BTN's 2008 Corporate Travel Index: Prices Rise In Resilient U.S. Seller's Market - Business Travel News

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BTN's 2008 Corporate Travel Index: Prices Rise In Resilient U.S. Seller's Market

February 25, 2008 - 12:00 AM ET

Editor's Note: The following is an overview of the domestic results of Business Travel News' 2008 Corporate Travel Index, an annual compendium of the daily costs of doing business in 100 U.S. cities and 100 international cities. BTNonline subscribers may download the entire 2008 Corporate Travel Index, including a similar article on international costs and listings of per diems for 200 cities, here.

Corporate travel buyers seeking some relief from years of a travel seller's market found none in the United States in 2007, as continually rising hotel rates and high restaurant prices propelled the average daily total cost of business travel higher yet again. The daily price of a hotel room booked at an average negotiated rate, a rented car and three meals was $314.78, according to Business Travel News' 2008 Corporate Travel Index—a dollar amount dwarfed by costs in the most expensive American cities, particularly New York, which exists in a sphere all its own.

Unsurprisingly, the lion's share of the typical traveler's daily expenses—44 percent—is committed to hotel stays, but eating three meals in restaurants comprises 30 percent of that traveler's dollar. As such, those food costs would be more expensive than would a typical car rental, which eats a little more than one quarter.

Hotel

The hotel seller's market remained firmly in place in 2007, and high-occupancy markets retained a huge price premium over much of the rest of the country: The difference in hotel cost between the cities ranked first and fifth is larger than the difference between the fifth- and 100th-ranked cities.

To arrive at its hotel rate estimates, Business Travel News used data provided by BCD Travel's Advito consulting division that show negotiated accepted rates for BCD clients. BTN then averaged the data by limited- and full-service properties, and editors ascertained and aggregated individual city hotel tax rates to arrive at the total cost. BTN also based its hotel results on Advito numbers in last year's Corporate Travel Index, but used tax information Advito pulled from the Sabre global distribution system and averaged hotel costs by pricing tier, rendering year-over-year comparisons meaningless.

Bob Brindley, vice president of Advito, said that although a few cities' high ranking was surprising—Albany, N.Y., was the 10th most expensive, with a total average rate of $174.42 per night, for example—the Corporate Travel Index results are relatively consistent with overall market expectations. The highest-ranking cities generally are those with little select-service property choice for travel buyers, according to Brindley.

"All city centers have a greater preponderance of luxury and upper upscale products," he said. "That's just because of the high cost of having a property in those locations."

Boosted by high occupancy and limited supply, New York is in a class by itself when it comes to hotel rates. The average hotel rate in the city, $325.80 per night including taxes, is almost 30 percent higher than the next most expensive city, Washington, D.C. In HRG UK's 2007 half-year hotel survey, which factors in industry figures along with data from its clients' bookings, New York was the only U.S. city to rank in its global top 10.

New York also was one of four U.S. cities to post double-digit average daily rate growth in HRG's survey, with rates increasing by 14 percent. Other cities with that distinction were Houston at 18 percent, Las Vegas at 16 percent and Denver at 10 percent. Advito's Brindley said his data showed that New York had the highest year-over-year increase in 2007, followed by Chicago.

With occupancy levels such that travel buyers often find last-room availability rates difficult if not impossible to obtain, New York will remain the bugaboo for travel buyers' hotel programs, said John Fox, senior vice president at PKF Consulting's New York office. In coming years, however, rate growth could finally moderate, he said.

"There is some hope on the horizon from the buyer's standpoint," according to Fox. "They're adding supply, and two years out, we're going to feel the major brunt of that. It's not going to cause room rates to drop, but I think it's going to stop them from increasing at the double-digit rates we've been seeing these last few years."

The weakening dollar also has had an impact on rising rates. In HRG's report, several cities that had marked year-over-year increases in rates in dollars—Philadelphia, Washington, D.C., and Los Angeles, for example—actually had declining rates when considered in British pounds.

BTN's decision to redefine the distinction between hotel properties from upscale and midprice to full-service and limited-service stemmed from the shrinking price differential between those two tiers in several cities. In Fresno, Calif., and Charleston, S.C., in fact, the limited-service rate actually is higher than the full-service rate. Brindley said Advito plans to reexamine some of the properties now ranked as midprice that are consistently achieving higher price points.

"The lines are becoming blurred in some cases," he said. "One thing we're going to do is a complete reevaluation, not just from a chain perspective but to reevaluate where every hotel fits in. In some markets, some of these might be more of an upscale property."

Hotel taxes, usually a combination of sales and occupancy taxes along with the occasional flat fee, ranged from 8 percent to more than 17 percent. Tax rates in such cities as San Antonio and Seattle were high enough to bump them to rankings higher than other cities with pricier base hotel rates.

Food

Corporate travelers once again can expect the cost of breakfast, lunch and dinner to grow this year in top business travel destinations, but restaurant operators continue to moderate meal price growth in attempts to keep cost-conscious diners at their tables.

Though restaurants, like many business sectors, are anticipating some softness this year, National Restaurant Association senior vice president of research and information services Hudson Riehle said sales would reach a high of $558 billion. However, the costs of operations, anchored by wholesale food increases, are growing in the segment.

