2013 Corporate Travel Index: U.S. Per Diems Again Up Marginally - Business Travel News

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2013 Corporate Travel Index: U.S. Per Diems Again Up Marginally

March 18, 2013 - 11:45 AM ET

By Holly Leber

The average total U.S. per diem in this year's Corporate Travel Index increased by 1.6 percent from a year earlier. Though still modest, that rate of growth exceeds the 0.9 percent increase measured in the 2012 report. This year's per diem increase comprised a 6.6 percent increase in average hotel costs, including taxes and surcharges, which offset a nearly 6 percent drop in the average daily car rental cost (with taxes) and a 2.5 percent decline in the average daily cost of meals while traveling.

[Please click here to view the digital edition of the 2013 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf. Click here for the 2013 Corporate Travel Index methodology.] 

Per diem changes vary quite a bit by market, ranging from a 13.1 percent increase in San Francisco to a 6.9 percent decrease in Orlando. Key business centers showing increases include New York (7 percent), Boston (6.1 percent), Chicago (4.9 percent), Los Angeles and Charlotte (each 4.3 percent), Atlanta (3.5 percent) and Washington (1.5 percent). Most overall per diem declines generally were minimal, including Houston and Dallas (each down less than 1 percent).

"Over the past years, there's been a bit of a slowdown" in travel prices generally, said U.S. Travel Association senior vice president of research David Huether. "The pace of acceleration has moderated."

The association observed a 3.3 percent increase in travel costs in 2012, as measured by its Travel Price Index, and projected a 3 percent increase for this year. U.S. Travel's Travel Price Index includes airfares whereas BTN Corporate Travel Index per diems do not.

For Hotels, Possible 'Banner Year' Coming 

In many cases, 2013 Index per diems were impacted by double-digit percentage increases in hotel costs versus the year prior, including in Chicago (15.5 percent) and Boston (11.3 percent). San Francisco had the largest jump in hotel costs, more than 26 percent, while New York came in at almost 10 percent higher.

Other cities that showed big increases include Honolulu (25 percent), Santa Barbara (23.9 percent), Wilmington, Del. (19.2 percent) and Newark, N.J. (18.3 percent).

Orlando had the largest decline in hotel costs at 7 percent, followed by Mobile, Ala. (4.4 percent) and Phoenix (3.9 percent.)

In the midscale, upscale and upper-upscale hotel tiers, per diem costs in the 2013 Index were up between $4 and $6. The overall booked average daily rate, which also includes economy and luxury tiers, jumped more than $8. The average calculated taxes and fees for nightly hotel stays increased 8.5 percent to $19.85.

Measuring only the average hotel rates, Smith Travel Research observed a 4.2 percent increase in 2012 versus the prior year, and TCG Consulting estimated a growth rate between 4.5 percent and 5 percent. TCG hotel practice director Kim Maschoff said the increase reflected the costs of renovations and product investment.

Hotel supply growth remains slower than demand growth, and is expected to stay that way for a while. As such, the trend of rising rates is projected to continue. STR, for example, projected an average 2013 rate increase between 4.5 percent and 5 percent, with larger increases at upper-upscale properties. "Hotels are still looking to pull out of the depth of 2009," said STR senior vice president of operations Bobby Bowers. "That was a really, really deep hole. We're still making the climb out of that one.

"San Francisco will continue to blow doors," Bowers added.

Other such higher-occupancy markets as New York, Boston and Chicago again should be strong for hoteliers.

Corporate negotiated rates overall this year are up 5.3 percent from 2012, according to Carlson Wagonlit Travel's Hotel Solutions Group, and as much as 10 percent in New York

In February, Marriott CEO Arne Sorenson told analysts that "approximately 85 percent of our special corporate negotiated rates are now complete, with room rates running up, north of 5 percent, constrained a bit by uncertainty about the economy."

Looking at the overall market, Starwood Hotels & Resorts CEO Frits van Paasschen during a February conference call said, "Business activity continues to rise but with very few new build hotels of any kind coming onstream so occupancies remain at near peak levels. If the U.S. economy continues on this trajectory, the basic laws of supply and demand suggest that we'll see strong growth in room rates for the next few years."

