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AMEX Forecast: Airfares Up – Hotel Rates DownSeptember 30, 2009 By: George Dooley
Pent up trip demand coupled with supply base changes are likely to cause rates to slightly increase in most travel categories by the end of 2010, according to the authoritative American Express Global Business Travel Forecast released today. The survey warns that a “new normal” is emerging that is driven by record low transaction and spending volume as companies seek demonstrable value for business travel expenses.
Business class airfares in particular are expected to increase in line with reduced capacity and on-going business demand for international travel, American Express says. The Forecast was produced by eXpert insights, the newly created research practice of American Express Business Travel’s Global Advisory Services.
“As the world begins to show signs of emerging from the recession, businesses are adapting to a fundamental shift in thinking focused on proving the value of travel and every employee connection,” said Hervé Sedky, vice president and general manager, American Express Business Travel. “Heading into 2010, companies will need to consider the impact of these changes in mindset, particularly as projected rate increases in key travel categories gain momentum.”
The Global Business Travel Forecast:
A prolonged period of weak demand in the travel industry depressed prices across travel categories in 2009, most notably in hotel, which as an industry can not reduce capacity as well as airlines and car rental companies. Following this weakened demand in 2009, American Express Business Travel expects a pent up need for travel and meetings to be unleashed in 2010. Fuel prices, along with sustained signs of a restarting economy, could also generate slight up-ticks in travel category prices worldwide, particularly in Asia Pacific.
“Considering airfare, hotel, and ground transportation, we expect the average domestic business trip to increase 1.2 percent, or $13, to a total of approximately $1,080,” continued Sedky. “An increase of 2.4 percent, or approximately $67, is expected for international business trips to bring the average cost to $2,818. However, as unbundled and ancillary fees continue to add to the cost of trips, businesses should expect to add up to an estimated 15 percent to the total trip cost for air, hotel, and ground transport elements alone.”
North America – Air/Hotel/Car Forecast and Trends
Overall, business travel growth is predicted to be up one percent for the U.S. and 15 percent for Canada in 2010. Route and capacity reductions made in the region in an effort to equalize the decrease in demand in 2009 are expected to force prices up in North America in 2010, higher than most other regions.
Hotel rates are expected to remain on the decline in North America as a whole as hoteliers fight to attract both business and consumer travelers back. Car rental rates will likely increase slightly as the cost of vehicles is expected to rise following decreases in capacity in 2009 and car manufacturing consolidation driving up the cost of replacing relatively old fleets.
Europe – Air/Hotel/Car Forecast and Trends
As companies looked for ways to curb travel costs, many companies in Europe traded down from traditional airlines to low cost carriers in 2009. Overall airlines in Europe saw declines in volume and while demand is expected to grow in 2010, fares are expected to decline in the first half of the year as airlines compete for market-share.
While hotel rate changes will likely vary by country, overall, it is expected that rates will only increase modestly at best in Europe in 2010. Opposite the trend in the U.S. to unbundle services however, European hotels are giving travelers additional amenities as a means to attract their business and loyalty and retain price levels.
Latin America – Air/Hotel Forecast and Trends
In Latin America there has been upward pressure on rates as some carriers proactively reduced the number and size of aircrafts servicing some routes and consolidated others. Increases that may have been possible through these measures are challenged, though, as capacity at alternative, less expensive airports increased, online travel agencies entered the market, and business travelers increased usage of car rental or bus. This will likely continue to have an impact in 2010, with projected airfare changes ranging from negative three percent up to two percent. Hotel rates are expected to continue to decline, similar to North America, should hotels have a more difficult time managing capacity.
Asia Pacific – Air/Hotel Forecast and Trends
After a seven percent reduction in business travel in 2009 in the Asia Pacific region, growth for the major countries serviced by American Express in the region is expected to be six percent in 2010 overall as much of the region escapes the protracted recession in North American and Europe.
“The 2010 Forecast clearly underscores that the complexity of managing business travel and understanding the underlying dynamics of the industry and supply base only becomes more challenging as economic conditions change and business opportunity is global,” said Christa Degnan Manning, director, eXpert insights research for American Express Business Travel Global Advisory Services. “Over the next year we will be monitoring the market closely with pricing benchmarks identifying cost-savings best practices, and supplying on-going market analysis to support companies in paying the optimal price for travel based on market conditions and desired business outcomes. A return on investment approach in travel is more important now than ever before as the economic situation changes worldwide.”
Adoption of Strategic Meetings Management
The Forecast reports companies will have more formal oversight of their meeting planning and meetings spending in 2010. In addition, companies are expected to loosen purse-strings on events and conferences, with potential in-roads made by travel category managers adopting strategic meetings management programs. The strategic alliance, Maxvantage, between American Express Business Travel and Maritz Travel, was created this year to help assist companies with the adoption process and to get them on track for a successful SMMP through centralized sourcing, meeting planning, data analysis and business insight.
“Tapping into Maxvantage can give companies a leg up in adopting a successful SMMP by providing direct access to capabilities and best practices that will drive savings while not sacrificing quality,” said Hervé Sedky, vice president and general manager of Global Advisory Services, American Express Business Travel. “Looking at the larger picture, this also enhances a company’s level of transparency, control and insight across the entire category of meetings, which is something everyone in the business travel industry is being called upon to do right now.”