AMERICAN EXPRESS STUDY REVEALS IMPROVED PROSPECTS FOR BUSINESS TRAVEL INDUSTRY IN 2004

• After a turbulent 2003, there is optimism for recovery in 2004
• Long haul business airfares continue to increase in all regions except the U.S.
• No frills/low-fare carriers change face of airline industry in all key markets
• Hotel sector suffers on a global basis although there are signs of recovery

NEW YORK, October 08, 2003 -- The first-ever American Express Global Business Travel Trends and Forecast for 2003-2004, issued today, reveals that the business travel industry is showing signs of recovery after enduring a second successive year of turbulence. But this good news for the industry has a downside for business travelers in the form of rising prices in the coming year.

In response to the increasingly global nature of its corporate customers' responsibilities, American Express Global Consulting Services has compiled the first comprehensive global version of its annual Trends and Forecasts for each of the major regions. On a global basis, the outlook for 2004 airfares is a minor increase for short haul/domestic and slightly higher increase for long haul international travel, while hotel rates are forecast to increase only a modest amount.

2003 Continues in State of Flux, but Outlook for 2004 is Better
International threats such as war in Iraq, terrorism, rising oil prices and the SARS virus, combined with domestic factors such as a slowdown in consumer spending, weak job and wage growth and stock market declines have made this a tough year for the global travel industry. Overall passenger traffic declines are still exceeding capacity cuts resulting in excess supply and declines in yields. Without SARS and war in Iraq, air traffic volumes should have seen a 7% rise but, according to the International Civil Aviation Organization (ICAO), passenger traffic growth for 2003 will remain the same as 2002.

However, in 2004, the ICAO projects that world passenger traffic will rise by 4.4%, taking the airline industry back into the black for the first time since September 11th, 2001. In 2005 the figure is expected to rise to 6.3%, equal to passenger traffic figures last recorded in 2000. Business travel is historically seen as early indicator of the economy as a whole, so these projected traffic figures would seem to indicate the return of economic growth for 2004.

Matthew Davis, Director, Global Consulting Services, American Express, commented: "This is obviously great news for the airline and hotel companies, but travel managers might be less positive, as they are the ones facing potential cost increases next year. It could spell bad news for business travelers who have grown accustomed to lower fares over the past two years. However, the proactive travel manager will have locked into better rates in preparation for 2004."

Looking ahead to 2004, American Express is forecasting that, globally, domestic/short-haul fares will increase by up to 1% and international business class fares by 3 to 4%. Corporate room rates in mid- and upper-range hotel segments will increase by up to 1%. Forecasts for price increases in individual regions are as follows (a breakdown by individual countries can be found in the Market Highlights section at the end of this press release): 

Business Class Air Fares Continue to Rise in Most Markets
Overall air travel costs are continuing to rise in the business class long-haul sector in every market except the U.S. Premium airfares (classified as refundable First, Business and Full Economy) have increased (2Q year over year) in Europe by 1.7% — a much more modest increase than the 5.6% reported last year. Asia Pacific and Australia saw a larger 4.18% increase but the U.S. saw an increase of 5.54%, reflecting a competitive market.

The U.S. also saw a comparable decline in domestic U.S. economy class fares in the same period (4.54%). Europe's fares dropped a significant 17% in face of the threat from No Frills/low-fare carriers whilst the Asian Pacific region recorded a modest increase of 2.25%.

Davis explains: “The analysis of fares reveals mixed results — probably reflecting the uncertain economic situation. The decline of fares in the U.S. reflects increased competition fighting it out for a smaller number of business flyers, as well as continued resistance of business travelers to buying full fares. Business travelers are sending a strong signal that they are willing to use the major carriers' leisure fares if necessary, including Saturday stayovers and advance-purchase restrictions. There is a concerted push by travel managers towards booking non-refundable and leisure fares, resulting in a decrease in demand for more expensive fares.

