Domestic airfares should drop by at least 5 per cent this year as airlines expand low-fare options and low-cost carriers intensify competition, American Express Consulting said in its annual forecast Tuesday.

The business consultants said airfares within Canada will drop by 5 or 6 per cent, while fares to American destinations will likely stay flat "as the U.S. economy strengthens and airlines adjust their capacity to meet demand."

The report predicted international fares would rise by 1 or 2 per cent.

American Express Consulting said lower airfares will be the driving force behind an expected drop of up to 2 per cent in business travel costs in 2004. Domestic airfares account for 40 per cent of the average company's travel costs.

Amex said its business travel bookings have risen by 10 to 25 per cent in each of the last three months. "That is strong evidence that business travel is coming back," said Frank Schnur, vice-president of American Express Consulting.

Amex also said it's finding that many more business travellers are flying on discount airlines. It estimates that 30 per cent of all spending on business air travel was on discount airlines last year. That's up from 24 per cent in 2002 and less than 10 per cent in 2001.

"Low cost carriers play a much more important role in Canadian business travel and have the highest market share of any market worldwide," Schnur said.

The Amex report came out as two Canadian airlines launched New Year seat sales. Jetsgo is offering one-way flights between Toronto and any of its other destinations for $20.04. Flights must be booked by Jan.10 for travel beginning Jan. 13.

Air Canada announced a winter seat sale that cuts fares by up to 45 per cent to more than 150 destinations. Tickets must be bought by Jan. 13 or 15 with travel completed by April or May, depending on the destination.

On Wednesday, WestJet extended the seat sale it launched on Boxing Day. Bookings must be made by Jan. 16.

CanJet announced a five-day seat sale just before Christmas that offered fares for as low as $100 return.