Amex Sees European Airfare, Hotel Rate Declines To Slow
Airfares for European buyers are likely to continue falling until the third quarter of this year, when fresh capacity cuts will steady the price decline, according to American Express. Amex believes that drastic cutting of hotel rates, which started in the fourth quarter of 2008, will start to flatten during the current second quarter.
American Express Business Travel made the predictions as the company released its Business Travel Monitor for the fourth quarter of 2008, which showed average full economy fares for Europeans to all destinations were 4.5 percent lower than in the fourth quarter 2007, while lowest economy fares—the most heavily discounted fare buckets—were down a much steeper 11.1 percent. Full business-class fares climbed marginally by 0.4 percent but lowest business-class fares fell 2 percent.
In the hotel market, the median rate paid by Amex customers in 40 cities in Europe, the Middle East and Africa plummeted 18.8 percent, with rates declining in every destination other than Abu Dhabi.
American Express Business Travel EMEA director of advisory services Prashanth Kuchibhotla expects the downward trend for both air and hotel prices to run out of steam. With regard to airfares, he said, "Corporates are in good shape for six months, but it cannot last much longer. There is a steady stream of aircraft being parked in the desert."
The biggest fare decreases in the fourth quarter of 2008 were on transatlantic routes, down 15.9 percent for lowest economy tickets. In contrast, fares to Asia held up well, but Kuchibhotla does not think this situation will last, because economies in the Far East also have started to slow. "I expect Asia to follow the downward trend in Q1 and Q2," he said. "There is typically a nine-month delay between bad economic news and fares falling."
On all long-haul routes from Europe, lowest business fares have fallen 3 percent but full business has grown 4 percent. Amex attributes this to full business being a more captive market that is less price-sensitive.
All the fares quoted above do not include surcharges, mainly for fuel. According to Amex, these did not fall significantly in the fourth quarter despite oil prices falling by more than half. In consequence, surcharges the quarter, when compared with the fourth quarter of 2007, ranged from 39.2 percent higher for full business to 54.3 percent higher for lowest economy.
"The reality is that most travelers paid more for their tickets at the end of 2008 than they did at the beginning—and the reason was higher surcharges," said the Business Travel Monitor report.
On the accommodation front, Amex reports that rate cuts are deepest in cities exposed heavily to the finance, tourism, construction and manufacturing sectors. The biggest falls in Q4 were in Madrid and Barcelona (both nearly 30 percent), Dublin (29 percent), Amsterdam (25 percent), Stockholm (22 percent) and London (20 percent). Amex expects corporate rates to start leveling off during the second quarter in most countries, one of the exceptions being Germany, where once again the decline started later.
Kuchibhotla said that many corporate buyers are taking advantage of low occupancies to renegotiate with hotels but urged them to offer suppliers a quid pro quo. "If they follow a hard-nosed approach with hotels, they may get €20 off the rate, but it will not help long-term relationships," he said. "Travel managers need to work with their travelers to move the traffic into those properties."