2011: Higher Demand To Drive Air and Hotel Rate Increases

Increases up to 10 percent for airfare and hotel rates in key markets around the world can be expected in 2011, according American Express Business Travel (AEBT), who announced pricing projections from its annual Global Business Travel Forecast. Flat to slightly down prices are expected in car rental rates on average in North America and Europe, but up in Asia Pacific.

AEBT says that, based on continued economic growth, increased demand, and constrained capacity, airfare and hotel rates are expected to grow up to high single digits in 2011, effectively bringing prices back to pre-recession levels. Asia is expected to lead pricing increases with established Western economies seeing less pricing expansion.

"Throughout 2010, companies have lifted travel restrictions brought on by red bottom line fears and this is expected to continue into 2011 as firms look more toward growing the top line. Yet pricing power will swing back to air and hotel suppliers for the first time in two years in 2011 as more competition for limited seats on planes and increased occupancy levels at hotels are expected," stated Christa Degnan Manning, director of eXpert insights and research, AEBT. "As a result, companies should re-examine program strategies and policies undertaken in the past few years and look to manage budgets and cost-control tactics competitively to protect them from the significant rate increases expected."

As a whole, North America has already experienced a significant rise in rates in 2010 with domestic airfares up 39 percent for business class and 21 percent for economy short-haul; therefore only modest increases in airfare rates are expected for 2011, AEBT says.

The hotel industry in North America is encountering higher occupancy levels and as suppliers look to regain loyalty among business customers and increase rates, average booked rates are expected to trend higher, according to AEBT’s analysis. Corporate negotiated rates will likely increase 1- 5 percent for mid-range properties and 2-6 percent for upper range hotels while non-negotiated average daily rates are expected to rise.

Car rental rates are projected to be flat or decline in 2011 by up to 2 percent resulting from strong competition in the industry coming out of the recession and excess inventory. However, higher cancellation charges and new taxes and fees could drive the actual price per trip higher.

Companies will likely increase spending and frequency of meetings, however they will likely spend less per meeting on average as meeting size decreases and sourcing efficiencies increase, AEBT says. Aligning with this prediction, more meetings are expected to be held on local or regional levels, and will continue to have fewer amenities, with audio/visual services being the only exception. As planners incorporate virtual alternatives and supplements to face-to-face experiences, investments in these technologies are expected to continue to go up, AEBT says.

In spite of the nearly across the board increases in business travel prices next year, most procurement and travel departments will still be expected to return incremental year-over-year savings to the business. This calls for a re-examination of many corporate policies and procurement procedures, such as lowest logical airfare selection, as travel suppliers offer fewer promotions and corporate negotiated rates resume importance in containing costs, AEBT says.

"Even with the expected increases in rates, businesses can preserve travel budgets and efficiencies by staying knowledgeable about industry pricing trends, planning appropriately, and supporting travelers to make the best decisions of how to spend those dollars. For example, average daily rates of hotels are expected to rise above 10 percent in many locations in 2011, however, corporate negotiated rates will be lower as hoteliers compete for corporate loyalty business and lock in volume business commitments. Companies will likely forfeit a lot of savings when employees book outside preferred agreements and channels and end up paying consumer rates in 2011,” AEBT reports.

"Looking at the last decade, the industry has seen increased rates across all travel categories, with one exception: U.S. domestic base rates which are more than 16 percent lower than they were in 2000," said Manning. "This is likely a result of airlines supporting base rates through ancillary fees, making it more difficult for travelers and travel managers alike to calculate the true cost of flying.” This point highlights the importance for travel buyers to be diligent in considering unbundled fees along with base rates in managing travel spending. However, we see that travel as a whole has not kept up with the rate of With oil four times the rate of inflation over the last decade, travel prices are likely to continue to increase for the foreseeable future, making savvy travel management from both the supply and demand sides more important than ever."

The Global Business Travel Forecast 2011 is available for purchase for $495 per individual user for existing American Express Business Travel clients and $995 per individual user for non-Business Travel clients. It is also included in the annual subscription to eXpert insights research, a series of more than 75 managed travel industry advisory publications and benchmarks offered at $1,500 per subscriber per year. To obtain a copy of the Forecast or subscribe to eXpert insights,

Visit www.businesstravelconneXion.com.

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