Up & Down in Asia: Economic Growth Slows, Prices Moderate

Economic growth in the Asia/Pacific region is moderating and corporate travel price increases likewise have slowed. But the region still boasts some of the world's fastest-growing economies, while travel costs, for the most part, still are expected to rise more quickly than those of most global destinations.

[Please click here to view the digital edition of the 2014 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf.]

In examining 22 cities across the Asia/Pacific region, BTN found that half saw a decline in the average daily costs incurred by corporate travelers, as compared with the 2013 edition of the Corporate Travel Index. Although year-over-year comparisons are not perfect due to currency-conversion differentials (see Methodology, page 6), the combined daily cost for a hotel stay, meals and miscellaneous items for Asia/Pacific slipped about 4 percent to $348. Only three of the 22 cities ranked among the 20 most expensive destinations in the world (outside the United States), while eight ranked in the bottom 20.

Stacked up against each other, Hong Kong rose to the priciest Asia/Pacific city covered in the index, up from second-most expensive last year. It easily was ahead of Singapore, which jumped three spots to second. Sydney again ranked third, Tokyo dropped three spots to fourth and Melbourne gained one spot to round out the top five.

On a macroeconomic level, regional growth is slowing, especially in India and China. Research association The Conference Board in February issued a report detailing a global GDP forecast of 3.5 percent for 2014, up from 2.9 percent last year. For "emerging and developing economies as a whole," it pegged GDP growth at 4.8 percent, up marginally from 2013. "The slower increase is primarily driven by China, which will continue to slow down from 7.5 percent in 2013 to 7 percent in 2014 as structural and policy challenges continue to weigh on China's economic transformation," according to the report.

In its 2014 report on Southeast Asia, China and India, the Organisation for Economic Co-operation and Development estimated that the region's economies in aggregate would grow 6.9 percent annually between 2014 and 2018. "It is a robust pace, albeit less than the 8.6 percent registered before the global financial crisis (2000-07)," according to OECD. It, too, pointed to deceleration in India and China.

Meanwhile, corporate travel demand in the Asia/Pacific region appears to be holding up. According to the International Air Transport Association, premium air traffic—an indicator of business travel—within the Far East increased more than 7 percent last year, while South Pacific premium traffic rose about 3 percent. Premium traffic between Asia and other regions also grew during 2013.

According to a December 2013-January 2014 BTN poll of 101 travel managers whose organizations are active in the Asia/Pacific region, 55 percent anticipated higher regional travel spending this year, and another 40 percent expected about the same level.

A late 2013 AirPlus survey of 958 global travel managers found that 77 percent of respondents expected higher spending this year in India. Fifty percent said as much for Australia, followed by Singapore (43 percent) and China (41 percent).

"Some of the fastest-growing economic regions in the world are in this group, and we expect to see some stopping and starting in forthcoming years as they reach maturity," according to Hogg Robinson Group director of global hotel relations Margaret Bowler. Discussing Asia generally in the travel management company's February hotel report, she suggested that the current "stop-start nature of supply and demand ... means it will take a little time for these destinations to even out."

In terms of supply, about half of all the rooms under construction around the world as of October 2013 were in Asia/Pacific, according to STR Global.

In the skies, "with supply and demand growth rates almost in balance, fare increases have been modest on nearly all Asian routes," according to BCD Travel's 2014 corporate travel forecast. The exceptions, according to the TMC, "are Asia-Europe routes, where soft demand has meant lower prices."

Regional Highlights

Four of five mainland Chinese cities and Hong Kong in this year's CTI experienced rising daily corporate travel costs. Guangzhou was the region's top gainer with 8.6 percent growth in the per-diem benchmark. Hotel prices in some of the country's major business centers are increasing despite growing room inventory. According to Carlson Wagonlit Travel's 2014 corporate travel forecast, China continues to experience a "glut of new supply from global chains and emerging brands tailored to Chinese travelers, though demand is expected to keep pace, enabling price increases upward of 5 percent."

India is on the other side of the spectrum. Its CTI representatives occupied the bottom of the rankings, as New Delhi and Mumbai each fell three positions to 19th and 21st, respectively, while Bangalore dropped a spot to rank last this year. All three experienced double-digit percentage declines in the total per-diem benchmark.

In terms of India's lodging market, CWT wrote that "new construction by global chains has created supply that currently outpaces demand, creating buyer opportunity to negotiate. Occupancy is relatively low compared to other Asia/Pacific markets. As a result, rates have been falling at a compound annual growth rate of 6.9 percent over the past four years." HRG also noted that "India as a whole has softened as a market," but pointed to Mumbai as an exception.

The company characterized a decline in the city's average 2013 corporate hotel rate (10 percent year over year in British pounds and almost 3 percent in local currency) as "something of a surprise ... directly attributable to the creation of business-hotel accommodation to the north of the city, where the primary business district is located." In this year's CTI, Mumbai's hotel rate plus miscellaneous costs dropped 13 percent versus last year.

Although Singapore's per-diem benchmark declined, it nevertheless ranks as second-most expensive in the region. According to the 2013 World Economic Forum Travel & Tourism Competitiveness Report, the city-state is the region's top-ranked economy and 10th globally. "Singapore benefits from excellent transport infrastructure, liberal foreign ownership rules and few visa restrictions," WEF wrote. "One area of concern is its price competitiveness, which has eroded as seen in increasing hotel prices and taxation."

In Japan, Tokyo and Osaka-Kobe each experienced double-digit percentage declines in this year's CTI and each dropped three places in the Asia/Pacific rankings, to fourth and seventh, respectively. According to WEF, "the country continues to be an expensive destination, ranking 130th [globally] in the price-competitiveness pillar."

Although both listed Australian cities dropped versus last year in terms of the CTI total daily cost benchmark, Sydney and Melbourne again ranked near the top of the region—third and fifth, respectively. They each have among the 20 most-expensive daily hotel rates in the world (outside of the United States)—Melbourne at $247 and Sydney at $264. CWT cited both in its 2014 forecast when reporting that "for several years, Asia/Pacific's largest cities have boasted the highest occupancy rates in the world," and likely would continue to do so. BCD Travel for 2014 projected that corporate hotel rates in Australia would be up between 1 percent and 3 percent.

Elsewhere, OECD projected that overall economic growth in Southeast Asia "will remain robust in the medium term, growing at a pace which is comparable to the pre-global financial crisis." Its report noted that Indonesia and the Philippines are among the fastest-growing economies, both with 2014-2018 compound annual growth expected around 6 percent.

According to WEF, Indonesia has "low ticket taxes and airport charges, and favorable fuel prices." It also noted the Philippines' price competitiveness and relatively few visa requirements.

Manila and Jakarta in this year's index ranked as the seventh- and eighth-least expensive Asia/Pacific cities, respectively, each showing about a 7 percent decline from last year.

This report originally appeared in the March 17, 2014, issue of Business Travel News.