London Tops EMEA, Currency Chaos Adds Footnote to Moscow's Rates

London ranks as the Europe, Middle East and Africa region's most expensive city, according to BTN's Corporate Travel Index. While hotels' average daily rate decreased for most of the 59 EMEA cities analyzed in the CTI, London's ADR increased $8 year over year to $340.

[Please click here to view the digital edition of the 2015 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf.]

Rates in London in 2014 increased particularly in the Docklands, which houses one of London's business districts, said HRG director of global hotel relations Margaret Bowler. Such hikes also pushed many London travelers to downgrade to more affordable options in 2014, causing five-star hotel rates to decline, "the complete reverse of what happened in 2013," according to Bowler.

"Customers are looking to the midmarket because they're all looking for savings, as London is expensive," she said. "The winners in 2014 with the highest increases were budget [hotels]."

Other notable EMEA cities that experienced year-over-year ADR increases included Glasgow (up 23.4 percent), Manchester (up 14.3 percent) and Edinburgh (up 13 percent), according to the CTI. Moscow and Oslo's ADR dropped the most sharply year over year, at 44 percent and 20 percent, respectively.

Major hotel companies, though, continue to push development. Starwood in 2015 plans to open in Europe 15 hotels, and 40 during the next five years. Marriott in 2014 launched its Moxy brand in Europe and now has 16 such hotels "under development" there, according to its year-end results. Hilton now has 54 Doubletree hotels in Europe and expects the continent to remain "generally stable, with [revenue per available room] growth in the mid-single digits for 2015," Hilton president and CEO Christopher Nassetta said during a February call with analysts to discuss its year-end results. However, the ongoing Russian- Ukrainian conflict "will likely pressure performance in the East, while France remains soft," he said.

Moscow Exchange Rate Causes Havoc

Moscow's drastic decline owed to currency volatility as a result of economic sanctions on Russia in response to its ongoing conflict with Ukraine. Despite the ADR decrease, Moscow remains expensive when measured in U.S. dollars, HRG's Bowler said. However, "if you look at it in local currency, it's far greater because of the currency impact on the exchange rate," she explained.

Despite already having negotiated 2015 hotel rates, travel management company Carlson Wagonlit Travel, which negotiates corporate rates for Russia in rubles, this year restarted negotiations with its hotel suppliers following the exchange-rate fluctuations, according to CWT director for EMEA hotel solutions Virginie Pouget.

"The exchange rate increased the [hotel] rates a lot, nearly 16 percent, when they were supposed to be kind of flat," Pouget said. "That's an issue for clients, and we need to go back to negotiations."

The Russian and Ukrainian conflict will continue to impact Europe, especially Eastern Europe, as the continent is "quite dependent on natural gas and oil exports from Russia, which can have a severe impact on the European economy," Global Business Travel Association vice president of research Joseph Bates said during a September 2014 webinar.

Still, Starwood plans to "double its footprint" in Russia during the next three years, including the addition of a Sheraton in Ufa and a Four Points Sheraton in Kaluga both scheduled to open this year, according to its 2014 year-end report.

Whether the additional supply will help oversaturate Russia's lodging market is an open question, according to HRG's Bowler, dependent at least partially on whether other countries pursue new economic sanctions.

"It's difficult to say," she said. "Moscow had a few years where there was no new supply. For the past few years there has been new product coming in, and it totally stood up. It really depends on what happens with the sanctions. An international [hotel company], even if it brings in lower-tier brands, offers that peace of mind for international travelers, that security."

Other EMEA Trends

• HRG's Bowler said 2015 was not exactly off to a rollicking start for hotels in Europe, plagued a bit by bad weather and renewed corporate cost-consciousness.

"We did see a lot of corporate pricing go up in terms of negotiation season. Every hotel group is focused on growing ADR. However, what they actually achieve could be different. I know 2015 in a lot of markets has started a wee bit softer than hoped," HRG's Bowler said. "Weather is a big issue. We have corporates starting to make savings and reduce travel."

Because of the January massacre at the office of Paris satirical newspaper Charlie Hebdo in January, CWT's Pouget said "several" of the TMC's U.S. clients canceled trips to Europe until the situation stabilized. "January and February have been slightly affected," she said, "but the forecast for more and the rest of Europe are not affected at all."

• During a September Global Business Travel Association webinar, Philippe Chausson, director of EMEA hotel solutions for CWT, said independent hotels are more likely than chain properties to reduce rates, and the sheer volume of independent properties—which represent 60 percent of the European market—is pressuring rates downward. Chausson added, though, that some independent hotels may be inclined to enable booking of their inventory through online travel agencies to improve distribution, leading to increased competition.

• Travel managers also may have to deal with more taxes in 2015. France last year increased its value-added tax on hotels to 10 percent from 7 percent, and the country is considering more taxes, Chausson said. Tax-rate parity continues to be a "heated debate" in Europe and could lead to an increase in competition, resulting in lower rates, he added.

• Hotel-shopping tools like tripBam "absolutely" will have an impact on hotel rates, HRG's Bowler said. "I don't think it's hotels' best friend. It's also why a lot of [hotels] are changing their cancellation terms and making them longer," she added.

While sharing-economy lodging facilitators like Airbnb, MorningCroissant and BedyCasa are popular among leisure travelers, Chausson said they would not impact the business travel market—yet. "It could potentially impact, but don't expect it in 2015," he said.

"It will affect more the leisure market," CWT's Pouget said. "Generation Y is becoming more interested in accommodation. Corporate travel has many companies that don't push it. They allow it, but don't mention it. They really want to go on tracking travelers."

• In the Middle East, "the cities leading the charge are Dubai, Istanbul and Manama," HRG's Bowler said, adding that Abu Dhabi is "one of those cities that has had so much new supply going in."

• Hilton expects the Middle East and Africa to recover in 2015, with RevPAR growing in the mid-to-high single-digit percentages, Nassetta said during the call, adding that Egypt is experiencing some impact from lowered Russian demand.

• Before resigning from his post as Starwood president and CEO, Frits van Paasschen during a February call said that despite bumps in the market like volatile currencies and the "collapse of the Russian economy, most indicators suggest that even if this year is different from the past, the global recovery will continue for a few more years."