Advito Forecasts 13% Hike In U.S. Travel Budgets

U.S. travelers and corporations are facing at least a 13 percent average increase in combined air, hotel and car rental costs next year and possibly higher in international markets due to unfavorable currency exchange rates and rising local taxes, according to Advito's 2009 Industry Forecast released today.

Worldwide published airfares will increase on average 6 percent to 8 percent over 2008 fares and Advito estimates additional fees from unbundled services and checked-bag surcharges have the potential to add 3 percent to 5 percent on top of base fare increases.

Regionally, Advito expects North America to experience the sharpest increases, with 8 percent to 10 percent fare jumps on both intra-regional and intercontinental flights, largely due to U.S. carrier capacity cuts and the potential for rising fuel prices. It expects Europe to have the most moderate intercontinental increases, at 5 percent to 7 percent on average. Advito expects intra-European airfares to rise 3 percent to 5 percent.

Travel buyers also should expect airlines to be more "aggressive" in reviewing corporate contracts as "they were pushing those contracts and threatening to pull out of them, but I haven't seen many canceled," Advito vice president Bob Brindley said. "We had situations where we felt the performance was strong, but the airlines felt it wasn't strong enough and they were definitely pushing back" by encouraging corporations to "provide additional business or potentially pulling that deal and reallocating those discount resources somewhere else."

According to Brindley, airlines have been accelerating their efforts to alter corporate agreements from guaranteed fares-which domestically are largely limited to transcontinental, shuttle and key transoceanic routes-to discount fares as a residual effect from pricing volatility, capacity reduction and high fuel prices. "The guaranteed fare is an important part a corporate airline program, especially in high-volume markets and high-priced, intercontinental, premium-class markets," he said. With guaranteed fares, buyers "can plan better and lock in a price, so in their budgets they know what the costs are, but also in an inflationary period of at least 12 months, they are protecting themselves from a run-up or change in published fares. On a percentage basis, any kind of increase in published fares will put an automatic increase on the corporate fare as well."

While Advito expects global hotel rates to grow by 4 percent to 8 percent, the category forecast represents double-digit percentage-point increases on average in the Middle East and Asia/Pacific, and mild increases domestically, especially in secondary markets. According to Advito, North America average rates will increase between 0 percent and 3 percent, with higher increases in such largest markets as New York. Advito expects meeting costs to mirror the transient hotel market and increase 4 percent to 8 percent.

Brindley said the more moderate rate increases and sliding demand in some North American cities will create a negotiating shift from the past several years' booked rates being higher than negotiated last room availability rates. "Now we have the opportunity to take advantage of the shifting marketplace and travelers will actually find opportunities where they can save money by buying the best available rate instead of using their corporate rate," he said.

Advito expects U.S. car rental costs to increase on par with last year, at 3 percent to 4 percent, due to rates being lifted by the car rental suppliers and the addition of service fees. Meanwhile, Advito predicts European car rates will stay flat as competition increases in the region.

Advito's industry pricing outlook is based on economic conditions, including a slowly recovering global economy, higher than expected inflation, a slightly strengthened U.S. dollar and crude oil ranging from $110 to $130 per barrel. Due to the recent turmoil and increased volatility in the global financial markets, especially in the United States, and uncertainty in oil and commodity pricing, Brindley said Advito would update its forecast quarterly to reflect economic conditions.

Last month, American Express Business Travel postponed the release of its 2009 forecast, following the bankruptcy and merger and acquisition activity in the financial services industry. The travel management company plans to release its updated forecast in the coming weeks.