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Air Fares Up, Hotel Rates Down as Business Travel RecoversAugust 10, 2010 By: George Dooley
Overall airfares have increased substantially in the first half of 2010, climbing steadily towards pre-recession levels as of June 2010, American Express Business Travel’s (AEBT) North America Business Travel Monitor (BTM) reports. The monitor offers data and analysis for the first half of 2010, including details of trends in U.S. domestic and international airfare and hotel rates.
Hotel rates have decreased slightly compared to the first half of 2009, but rate changes have varied dramatically based on region. Gradual upticks over the first half of the year with further increases in demand indicate that hotel price declines will likely cease and even begin to rise in the 2011 negotiating season, AEBT says.
“The travel marketplace continues to change quickly as recovery occurs, creating new challenges for both travel managers and business travelers who became accustomed to significant discounts during the recession,” said Christa Degnan Manning, director of expert insights research and global advisory services for AEBT. “Airlines took many steps to position themselves for survival over the past 18 months to strengthen themselves and drive revenues and profitability. With travelers on the road again, air suppliers have gained ground in pricing power and the end of hotel rate drops is likely near. This means companies have to reconsider contracts, policies, and cost-savings tactics that may no longer be relevant.”
In the last year, airlines have carefully calibrated capacity to ensure fuller planes and better profitability. This translates to higher pricing for available seats and fewer promotional discounts as travel demand increases. Today, average rates are the highest they have been since the first half of 2008. BTM data shows trips to key business hubs around the world have increased, indicating the primary contributing factor in the price increases is that business people are on the road again.
“With volume returning, airline alliances and mergers increasing, and increased competition for the airplane seats available, companies need to be more aggressive this year to find the best fares,” Manning said. “This also means travelers need to change behavior and be aware of preferred supplier discounts where applicable and to plan ahead more effectively to make sure.”
BTM data also reports use of business class for international flights has seen a slight increase year-over-year, a positive indication of business travel policies and budgets loosening. However, international business class usage is not nearly as high as traditional levels, reflecting that the “New Normal” of more cost-conscious business travel may be here to stay.
London, Frankfurt and Paris remain the top traveled to destination spots for U.S.-based business travelers to Europe, with all three seeing notable volume increases in the first half of 2010 from the same period last year. London saw a 24 percent increase, Frankfurt saw a 30 percent increase, and Paris saw a 16 percent increase.
In Asia, Tokyo, Shanghai and Singapore remain on top as the most popular traveled to business destinations. Year-over-year, Tokyo saw a 24 percent volume increase, Shanghai saw a 68 percent increase and Singapore saw a 47 percent increase in the first half of 2010.
Overall business traveler rates paid on average are slightly down year-over-year in 2010. This is due to the very competitive negotiating environment for corporate rates at the end of 2009 for the 2010 contract year. Of note, companies with hotel programs managed by American Express Business Travel’s Global Advisory Services achieved a 9.8 percent year-over-year average rate reduction in 2010 over 2009 contracts in the last year.
The hotel industry rate changes vary by business destination, AEBT says. On the U.S. front, May showed particularly strong average rates. As the first half of 2010 came to a close, commonly traveled to U.S. domestic destinations, including Los Angeles, Atlanta, Seattle, and Washington, D.C. showed rate increases, albeit in single digits. From an international perspective, June showed the highest average rates so far this year with popular destinations including Amsterdam, Athens, Madrid, Rome, and Zurich seeing notable business traveler average rate paid increases across the second half of the second quarter.
“As hoteliers have less ability to constrain capacity, we saw strong competition in the last negotiating season to lock in business traveler loyalty with more discounts for 2010,” Manning said. “However, travel category managers and meeting planners will need to evaluate destinations carefully when looking at hotels for 2011. While some regions are flat or even slightly down, others are rebounding incredibly strong. Buyers will need to educate themselves on local markets, benchmark rates with peers, and even weigh alternative options to find the most cost-effective options next year.”