TravelBiz Monitor

Trend Watch

Tuesday, 07 December, 2010, 17 : 00 PM [IST]
Increase in airfare & hotel rates expected worldwide: American Express Business Travel 2011 Forecast

American Express Business Travel has announced pricing projections from its annual Global Business Travel Forecast, indicating that increases are expected between three per cent and nine per cent for airfare and hotel rates in key markets around the world. Flat to slightly down prices are expected in car rental rates on average in North America and Europe, but up in Asia Pacific.

Robert Tedesco, Vice President of Global Business Partnerships & Advisory Services, American Express Business Travel, Japan and Asia Pacific said, “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. As a result, companies should re-examine programme 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.”

The annual Forecast, produced by American Express Business Travel’s Global Advisory Services research practice, eXpert insights, includes pricing predictions for 89 types of airfares (Business and Economy Class tickets for long-haul, short-haul and trans border flights originating in 21 countries), as well as expected negotiated hotel rates for mid-range and upper-range properties in 317 North American cities, 36 Latin American cities, 127 European and Middle East cities and 55 Asia-Pacific cities. The forecast also contains pricing trends related to ground transportation and meetings spending in key regions around the world, and a section on what companies and managed travel category managers should be doing to curtail their impact on companies’ bottom and top lines today.

Global Pricing Trends  
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.

Asia Pacific – Air/Hotel Forecast and Trends
For the most part, countries in the Asia Pacific region did not experience an economic recession similar to the rest of the world. Nevertheless, most of the region did experience declines in business travel demand as companies in other countries outside the region cut back on travel. In 2011, Asia Pacific is expected to have dramatic economic growth leading to significant increases in both business travel volume and pricing across the region.

Both the airline and hotel industries in Asia are likely to see noteworthy jumps in travel demand in line with the region’s booming economies. Specifically, airfares are expected to increase by double-digits influenced by limited capacity on airlines and the dominance of regional carriers. Hotel rates are also expected to increase, with the most dramatic spike in hotel rates expected in China for both mid-range and upper-range properties – driven by the fundamental strength of China’s economy.

Asia-Pacific – 2011 Forecast
Region
Airfares
Hotel Rates
 
Domestic / Short-Haul (Economy Class)
International / Long-Haul (Business Class)
Mid-Range
Upper-Range
Australia
5% to 10%
5% to 10%
2% to 7%
5% to 10%
China
8% to 13%
7% to 12%
5% to 10%
7% to 12%
Hong Kong
5% to 10%
10% to 15%
5% to 10%
5% to 10%
India
7% to 12%
10% to 15%
2% to 7%
2% to 6%
Japan
0% to 5%
0% to 5%
1% to 6%
1% to 5%
Singapore
7% to 12%
10% to 15%
2% to 7%
2% to 7%
Asia Pacific
3% to 8%
5% to 10%
5% to 10%
5% to 10%

Meetings Projections
Companies will likely increase spending and frequency of meetings, however they are likely spend less per meeting on an average as meeting size decreases and sourcing efficiencies increases. Aligning with this prediction, more meetings are expected to be held on local or regional levels, and will continue to have few 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.  

Setting the Agenda for 2011
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 few promotions and corporate negotiated rates resume importance in containing costs over time.

Tedesco continued, “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 travellers to make the best decisions of how to spend those dollars. For example, Average Daily Rates (ADR) of hotels are expected to rise above ten per cent 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.”

Global – 2011 Forecast
Region
Airfares
Hotel Rates
 
Domestic/Short-Haul (Economy Class)
International/ Long-Haul (Business Class)
Mid-Range
Upper-Range
Asia-Pacific
3% to 8%
5% to 10%
5% to 10%
5% to 10%
Europe/Middle East
4% to 9%
5% to 9%
1% to 6%
2% to 6%
North America
2% to 6%
3% to 7%
1% to 5%
2% to 6%
Latin America
3% to 7%
3% to 8%
1% to 5%
2% to 6%

Strategies for identifying savings in 2011 include:
  • Maintain Budget  Competitiveness:
A recent US study produced by American Express Business Travel eXpert insights and the National Business Travel Association (NBTA) has linked both growth and contraction in corporate revenues to travel budget expenditures. Companies want to maintain a competitive budget for their industry by understanding the right level of spending to reach optimal revenue returns. Benchmarking travel expenditures to others in similar industries and peers is important to understand a company’s competitive position in using travel to drive business in the marketplace. Understanding the competitiveness of supplier contracts, corporate policies, demand management and compliance techniques also helps to get most trips out of those budgets and will help companies avoid absorbing expected price increases completely.
  • Fare IQ; Lowest Logical Fare vs. Preferred Fare Strategy:
One of the areas where travel programme tactics will likely need to be re-examined in 2011 is an approach called ‘lowest logical fare’ in air booking. As airlines aggressively ran promotions to fill seats as people stayed home last year, many companies encouraged employees still on the road  to take the lowest air fare available even with restrictions, as the cost to change a ticket plus the lower promotional seat base cost combined will likely be less than a more flexible but higher corporate negotiated fare. With few promotional fares expected to be available next year, a more likely strategy to reduce air costs will be advanced booking, to both ensure a lower priced corporate ticket, as well as availability on popular business flights. Airlines are expected to keep capacity constrained so business travellers will have to book out sooner for both cost and convenience purposes. 
  • Book Transport and Lodging Together:
Typically half of all air bookings with travel management companies today for an overnight trip do not include a hotel booking, leading to tremendous gaps in savings potential. As hotel occupancy goes up next year, hotels will also do less promotion and room block wholesaling to discounters, as well as carefully monitor yields to recoup the dramatic drops in rate they experienced over the last two years. Hotel cost-savings could be accomplished by ensuring employees book preferred hotels with an air reservation when appropriate, as well as drive volumes to preferred partners as a whole. This also helps plug potential security gaps in knowing where travellers are staying when they are on the road, hard lessons many learned during the ash cloud crisis in Europe in 2010.
  • Black-out dates increase in corporate hotel programmes:
Even with an aggressively managed hotel programme from the traveller side, companies should be cautious during the hotel negotiation season of increasingly stringent terms and conditions that hotels are adding to their corporate contracts. Terms such as adding requests for cancellation fees and including more black-out dates on rooms and negotiated rates when availability may be tight are increasingly common. Volume commitment thresholds are likely to also be managed closely by hotel suppliers so vigilance is required when driving compliant traveller behaviour in order to get the lower increases than what is expected from walk-up travellers next year.

 
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