“The general decrease in leisure fares is due to the traditional carriers restructuring their pricing in order to compete with ‘No Frills' or low-fare carriers, which are becoming increasingly prominent in the U.S., Canada and Europe. It is also an attempt on behalf of the whole airline industry to stimulate leisure travel in an extremely challenging environment.”

He continued: “Airlines are increasingly looking towards attracting business travelers with more offers and better products such as sleeper beds and internet access. However, this product innovation is leading to higher fares in most markets. The question is: will business travelers pay those fares? Booked fare trends so far this year indicate that is unlikely, particularly for short-haul, domestic travel in regions where the economy is soft, as many companies scrutinize travel policies such as class of service usage.”

No Frills/Low-Fare Carriers Change Face of the Airline Industry
One of the major trends identified in the study is that No Frills/low-fare carriers are still getting stronger and gaining further market share from the flag carriers. In Europe, 11 No Frills carriers enjoy a 28.7% market share, a substantial increase on the 13.6% share held in 2002. IATA projects that the No Frills carriers' market share in the U.K. will rise to 35.7% by 2010.

Davis explains: “The No Frills sector has changed the air travel market dramatically — short haul operators have changed the way they operate in the face of fierce competition from No Frills airlines.

Europe has now caught up with other markets — No Frills carriers have a 30% market share in Canada, an estimated 20% share in the U.S., and in Australia the figure is between 20 and 30%. In Europe there is still room for continued growth in many markets. No Frills airlines are also gaining ground in the Asia Pacific and Latin America/Caribbean regions, especially in the Mexican market.

In the U.S. the rate of penetration is slowing; market share is still growing but just not as quickly as in other regions. Many low-fare U.S. airlines offer the same on-board and interline services as mainline carriers — JetBlue, for example, offers business travellers a better seat pitch and individual TV screens despite being classified as a low-fare competitor.

“In the U.S., business travellers are shifting toward using low-fare airlines and as a result economy short-haul fares have fallen by 4.54%,” Davis added. “However, in Europe this trend is even more apparent. Economy class short-haul fares charged by major carriers in response to No Frills airlines saw a considerable 17% drop.”

Furthermore, despite a general overall decline in schedules, No Frills airlines are expanding rapidly. The U.K. domestic market saw a 36% increase in flights scheduled and across Europe the increase was a substantial 77%. The number of Canadian domestic flights scheduled grew by 67% and the figure was 56% in Asia Pacific.

A recent American Express survey also reveals that savings gained by businesses by flying No Frills can vary based on when a ticket is booked. Fares on No Frills carriers can reach levels comparable to traditional carriers' economy class fares if booked less than five days in advance of day of travel or if travellers are flying on less competitive routes. In Europe, the difference between fares purchased only one day in advance can be 180% higher than those purchased seven days out.
Davis says: “The research shows that business travellers who use No Frills carriers and don't book in advance may be paying comparable fares to traditional airlines.”

Hotel Sector Suffers in 2003
Overall, the hotel industry has endured a tough 2003 in all markets. The adverse economic conditions and geopolitical factors that have impacted air travel have created downward pressure on lodging pricing, specifically corporate rates.

Key drivers affecting room occupancies are softened business demand, particularly in the meetings and incentives sector, and lower international travel as a result of security concerns.

This problem has been compounded by the costs of new construction, which is typically planned years in advance. The industry has been building new properties at nearly double the rate seen during the early 1990s, resulting in an oversupply of rooms.

Occupancy rates (April 2002 — April 2003) in key business cities fell by 84% in Hong Kong, 65% in Singapore, 18% in Tokyo, 22% in Paris and by 29% in Dubai. Only Latin America has seen an increase in occupancy rates — Buenos Aires rose 24%, Sao Paolo by 5% and Santiago by 9%. As with airlines, product innovation is being used to entice business travelers back, including offers of free and/or high speed internet access.

