Amid lingering economic uncertainty, industry prognosticators in recent weeks came up with roughly similar estimates--with exceptions--for 2010 business travel rates and fares. American Express Business Travel, BCD Travel, Carlson Wagonlit Travel and the National Business Travel Association generally agreed that airfares would increase moderately, whereas hotel rates would continue their decline into next year.
"There is absolutely no question that there's a lasting effect of the recession moving forward," said Hervé Sedky, vice president and general manager of Amex Global Advisory Services. "We are seeing signs of optimism and maybe a little bit of an uptick in business travel ... but improvement in business travel will be small."
With the economic outlook slowly brightening, corporations are looking to consolidate spend in all areas while increasing travel--although at a much slower pace compared with previous rebounds, according to Bob Brindley, vice president of business solutions for BCD Travel's consulting arm Advito.
There is plenty of uncertainty ahead due to factors including the impact of the H1N1 virus on major economies; unstable oil prices; and the proliferation of unbundled fees, which are not figured into initial air, hotel and car rental predictions, Brindley added.
Amex predicted that as the global economy gradually strengthens, the average cost per domestic trip worldwide would increase 1.2 percent, to $1,080, and the price of an international trip would grow 2.4 percent, to $2,818, from 2009 levels.
Airfare Uptick
In preparation for the recent period of weak demand, many airlines since this time last year aggressively chopped capacityand cut costs, which proved successful. But it will result in fare increases for corporate travel buyers in 2010, according to the forecasters.
"There is a pent-up demand for people to meet face to face," said Frank Schnur, Amex Global Advisory Services vice president. "The fact that airlines were able to cut capacity positioned them extremely well to move into 2010 and raise their pricing at least moderately. As demand increases over the course of the year, [airlines] can increase capacity gradually and that will continue to allow them to have more of an influence on pricing."
Amex expects 2010 global domestic short-haul economy fares to remain flat or increase up to 5 percent and international long-haul business-class fares to increase 1 percent to 6 percent. NBTA predicted domestic U.S. airfares would decline as much as 2 percent or increase up to 3 percent.
Advito reported that this year travelers took advantage of much lower fares as airlines offered discounts closer to the date of departure. This countered the consultants' initial thinking that travelers must have been booking further in advance, according to Brindley. "The carriers are going to start closing off that normally highly restricted inventory--the really low fares--and the average prices will start trending up even though published fares haven't changed," he said.
Advito predicted regional fare increases in Asia-Pacific and Europe (1.5 percent), Latin America (4 percent), the Middle East (3.5 percent) and North America (4.5 percent). Additionally, it said intercontinental fares would climb in Asia-Pacific (3.5 percent), Europe (3 percent), Latin America (5 percent), the Middle East (2.5 percent) and North America (4 percent).
The CWT Solutions Group expects North America domestic airfares (for travel within Canada, Mexico and the United States, or between them) to increase 3 percent to 5 percent and international fares booked in North America to rise 4 percent to 6 percent in economy class and 5 percent to 8 percent in business class.
However, fuel costs could impact airlines negatively, particularly if fuel-hedging bets fail as they did in 2008, according to CWT. "After major losses in the latter half of 2008, many carriers are skittish about hedging for 2010," CWT stated in its report. "They fear ongoing big losses and are also not well positioned to front the excessive amounts of capital required for hedging."
In North America, Amex predicted domestic short-haul economy fares to grow by 2 percent to 7 percent and international long-haul business fares to increase 1 percent to 6 percent. It expected Latin American domestic economy fares to fall as much as 3 percent or increase up to 2 percent and international business fares to drop as much as 1 percent or rise by up to 2 percent. In Europe, Amex said domestic flights could range from flat to 2 percent higher and international trips could increase by between 5 percent and 7 percent. In Asia-Pacific, it said domestic airfares could climb by 3 percent to 8 percent, whereas international airfares would increase by 1 percent to 6 percent.
CWT noted OAG data which showed that in June 2009, the North American airline industry reported a year-over-year 7.5 percent reduction in frequencies or flights and an overall reduction in seats of 7.3 percent.
