Advito Forecasts Air Pressure To Make 2010 Business Travel Prices Rise

Business travel prices in 2010 will begin to curl upward, primarily led by airfares, as suppliers work to regain their pricing power lost in the last year from the economic downturn and subsequent plummet in travel demand, according to corporate travel consultancy Advito's 2010 preliminary industry forecast, which it released to BTN today.

Globally, airfares are expected to increase anywhere from 1 percent to 6 percent compared with 2009 ticket prices, according to the forecast. North American economy class fares are expected to rise 6 percent on regional trips and 3 percent on intercontinental routes. Business class fares in North America will rise 3 percent regionally and 5 percent on international flights.

Upward airfare pressure is being driven by slowly improving demand and carrier capacity cuts, Advito vice president of business solutions Bob Brindley today told BTN. "It will allow the airlines to start turning off some of the low-fare inventory that they held open for an inordinately longer period of time in 2009," Brindley said. "It wasn't so much the published fares changing that drove average fare decreases during 2009, it was that because of reduced demand carriers were leaving their low-fare inventory open for longer periods and selling more of their business at those lower fares to fill up their airplanes."

The longer window for available price discounts also enabled corporate advance-purchase trends to remain relatively steady. In 2010, buyers should expect elongated low-fare booking windows to shorten, according to Brindley.

"Buyers weren't buying further out, but carriers because of the reduced demand situation were holding those low-priced inventories open longer," he said. "Therefore, since the availability of the lower-fare business was greater, more of the bookings were falling into those categories. Because of the capacity reductions and slowly improving demand, the pendulum will swing back to the airlines, and they'll be able to start closing some of those low-fare buckets sooner."

Meanwhile, buyers will continue to see some pricing relief with hotels in major business travel markets, including the United States, where Advito forecasts average daily rates to decrease 0.9 percent year over year.

Higher-tier properties have actually gained a larger share of room nights from Advito's clients as the result of low occupancy levels and deep discounts. In 2009, upper upscale and luxury properties have recorded more than half of Advito clients' room nights. Midscale properties have a little more than one-third of the share.

"The price premium between upscale, upper upscale and luxury is actually less now than it was 18 months ago," Brindley said. "The discounting moved all of the tiers a little bit closer together and reduced the premium clients were willing to pay when they were moving from one tier to another."

Advito forecasts U.S. car rental rates to rise by 4 percent compared with 2009 as car rental companies continue to reduce fleets and pass more fleet costs to renters.

The forecast is based on Advito's client rate projections for 2010, relatively steady oil prices of $60 to $70 per barrel and other economic indicators, including this month's International Monetary Fund World Economic Outlook released, which projects a 2010 world gross domestic product growth of 3.1 percent and a U.S. GDP growth of 1.5 percent year over year.