travel represents a large percentage of the lodging industry's income, many hotels, such as Radisson, Sheraton and Holiday Inn, will roll out "business class" rooms in 1994. These rooms will include business amenities, such as fax machines, computers, office supplies, etc.
 Car Rental: Competition and Negotiations Rein in Rates
 The combination of a highly competitive environment and lower corporate demand will force car rental companies to limit their price increases to just 3 to 4 percent in 1994. However, business travelers will have to take into account new taxes and fees next year, including state surcharges ranging from $2/day to $7.50/contract in 22 states, as well as new gasoline taxes that will be passed directly to the consumer.
 "The car rental industry really wants to dramatically increase their prices because of rising liability and fleet costs. However, the big four companies -- Hertz, Avis, Budget and National -- are competing fiercely for corporate accounts because they represent over half of the car rental customers. These competitive demands will keep prices in check," explained Kimberly Lewis, director, TMS Consulting Services.
 Although a growing number of corporate travel policies encourage travelers to use a compact car, usage of that size was down 3 percent from 1992. In fact, the majority of business travelers -- 57 percent -- opt for intermediate cars with the average cost of $45/day, vs. $41/day for a compact car. In addition, more companies are encouraging business travelers to seek more economic alternatives to renting a car for local transportation.
 Companies negotiating car rental rates in 1994 should have the leverage to eliminate some surcharges, while gaining additional services such as free drop-off, unlimited mileage, free delivery and free upgrades.
 Meals: After-Tax Costs Rise 13 Percent
 With restaurant operating costs continuing to rise, little or no growth in sales, and new deductibility laws having the most severe impact on the restaurant industry, business travelers can expect restaurants to raise prices about 3 to 4 percent in 1994.
 "Tax changes will result in a reduction of spending by business travelers, and an increase in price as restaurants try to remain profitable. In fact, the National Restaurant Association estimates that $3.8 billion in revenue will be lost and restaurant spending will drop by as much as 10 percent, as a direct result of the tax deductibility law," said Lewis.
 To minimize the impact of the 13 percent after-tax increase on a typical $100 meal, many companies will impose maximum reimbursement limits, a tighter approval and review process for entertainment spending, and more stringent receipt requirements. "A growing number of companies will begin negotiating their meals with their hotel rates," added Lewis.
 The American Express Travel Industry Trends and Forecasts is a yearly compilation of forecasts from the Airfare Management Unit, Hotel Industry Relations Unit and Consulting Services, which closely monitor the business travel industry. Both groups are part of American Express Travel Management Services, which assists companies in managing and controlling their business travel expenses. It is a unit of the American Express Travel Related Services Company, Inc., a wholly owned subsidiary of the American Express Company (NYSE: AXP).
 For a copy of the Trends & Forecast Executive Summary, available the first quarter of 1994, contact American Express at 212-312-1153.
 -0- 11/30/93
 /CONTACT: Melissa Abernathy of American Express, 212-640-5060/
 (AXP)


CO: American Express ST: New York IN: LEI AIR SU: ECO

PS-JG -- NY088 -- 8871 11/30/93 15:56 EST
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Date:Nov 30, 1993
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