The cost of a room in upper-range hotels in all markets fell (Q2 year on year) with North America showing a significant 17.5% drop. Interestingly, low-range hotels in North America showed an increase of 6.9%, reflecting the fact that business travelers are trading down on hotels in the same way that they are flying with No Frills carriers. In mid-range hotel prices fell in all markets except the Asia Pacific region (Asia Pacific showed a 2.9% increase — less than the 3.7% recorded last year.)

Of the major business cities surveyed, only Sydney showed an increase in revenue (April 2002 — April 2003). SARS-affected Hong Kong and Singapore were the hardest hit with a loss of revenue of 90% and 70% respectively. The political situation in the Middle East meant the Dubai lodging sector's revenue fell by 35% and Riyadh by 2-5%. Security issues have compounded this. According to Smith Travel Research, insurance costs for U.S. hotels have increased by 15% in 2003.

Davis noted: "We forecast that as a global average, 2004 corporate room rates in mid- and upper-range hotels will increase by up to 1%. However, despite an increased confidence for 2004, now is still a good time for business travelers to strike deals with hotels — especially as we head towards the traditionally quieter final quarter of the year. The overall climate, concerns over security and new construction will continue to generate downward pressure on supplier pricing overall. This trend will exacerbate the trend toward lower occupancy rates in many key business cities and corporate travel buyers should continue to expect discount opportunities."

(Note: Market-by-market highlights follow)

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MARKET-BY-MARKET HIGHLIGHTS

North America -- Airfare and Hotel Trends and Forecasts
The North American airline sector saw passenger traffic growth remain static in 2003, according to the International Civil Aviation Authority. The figure forecast for is 3.9% — the same as the period 1991-2001. For 2005 growth is forecast at 5.8%.

In the U.S. business class long haul (international, originating in the US) published fares rose by 5.54% (Q2 year on year). Published fares in the economy class domestic U.S. category fell by 4.54%. For 2004, the U.S. is looking at economy class fare increases of 1-2% and business class by 2-3%. In Canada, economy class fares are predicted to rise 5-6% and business class will in line with the U.S. with a 2-3% increase.

With respect to North American hotels, there was a 1% decline in occupancy levels — only Latin American hotel occupancy performed at a better level. This resulted in a 2% decline in revenues. Upper-range hotels saw rooms rates decrease by 17.5 % (Q2 year on year). This is due to economic downturn, slowdown in meeting/convention business and tourism. Mid-range hotels, however, also have seen a decrease in rates, which dropped 3.8% year over year. Low-range hotels bucked the trend showing a 6.9% increase. In the U.S. during 2004, both mid- and upper-range hotels are expected to increase rates by up to 1%. In Canada a 1-2% rise is forecast.

Europe -- Airfare and Hotel Trends
European passenger traffic growth levels are predicted to rise 0.1% this year and by a much healthier 4.1% in 2004, rising to 6.2% in 2005. Long haul business class fares are expected to rise in France, Germany, Sweden and the U.K. next year (1-2%, 1-2%, 1% and 5-6% respectively) with an European average of 2-3%. Economy class in short haul is another matter — increases are expected in France (1-2%) but decreases are projected for Germany (-5 to -4%) Sweden (-9 to -10%) and (-2 to -1%) for the U.K., with an average European decrease of 2-3%.

In Europe business class long haul published fares rose by 1.7% (Q2 year on year) — down from the 5.6% growth recorded in 2002. Published fares in the economy class short haul category fell by a massive 17%, reflecting the influence of the no frills carriers. Individual countries including France, Germany and U.K. all posted business class long haul published fare increases in Quarter 2. However, Sweden recorded a drop in business class fares to long haul destinations coinciding with the capacity cuts that have taken place.

Analysis of business class cost per mile (in Euros) reveals that flying to North America from Germany (0.46), Italy (0.46) and Spain (0.47) cost half that of flying from the U.K. (0.92). Cheaper still was the cost of trans-Atlantic business class flights from Sweden at 0.32 Euros per mile. The European average was 0.56 Euros per mile.