Indeed, PKF Hospitality Research, which projected a 5 percent average rate increase for this year, anticipates that to grow to 8.4 percent in 2014. PKF president Mark Woodworth said, "It could be a banner year."

Car Rental Costs Down Again 

After average daily car rental costs dropped nearly 3 percent in last year's report, the rate of decline doubled for this year's Corporate Travel Index, down nearly 6 percent, or about $2, to about $51.

While car rental costs in New York and San Francisco are up modestly (0.9 percent and 0.5 percent, respectively), other big markets had big declines, including Houston (down 15.9 percent), Washington (down 14.6 percent) Chicago (down 13.2 percent), Newark (down 11.2 percent) and Boston (down 11.1 percent). The largest year-over-year decreases are in Rochester, Minn. (down 21.3 percent), San Jose (down 19.7 percent) and Kansas City (down 16.2 percent).

Only five cities show car rental costs growing by more than 3 percent: Fort Lauderdale, Madison, Tampa, Honolulu, and at 12.2 percent, Wilmington, Del.

The average rate is down less than $1 for each car type covered by the Index—compact, intermediate and full-size—while average daily taxes and fees also fell, now representing 24 percent of the total cost versus 28 percent in last year's report.

For this year, there are mixed signals for commercial pricing in a sector experiencing consolidation. In general, "the corporate market is kind of static year over year," said Neil Abrams, president of Abrams Consulting Group. "Car rental is supply-and-demand-driven." He projected conservative rate increases for 2013 in the "mid-single-digit growth" range.

For "midmarket accounts," Avis Budget Group is "actually starting to see some gains in pricing," according to CEO Ron Nelson, speaking to analysts last month. "And whether it's related to the incentive program or just the fact that we're pushing harder, I'm not sure, but I don't care quite honestly, as long as we get pricing."

MKM Partners analyst Chris Agnew in a March research note reported that overall pricing at Avis Budget "increased 1 percent in December, 6 percent in January and 4 percent in February," and that the car rental company "was indicating up approximately 5 percent on its forward reservations in March." He added that while he expected price increases to "erode over time," he also noted he is "sanguine" regarding pricing drivers, including "normalizing fleet costs," macroeconomic activity and "structural changes" in the industry.

Hertz CEO Mark Frissora during a February conference call said that he expects business travel pricing to further decline this year. "We made a strategic decision to minimize our participation with less profitable commercial accounts," he said. "While contract rates should continue to improve from 2012 levels, we still expect pricing in the segment to be slightly down overall this year."

Slight Rise In Meal Costs Expected 

Like car rental costs in this year's Corporate Travel Index, average daily expenses for three meals incurred by business travelers were down from last year, sliding 2.5 percent to $85.41.

Some of the largest changes were in the Midwest. Grand Rapids saw the biggest jump, up 17.6 percent, while Minneapolis declined most of all the 100 listed U.S. cities, down 11.8 percent.

Average costs were down between 5 percent and 6 percent in Los Angeles, Atlanta and Chicago, and 7 percent in Dallas, while New York and Boston each were up 3.4 percent.

While breakfast and dinner costs this year were slightly lower than in the 2012 Index, lunch prices were up marginally.

Nationwide, wholesale food costs in 2012 were up 2.2 percent on average, according to the National Restaurant Association, and the average menu price increased 2.8 percent. For this year, NRA projected wholesale food prices to increase about 4 percent, and the average menu price "in the high 2 percent range."

In terms of corporate dining volume, U.S. restaurants in 2012 collected 3 percent less revenue from corporate diners than in 2011, according to Dinova. The firm, which leverages client spending to provide discounts at participating restaurants, based its findings on data collected from more than 2 million employees of companies using the Dinova network who spent an aggregate $700 million in 2012.

Founder and president Vic Macchio attributed the downward slant in the latter months of 2012 partly to reduced business in the wake of Hurricane Sandy.

Dinova also reported that 2012 spending per transaction declined to $50.78 from $52.03 in 2011.

Macchio said January data showed a rebound after a down 2012, increasing 3 percent from the year-earlier period. For full-year 2013, he estimated the cost of dining to increase slightly.

This report originally appeared in the March 18, 2013, issue of Business Travel News. 

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