Management consulting firm Runzheimer International expects meal costs for business to grow by 5 percent this year, fueled by increases at hotel restaurants. Runzheimer in a recent research document said some travel buyers "have instituted caps on daily meal costs, even though some hotels may assume that higher prices in their dining rooms will compensate for flatness in room revenues."

NRA anticipates menu price inflation for the industry to hit 3.6 percent this year. "The challenge, though, is that sales growth rates for the industry are at their lowest level since 2002. Obviously, the environment is more challenging than it's been in recent years," Riehle said. "2008 will be the fifth consecutive year of menu price inflation in excess of 3 percent. That is fairly unprecedented in recent memory. You have to go back to the 1980s to find such a sustained increase."

Though costs to restaurants are expected to grow at a faster clip than sales, NRA's Riehle said restaurants are attempting to offset cost increases through greater operational efficiency rather than raising diners' tabs. "It is an environment where operators are looking to manage the cost side of their operations much more tightly, because consumers have been, and always will be, extremely sensitive to menu price increases," Riehle said.

According to this year's Corporate Travel Index, the cost of eating three square meals a day, including tip, in the top 100 business travel destinations in the United States averaged $94.34. New York, Boston, San Francisco, Los Angeles and Portland, Ore., took the top spots as the most expensive U.S. cities to eat breakfast, lunch and dinner.

BTN this year commissioned Chicago, Ill.-based management consulting firm Organization Resource Counselors Inc. to calculate the cost of standard meals in 100 cities using hotel restaurant pricing for breakfast and lunch and selected restaurant prices for dinner. Those meals assume a breakfast of two eggs with breakfast meat, toast, orange juice and coffee; a lunch of soup, a hamburger or chicken sandwich, a slice of pie and a soft drink; and a dinner of soup, filet steak, a glass of red wine, dessert of pie or ice cream and a cup of coffee. The total food price averages do not include local or state tax, but do include a 15 percent gratuity.

American Express asserts that more than 9 percent of total business travel expenses go toward dining, which roughly matches what companies pay for rental cars. However, volume discounts for dining are elusive and the spending category to some degree remains largely unmanaged.

Riehle said, "We definitely pick up on that corporations are really much more aggressively managing their business and entertainment expenses, and it makes perfect sense that those companies would look to get some economies of scale." However, Riehle said achieving those economies of scale is difficult, as much of the fine dining segment of the restaurant industry remains in the realm of mom-and-pop operations. "The proportion of sales from multi-unit operators continues to increase. However if one looks at the fine-dining, white-tablecloth establishments, in general there is not much multi-unit penetration of that market. It's a lot of chef- and owner-operated establishments," NRA's Riehle said.

Car Rental

The total average U.S. car rental cost listed in the 2008 Corporate Travel Index, is $81.95—with a full-size average of $85.02 and a midsize average of $78.88—down slightly from the 2007 average of $85.81. Although the drop corresponds with anecdotal reports of some softer pricing in the fourth quarter of 2007, such a drop should not be considered a harbinger for 2008.

"The year of 2008 will be a lot stronger than a lot of people think," said Neil Abrams, president of car rental consulting firm Abrams Consulting Group. "With all the economic fears that are floating out there, demand is still strong. The rental car companies will be making money. I perceive a small increase year over year as compared to 2007" in the low- to mid-single digits, "maybe up to 5 percent." The increases are due partly to the reconciliation of fleeting costs and high demand in both leisure and corporate markets, Abrams said.

"Airline passengers are still up year over year, so that portends well for the rental industry," he said. "Fleeting costs have kind of stabilized. They are up, but they are up in a much more moderate level than over the last two to three years, where there was this skyrocketing effect. The rental companies' fleet planning process is conservative. The fleet levels are being maintained conservatively in order to optimize utilization. They are always looking that demand and fleet levels are in sync. The idea is to do the same or more revenue with less cars. If you have the same demand for less cars, then you can increase your pricing."

Dave Kilduff, managing director of ground transportation for Carlson Wagonlit Travel's CWT Solutions Group, expected rates to remain fairly flat, with maybe a 1 percent to 3 percent increase in corporate rates.

Kilduff added: "Fleet increases started about three years ago and they were astronomical the first two years. Last year, it was supposed to be big again and it was not as much as the car rental companies were anticipating." Car rental companies also are trying to alleviate the compounded high fleet costs from a few years ago, he said.

"When the prices of the fleets went up in the last three years, not any car company got price increases that would pay for them. The car rental companies are still playing catch-up to where the fleet prices were a few years ago. They need increases and they'll certainly try for increases. At some point, those costs will have to be recouped, but it may not be in 2008," Kilduff said, adding that fleet-related costs comprise anywhere from 40 percent to 50 percent of a car rental company's cost of doing business.

In a surprising turn of statistics, Detroit topped the 2007 car rental pricing list this year, with car rentals in the city costing an average of $128.30, more than $14 higher than second-ranked New York City's average rate of $144.04. Rounding out the top five were Newark, N.J., Chicago and White Plains, N.Y.

Advito on four midweek days in early December 2007 pulled car rental rates from Sabre Holding Corp.'s global distribution system for the 2008 Corporate Travel Index. The rates, applied to one-day rentals of both full-size and midsize vehicles, encompass pricing from the major rental car companies and incorporate all local taxes and fees. Business Travel News editors averaged the full-size and midsize prices over the four days, then averaged the two categories to arrive at a final daily average car rental rate.
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