By contrast the U.K. is on the European average for flights to North America in the economy class analysis — exactly 0.29 Euros per mile. The only lower rates were Spain (0.15) and Italy (0.21).

With respect to European hotels, there were declines in occupancy levels ranging from 9% in Berlin to 22% in Paris, 13% in Brussels, 16% in London and Madrid, and 12% in Rome. This resulted in a decline in revenues ranging from 18% on London to 1% in Berlin. Upper-range hotels saw rooms rates decrease by 8.3 % (Q2 year on year) after showing a 3.6% increase in 2003. Mid-range hotels, however, also have seen a decrease in rates, which dropped 3.2% year over year. Low-range hotels fared slightly better, posting a 3.1% decrease in the same period. For 2004, mid-range and upper-range room rates are expected to rise 1-2% in France, by 1% in Germany and to remain static or decline by 1% in Sweden and the U.K.

Japan and Asia Pacific -- Airfare and Hotel Trends
Air passenger traffic is projected to rise by 4.9% in 2004 and 6.8% in 2005. Analysis of Q2 year-on-year figures shows a 4.18% rise in business class long haul published fares in Asia Pacific. Figures are more modest for economy class short haul — a 2.25% rise, but figures in the U.S. and Europe have fallen.

Australia, Singapore and Hong Kong have shown the biggest increase in business class long haul published fares — increases are consistent with the recent offering of sleeper-bed product on flights from British Airways, Qantas, Cathay Pacific and Singapore Airlines. Both long and short haul fares increased in Japan due to increased costs for safety and security following September 11th and the generally more buoyant economy. Assuming there are no adverse political, economic or environmental effects, in 2004 rises are expected in Asia Pacific of 3-4% on domestic/short haul (economy class) and 5-6% on international business class fares.

Hotel occupancy fell dramatically as SARS hit the region. Year-on-year April 2002-2003 figures show a drop of 84% in Hong Kong, 65% in Singapore. Sydney and Tokyo posted declines of 9% and 18% respectively. As one would expect, this resulted in a loss of revenue in the same period of 90% in Hong Kong and 70% in Singapore. Sydney posted a modest 2% increase whilst Tokyo fell 14%. Corporate room rates fell by 7% in Asia Pacific upper-range hotels and by 2.5% in low-range hotels. Mid-range hotel rates showed a 2.9% increase. In 2004, mid-range hotel corporate room rates are predicted to rise by 1-2% and upper-range by 2-3%.

Latin America -- Airfare and Hotel Trends
According to the International Civil Aviation Authority, in the Latin America region passenger traffic growth is forecast at 1.5% in 2003, 4.8% in 2004 and 6.8% in 2005.

Published airfares have shown an increase. In Argentina, published economy class fares increased by 12% and first and business class fares by 15%. In Mexico, the increase was less pronounced — published domestic short haul airfares rose by 4% and international fares by 2.5%.

Hotel occupancy levels in Latin America bucked the international trend in the period April 2002-April 2003. In an international climate of decline, Buenos Aires saw a 24% increase, Sao Paolo a 5% rise and Santiago by 9%. Reflecting its closer proximity to the U.S., Mexico saw occupancy levels fall by 15%. This wasn't reflected in revenue figures for the same period, however — Buenos Aires remained static, and Mexico City, Sao Paulo and Santiago saw declines of 15%, 18% and 14% respectively. Latin American corporate room rates fell by 4.7% in upper-range hotels, by 5.4% in mid-range and by a staggering 31% in the low-range category (data Q2 year on year).

About American Express Global Corporate Services
American Express Corporate Services, which includes the American Express Corporate Card, Corporate Travel and Corporate Purchasing Solutions, assists companies in managing and controlling their corporate travel and purchasing expenses. It is a unit of American Express Travel Related Services Company Inc, a wholly-owned subsidiary of the American Express Company — a diversified world-wide travel, financial and network services company founded in 1850. American Express is a leader in charge and credit cards, Travelers Cheques, travel, financial planning, investment products, insurance and international banking.

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