2012 Corporate Travel Index: U.S. Per Diems Nearly Flat In 2011, Expected To Move Up This Year - Business Travel News

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2012 Corporate Travel Index: U.S. Per Diems Nearly Flat In 2011, Expected To Move Up This Year

March 20, 2012 - 10:10 AM ET

By Jay Boehmer

While U.S. airlines in the past year have kept airfares at an elevated cruising altitude from 2010 levels, the daily business travel costs of renting cars, staying at hotels and eating three meals have stayed fittingly closer to earth, according to data in this year's Corporate Travel Index.

When combined, these average expenses in 100 key U.S. business travel markets increased by less than 1 percent year over year, according to the study. As always, there is much variance by spending category and local market.

[Please click here to view the digital edition of the 2012 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf.] 

Comprising about 52 percent of the daily expense for travelers, the Corporate Travel Index average U.S. hotel cost increased by 1 percent from a year earlier, based on rates paid by BCD Travel clients between January and November 2011. This year, negotiated rates have swung upward by mid-single-digit percentages, according to analysts and hotel operators.

Representing 18 percent of the non-air travel dollar, aggregate 2011 U.S. rental car pricing was down year over year, and thanks to ongoing strength in the used car market, rental firms seem unlikely to regain much pricing power over corporate travel buyers.

Meanwhile, at about 30 percent of the corporate travel dollar, the daily cost of three square meals plus tip grew by about 3 percent year over year. Inflated food commodity prices once again should prompt further increases to dining costs this year.

Corporate Hotel Rates Rise Further 

The modest increase in Corporate Travel Index corporate hotel rates reflects the apprehension among hoteliers when they structured 2011 rates. A year of steadying corporate demand, a resurgent meetings market and budding leisure travel helped to mitigate—if not erase—that apprehension, as reflected in rate increases for North America for 2012.

"They were a little cautious on the corporate side, but then they managed their inventory very effectively over the year and brought their average price and occupancy up," said Bob Brindley, vice president of BCD Travel consultancy Advito. "Corporate demand is still continuing the slow rise, but combine that with a pretty robust recovery in the meetings market, and the hoteliers are a little more aggressive."

Brindley this month noted that Advito maintained its full-year 2012 hotel projections, in which U.S. corporate rates are forecast to increase between 5 percent and 6 percent. Hyatt Hotels Corp., Marriott International and Starwood Hotels & Resorts Worldwide during recent quarterly earnings calls confirmed such rate increases. 

Marriott president and COO Arne Sorenson in February was upbeat about corporate demand for 2012. With 80 percent of the hotelier's corporate negotiations completed, he reported "room rates running up at a mid-single-digit pace." He also noted that corporate group revenue for 2012 was on pace to be up 9 percent year over year.

Though "difficult to forecast transient business for 2012," Hyatt CFO Harmit Singh similarly said that corporate negotiated rates "are up as expected in the mid-single-digit percentage range for 2012 versus 2011."

Marriott CFO Carl Berquist said he saw particular pricing strength in San Francisco, Los Angeles and Chicago, even though "some markets in the eastern U.S. lagged a bit."

Although New York City's Corporate Travel Index average daily hotel rate slipped by a very slight 0.2 percent year over year, it remained the most expensive U.S. city for an overnight stay, followed by Washington, Boston, White Plains, N.Y., and San Francisco.

A Sustained Buyer's Market For Car Rental 

Try as they might, rental car operators have failed to secure rate increases from corporate clients even as they report healthy demand in the sector. "On the competitive front, our corporate business continues to face pricing pressure," Hertz CEO Mark Frissora told analysts and media during a February conference call.

With an average daily rate of just under $51 in 2011, based on BCD client spending between January and November 2011, car rental pricing was down by about 3 percent across 100 top U.S. business travel destinations.

Avis Budget Group CFO David Wyshner during a February conference call said commercial volume during the fourth quarter grew 1 percent year over year, but commercial pricing remained down by 2 percent, "consistent with the full year." Dollar Thrifty CEO Scott Thompson during a call with analysts and media said he expected the "rental rate environment to improve in the first quarter of 2012 versus the fourth quarter of 2011," though year-over-year declines in rental revenue per day this quarter are likely.

Advito noted that corporate rental car rates "have not moved upwards for two years owing to intensive competition." While the consultancy expected rental car companies to put more pricing pressure on clients in rate negotiations this year, Abrams Consulting Group president Neil Abrams said buyers for at least the next 12 months likely will stay in the driver's seat, thanks to the ongoing strength in the used car market.

"It is a prime mover of rental rate pricing," said Abrams. "In this era of historically high used-car residuals, they can afford to keep pricing static. Nobody likes to lower their rates, but they are making it back in other areas."

Still, there have been attempts to raise certain prices. MKM Partners travel and leisure analyst Christopher Agnew reported that Avis Budget implemented "two price increases during the first quarter" for leisure rentals, which were "widely followed by the industry."

But Abrams said that "it will be another year to two years before we may see softening in used car pricing, and once you see that, you may see a little more aggressive rate pricing in the corporate market. They'll have to keep their margins up somehow."

Elevated Commodity Pricing Impacts Diners 

The cost of eating three meals a day on the road (including gratuity) averaged $87.64 across 100 U.S. business travel destinations, up nearly 3 percent year over year. "Breakfast numbers rose only slightly in comparison to dinner and lunch averages," according to a representative from Mercer, which compiled dining data for BTN.

National Restaurant Association senior vice president of research Hudson Riehle noted that wholesale food price inflation last year "was up a hefty 8 percent," which he said was "the highest annual gain for wholesale food prices in over 30 years."

Riehle rattled off the year-over-year inflation rates of common food commodities: flour up 22 percent, coffee up 18 percent, eggs up 17 percent, beef and veal up 15 percent. "These are basically essential components in the development of any restaurant menu," he said. "You can see how in terms of what the menu theme is in the restaurant and how the menu is developed, the input costs have been up substantially and will continue to grow this year."

NRA is forecasting wholesale food prices to grow by 4 percent in 2012.

"From an operator perspective, these continued and sizable gains in wholesale food price inflation do obviously put pressure on pretax profit margins as well as make the focus from an operator perspective on productivity, efficiency and effectiveness much more important," said NRA's Riehle.

Asked how much price increases would be passed on to consumers, Riehle said, "We're forecasting menu price inflation this year of 2.7 percent, which is up from about 2.4 percent from last year. When you look at the grocery store price inflation rate now, that's running close to 5 percent. General inflation is in the low 3 percent range. You can see menu price inflation is much more modest compared to those other indicators."

Citing consumer price sensitivity, Riehle noted that restaurant operators are loath to raise menu prices.

However, a survey released in January by trade publication Nation's Restaurant News found that of more than 150 restaurant operators, 67 percent this year planned to increase menu prices. Of those respondents, 64 percent expected only modest increases of no more than 3 percent, while 30 percent planned to hike menu prices between 4 percent and 6 percent. Six percent are planning even larger price increases.

This report originally appeared in the March 19, 2012, edition of Business Travel News. 

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