Increasing Demand and Higher Fuel Prices Mean Rising Airfares

Business travel airfares continued to increase throughout 2010, inching closer to the highest levels since the recession with domestic airfares just 6 percent off from the most recent airfare highs in 2008. For hotels, rates showed very little change. However 2011 corporate rate negotiations have shown high single to double digit increases expected in many key business destination cities. The analysis is from American Express Global Business Travel (GBT) who released data from its Business Travel Monitor (BTM) from the fourth quarter of 2010.

Specifically, domestic and international airfare both jumped seven percent in 2010 compared to 2009. Domestic hotel rates in North America remained flat in 2010, with a one percent decrease in international hotel rates paid by North American-based business travelers for the year. As the U.S. represents more than a quarter of all business travel spending globally, data on the prices its business travelers pay for services is a good industry-wide benchmark, AEGBT says.

“In light of continued expected increases in prices paid, as companies revive travel spending they must reassess budgets and calibrate them according to the external economic environment and overall business objectives this year. Recent research shows to reach the optimal level of expansion and growth business travel spending needs to be adjusted accordingly,” AEGBT reports.

“The pickup in airfares throughout 2010 and negotiated hotel rates so far in 2011 is in line with expectations for business travel’s rebound; companies began to re-invest in travel following improvements in the economy and are looking to seize opportunities to drive growth. At the same time, travel suppliers have kept capacity relatively constrained since the recession to maintain control of pricing,” said Christa Degnan Manning, director, eXpert insights research, Global Advisory Services, American Express Business Travel.

“With oil prices rising, airlines are looking to cut their capacity growth plans to combat higher fuel costs. As a result increases in airfares are likely to remain on an upward trend in 2011. So far this year, we are seeing this trend hold true with domestic airfare rates in January 2011 up eight percent compared to January 2010,” Manning said.

Hotel rates in the fourth quarter of 2010 reached their highest levels all year with average booked rates of $164 and $244 for domestic and international hotels, respectively. Demand in 2011 is expected to increase and hotels have felt more comfortable raising rates, particularly for corporate customers that request last room availability (LRA) for their travelers.

“2010 marks the first year since the recession’s impact took hold in 2008 that there hasn’t been a decline in domestic hotel rates, showing the hotel industry is on the rebound. We have already seen some hotels begin to raise their rates, especially in light of limited hotel development in the pipeline for 2011, finally putting hoteliers on stronger footing in the supply and demand equation,” said Manning.

As a result, companies should be looking to gain as much volume discount potential with hotels as possible by driving spend to fewer properties and negotiating key amenities in their rates to help alleviate dramatic property level increases and incurring more ancillary fees if possible.

Manning concluded: “Following a tough negotiation season when many hoteliers looked to significantly increase rates for 2011, companies must now focus on taking full advantage of any extra services that were included in corporate negotiated rates this year. While it is easy for a sales person to promise amenities to hit their base rate targets, companies must audit to make sure those services are not being billed at an extra charge on checkout. Internet access, meals, business services and parking are all features that many road warriors look forward to utilizing for productivity purposes, and travel managers must make sure employees take full advantage of these add-ons so the company is truly getting the best value from its travel budget and travel management efforts.”

The American Express Business Travel Monitor is a key deliverable of American Express Business Travel Global Advisory Services’ eXpert insights research practice. Using US business travel point of sale data, it benchmarks the average prices paid for air, hotel, and car rental service by class of service for hundreds of key business travel destinations globally through aggregate analysis of American Express' extensive database of travel booking and payment information.

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