Travel management company Carlson Wagonlit Travel expects 2009 to bring much higher airfares and marginally higher hotel costs than this year. Planning for those increases--and the market developments that precipitate them--will be a daunting task for travel managers and buyers, CWT wrote in an August industry newsletter. BCD Travel's Advito consultancy also issued a forecast calling for small to moderate corporate hotel rate increases for next year.
"An already demanding process is more challenging than ever as a weak U.S. economy and volatile airline industry continue to drive unprecedented changes," according to the August CWT Visionreport.
In terms of air travel expenditures, CWT anticipates that domestic airfares in 2009 will increase 8 percent to 12 percent year over year, while international fares will jump 16 percent to 20 percent.
CWT found that average domestic ticket prices rose between 7 percent and 8 percent between January 2007 and August 2008. Despite crude oil prices dropping noticeably in the summer months from record highs, U.S. airlines in 2009 will continue to push for higher prices "via increased fares and additional fees, as well as through additional booking restrictions and decreased availability of restricted seats."
"While airlines look at price increases to improve their financial condition, they must be careful they don't push buyers to pricing levels where they choose to further cut travel rather than endure an unacceptable cost increase," CWT wrote. "As the U.S. gross domestic product growth slows, and airlines continue to raise prices, it is anticipated that demand for air travel will be further reduced. Accordingly, CWT expects transactions will be down for some corporate buyers into 2009."
At the same time, companies will be challenged to maintain travel patterns and meet contractual targets amid airline capacity reductions. Fewer flight options also could inconvenience travelers and reduce productivity. Moreover, "about 100 small-market cities are expected to lose air service altogether," CWT warned. "Accordingly, local businesses may lose opportunities to survive and thrive in an already challenging economy." Capacity cuts also will help carriers raise fares by limiting seat inventory, thereby making fewer cheap seats available."
Meanwhile, in light of the proposed acquisition of Northwest Airlines by Delta Air Lines, which Delta said would be finalized by the start of 2009, CWT laid out the ramifications of airline consolidation for managed travel programs. The potential positives include a greater volume of airline spend covered by a preferred program, simplified performance targets and higher net savings than previous years. Potential negatives range from decreased capacity "as carriers eliminate redundancies in flight schedules and markets served" to a less favorable negotiating position for buyers as "fewer airlines bid on the business." Fewer suppliers also translates to "increased pricing power for the airlines."
To withstand higher airfares resulting from market and macroeconomic conditions, CWT suggested travel managers promote preferred airline policies, advance ticketing guidelines, use of restricted (cheaper) fares and compliance to other travel policies. By predominantly using a preferred carrier, CWT noted, travelers can elevate themselves into the elite levels of an airline loyalty program, which provide protection from certain added service fees--notably charges on checked baggage.
Meanwhile, CWT cited PKF Research's finding that a 10 percent cut in domestic airline seats could cause domestic lodging demand to dip 3.9 percent. CWT said it already has seen clients' hotel demand "soften," as transactions dropped 4 percent between January and July 2008, as compared with the same period last year.
Despite weakening demand trends, U.S. room capacity still is projected to grow 2.1 percent in 2009, according to PricewaterhouseCoopers. With such a supply and demand dynamic at play, corporate buyers overall "should expect to see rate increases of 2 percent to 3 percent but with more leverage in 2009 negotiations compared to recent years," according to CWT. "More specifically, some discounting will be available in certain markets where occupancy levels are lower and supply has increased. In these cases, buyers should be able to maintain a lower year-over-year rate or even negotiate a flat rate."
Chicago, New York and high-growth markets outside the United States may still show rate hikes, CWT added.
In noting "energy surcharges," new fees for such hotel services as late check out and fitness center usage, and existing charges for parking and breakfast--all of which may be negotiable--the TMC suggested buyers take "a holistic approach to reviewing their hotel contracts based on new industry developments." More specific tactics could include focusing efforts on "the top markets and top hotels" where the largest travel volumes are concentrated and securing "separate rates for room nights booked outside the high occupancy nights of Tuesday and Wednesday."
CWT also noted the growing trend since 2001 of hotels declining to bid on certain corporations' business. To "entice" properties to respond to requests for proposals, CWT encouraged buyers to gather travel data from their TMCs and credit card suppliers, and provide information on travel policies and travel patterns.
Meanwhile, Advito anticipates that corporate hotel rates for 2009 generally will increase by 4 percent to 8 percent globally, with average North American rates remaining flat or growing up to 3 percent. Such high-demand U.S. cities as New York and Houston could see rates rise by 6 percent.
"Companies that have embarked upon the requests for proposals process for their 2009 accommodation programs are finding the negotiating environment easier this year, but those expecting outright rate cuts are likely to be disappointed," according to Advito vice president Bob Brindley.
The firm suggested buyers request bids from a larger number of properties but ultimately select a smaller number and "ensure their contract specifies that travelers will be offered the corporate preferred rate and 'best available rates' at time of booking," as BAR rates at times may be lower than corporate negotiated rates.
On the roads and rails, CWT is predicting flat ground transportation costs for next year. The agency cited a competitive market "as all transportation options may be competing for fewer travelers, at least short term." Airline service cuts and a higher standard reimbursement rate for personal car use (raised 8 cents by the Internal Revenue Service this summer, to 58.5 cents) "are positioning rental vehicles as a more cost-effective transportation option for corporate travel programs," according to CWT.
CWT also said the new refueling policy at Hertz(which bases per-gallon fees on national averages) "provides buyers an opportunity to analyze the refueling language in their travel policies to ensure it continues to meet the needs of the business and the traveler population."