Hotel Rates Pull Back
NBTA and the TMC consultants said they expect clients to continue to push back on room ratesand predicted buyers would see even steeper discounts for 2010 due to a glut of hotel supply globally. Many of the new properties introduced in the market were planned several years ago before the economic crash, forcing hoteliers to continue with openings despite the lack of demand, according to Advito's Brindley.
"On the hotel side, it is a little bit harder to control your capacity compared to the airline side," said Brindley, noting that airlines discontinued use of their planes, as did rental car companies with their cars. "We are seeing additional opportunities for buyers, but not as significant of a drop as the previous 12 months."
Hotel rates in top markets are expected to drop significantly as rate growth at many such properties eclipsed inflation in their nations, Brindley noted.
As this trend continues throughout 2010, hoteliers will have a tough time "justifying" increases or even flat rates, Brindley concluded. Advito predicted room rate declines in Australia (0.8 percent), China (3 percent), France (0.6 percent), India (3.4 percent), the United Kingdom (1.2 percent), and the United States (0.9 percent).
NBTA expected rates to drop 2 percent to 8 percent in the United States.
Amex reported that overall midrange hotel rates could decline by as much as 3 percent or increase by up to 2 percent; however, upper-range hotels could decrease by as much as 4 percent or increase up to 1 percent, it said. Amex expects Latin American midrange hotel rates to range between a drop of 2 percent and growth of 2 percent, and upper-range properties to decline as much as 6 percent; European midrange rates to decrease by up to 2 percent or grow by as much as 2.5 percent and upper-range hotels to fall between a 2.5 percent decline and a 2 percent increase; while it expects Asia-Pacific midrange and upper-range hotel pricing to grow by between 1 percent and 6 percent.
In 2010, CWT anticipated buyers would further reduce the number of hotels accepted into their preferred programs and replace full-service hotels with limited or moderate properties. CWT expects rates--depending on when clients renegotiated their original 2009 contracts--to remain flat or decrease by as much as 8 percent.
Car Rental Dissent
The prognosticators offered the most variance on car rental rates: Amex predicted global prices would either decrease 1 percent or increase up to 2 percent, and CWT and NBTA estimated that rates in North America and the United States, respectively, would decrease between 1 percent and 3 percent. However, Advito reported that rental car rates would be flat or grow by as much as 4 percent.
Due to the rental car companies' ability to reduce fleets effectively, travelers will be offered fewer vehicle options--often settling for higher-priced models--and travelers will incur fleet costs, according to Brindley. CWT predicted decreases because car rental companies will be challenged with additional obstacles due to the bankruptcies of Chrysler and General Motors and service irregularities as a result of tighter fleets.
Actual Results May Vary
Forecasting, of course, is very challenging. Analysts and buyers are hoping this year's predictions come closer to the eventual outcome than last year's, when the recession hit in the middle of budgeting season. Subsequent lessons about the downturn's depth forced regular budget revisions.
Last year, Amex revised its original 2009 forecast, eventually predicting that North American domestic short-haul economy-class airfares could decline 3 percent or grow as much as 5 percent. But airfares bought by Amex clients during the first quarter of 2009 dropped 8 percent year over year (to $213) and in the second quarter fell 18 percent year over year (to $212).
International long-haul business-class airfares bought in North America were predicted by Amex to increase 1 percent to 6 percent, but such airfares bought in the first quarter of this year fell 12 percent on average (to $1,680) and in the second quarter dropped 19 percent (to $1,603) year over year.
CWT had anticipated 2009 domestic airfares would jump 8 percent to 12 percent year over year, and international fares would grow 16 percent to 20 percent. Currently, CWT predicts 2009 domestic airfares to remain flat for both economy and business class, while international economy fares will remain flat and business class will increase 3 percent to 5 percent in the fourth quarter of 2009.
CWT had expected overall hotel rate increases of 2 percent to 3 percent this year, but now expects further rate softening. During the second quarter of 2009, CWT said North American rates dropped 14 percent to $136, whereas rates outside Canada and the United States fell 20 percent to $159 from a year earlier.