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American Express Forecasts Challenges To Travel Industry in 2009October 22, 2008 By: George Dooley
While airfares in 2009 may decrease, overall travel costs may increase as airlines continue their pursuit of expanding fees for services such as in-flight meals and checked baggage, American Express Business Travel (AEBT) reports in their new 2009 Forecast.
The authoritative survey said that AEBT expects the average domestic trip, including airfare, car rental and hotel stay, to increase to a total of approximately $1,139. Furthermore, additional travel expenses, including baggage fees, dining, airport parking and even package shipping, can add an estimated $400 to the total trip cost.
The 2009 Forecast provides insight into global trends and the overall business travel landscape for 2009. including regional forecasts for North America, Europe, Latin America and the Caribbean. AEBT said it has adjusted the results of its forecast in anticipation of a global economic slowdown. Both suppliers and buyers of travel and related services are expected to face new operating challenges in the coming year.
“Based on forecast economic conditions for 2009 and the substantial increase in fares already experienced in 2008, it is possible that airfares in 2009 may decrease,” said Hervé Sedky, vice president and general manager of global advisory services for AEBT.
Sedky said that this doesn’t necessarily correlate to a decrease in prices paid as airlines continue their pursuit of expanding the suite of fees charged for services such as in-flight meals and baggage.
“In this difficult economic environment, successful T&E management strategies will be based upon the total cost of a business trip, which takes into consideration costs such as parking fees, airline fees, meals and other related expenses,” he said. “Considering airfare, car rental and hotel stay, we expect the average domestic trip to increase 2.8 percent, or $31 USD, to a total of approximately $1,139 USD. An increase of 4.3 percent, or approximately $147 USD, is expected for international trips to bring the average cost to $3,556. However, if you include the costs of additional travel expenses including baggage fees, dining, airport parking and even package shipping, it can add an estimated $400 to the total trip cost.”
The proliferation of new fees and a delicate supply and demand balancing act will determine whether airfares remain steady, increase or potentially decrease compared to 2008.
“In response to the record energy prices in 2008, many airlines began charging fees for different services such as checked luggage, in-flight refreshments and aisle seating," Sedky said. "To help mitigate the impact of these new charges, which can increase air travel costs up to an additional 15 percent per trip, we advise companies to consider increasing their focus on demand management to ensure planned trips meet the guidelines designed to promote the most effective use of their business investment.”
Key highlights of the survey include:
* Capacity cuts are likely to lead to a shortage of available seats at lower price points, while changes in ticketing and minimum-stay requirements, uncertainty surrounding the future price of jet fuel, movement in airline consolidation and alliances and tighter controls over contract performance measurement are likely to drive price increases.
* Prices are predicted to experience downward pressure due to a slowing global economy, improved demand management by corporations and stronger traveler compliance. The expansion of low-cost carriers, more efficient aircraft and airline operations and the continued liberalization of the industry are also expected to mitigate increases.
* Although American Express Business Travel forecasts some rate growth in the global hotel industry, most regions will likely experience declines in occupancy, which will keep rate increases below the level of those seen in 2008. The record oil prices that began in 2008 are expected to continue to impact the hotel industry and airline capacity cuts should drive down demand in some markets. As new hotels expand global supply and demand decreases in some markets, travel buyers should have increased bargaining power for 2009 rates.
* As economic conditions continue to draw attention to meetings as a source for savings, senior business leaders are expected to seek further visibility into meetings spending and aim to measure the return on investment of meetings and events for their companies.
* Effective demand management tactics and a movement toward shorter events in more local destinations should help corporations achieve the best return on investment.
* Implementing and managing meetings policy is expected to provide companies the ability to drive certain cost-saving behaviors. Based on a recent survey of American Express clients, over 70 percent of companies do not have a stand-alone meetings policy.
* Technology developments offer cost-effective ways to supplement meetings and events schedules. Teleconferencing and social networking sites are gaining popularity as tools to strengthen the interpersonal relationships created through traditional meetings.
* Leveraging transient hotel programs with a meetings hotel program is expected to enable companies to have visibility in both areas and drive savings. Negotiating packages for the preferred properties will likely simplify the process to drive and support compliance.
AEBT also sees companies across the globe seeking new ways to manage their travel investments and maximize the value of their T&E programs. Companies should revisit their travel policies to ensure that travelers have a comprehensive guide to navigate the current travel environment, AEBT says. In addition to a tight travel policy, demand management and an increased focus on traveler compliance can deliver savings. Benchmarking that is based on average segment cost or average ticket price is no longer sufficient due to the expansion of airline fees. Companies should benchmark the entire cost of a trip in an effort to minimize expenditures related to business travel.