Strong business travel demand, limited supply growth and booming economies in India and China will provoke supplier price increases and place new pressures on multinational corporate travel budgets, according to recent forecasts. American Express, for example, predicted that "an average international trip," including airfare and hotel costs, would be $180 more expensive next year, a nearly 5 percent annual increase.
As a result, Amex executives said they expect clients to promote online booking tools and other point-of-sale technology, prove an ability to shift share between suppliers, modify travel policies to include such controls as pre-trip approval, strive to influence traveler behavior and focus on relatively "under-examined" corporate meeting expenditures.
Globally, Amex projected as much as a 7 percent increase for published international business-class airfares next year, with particularly strong demand coloring the Asian, transatlantic and transpacific pricing environments. Earlier, BCD Travel predicted an overall 7 to 11 percent increase in "corporate airfares" for 2007.
Discussing how clients may respond to anticipated global fare increases, Mike Streit, Amex vice president and global leader for advisory services, said, "Their first focus will be around compliance to policy and tighter controls, which will be necessary if airlines reduce capacity, increase fares and work with more sophisticated yield and contract management technology." He also said companies would leverage regional and global volume to achieve more favorable contract terms with carriers, scrutinize airline market shares and shift share where appropriate, "arm themselves" with airline customer service performance metrics and encourage travelers to use more advance-purchase fares.
In lodging, BCD said it expects average daily room rates to increase 6 percent. "We do not anticipate relief until well into 2008 based on new construction projects and expected duration to completion," the travel management company said. It suggested room blocks in high-demand markets, changes to "tier strategy based on traveler patterns" and comparisons of "total cost of stay."
Looking at corporate meetings costs, BCD predicted up to 5 percent higher average group hotel rates--surging to 9 percent in popular meetings destinations--and an 8 percent jump in food and beverage costs.
The Amex hotel forecast detailed expected changes in room rates from marginal to as much as a 25 percent increase. "Skyrocketing demand for hotels across all regions will continue to give hoteliers more control over negotiations, with few downward pressures available to stabilize pricing," the report stated.
"While corporate discounts will still exist, they will be based off of higher corporate and rack rates," Streit added. "Corporations are introducing more hotels into their portfolio mix that will offer more competitive rates and amenities to level out playing field."
In terms of car rental, Amex anticipates rate increases in most regions. BCD projected an average 5 percent to 7 increase for 2007.
"We expect corporate demand for car rental to remain roughly stable or increase slightly," said David Balfour, senior practice manager for car within Amex advisory services. "In this environment, it's critical for buyers to have agreements in place with car rental companies, because businesses that buy off the market typically pay a much higher price."
Asia-Pacific
Not surprisingly, American Express said the most significant hotel room rate increases would be in India. Describing them as "disproportionate," Amex estimated a 20 to 25 percent jump for both mid-range and upper-range hotel rates, as demand far exceeds supply.
Both China and Hong Kong may see upper-range hotel rates rise by as much 11 percent, with more moderate increases expected for mid-range properties. The same would be true in Australia and Singapore, where higher-end rate increases of as much as 8 percent would outpace estimated mid-range increases, Amex said. Japan is the outlier market with only marginal increases--or decreases--anticipated for hotel rates.
On a regional level, BCD predicted Asian and Indian room rates would grow between 14 percent and 17 percent.
Meanwhile, for most Asian markets, Amex said both short-haul economy and long-haul business class price increases would range up to 6 percent. "Full-service carriers continue to invest in product upgrades to retain the high-yielding corporate traveler, while shedding other operating costs," Amex said. "These developments will generally manifest themselves as upward pricing pressure."
American Express this week also released survey results specifically addressing corporate travel in China. Based on responses from 200 Chinese and foreign-owned companies operating in the country, Amex said one-third anticipate higher T&E expenditures in 2007. Overall, Amex said corporations in China spent $7.4 billion on air travel in 2005, ranking the country as the world's fourth largest business travel market--lagging only Germany, Japan and the United States.
Europe
International long-haul business-class airfares in Europe generally are expected to increase by as much as 4 percent, according to Amex. Domestic short-haul economy class fare increases are expected to be more modest, at just a percentage point or two, as low-cost competition intensifies. Domestic economy fares in Germany could even decline next year, Amex said.
European hotel rates, especially at upper-end brands, are likely to increase more rapidly, owing to "significant business demand and higher occupancy rates." Some key business markets could experience double-digit increases in average daily rates.
Hotel companies recently corroborated that outlook and noted strong European revenue trends during the third quarter. Hilton, Marriott and Starwood each reported average daily rate growth in the double-digit percentages for the United Kingdom and Continental Europe.
In other categories, Amex expects European car rental firms to "remain much more competitive than in the U.S.," and raise rates between one percent and 3 percent. BCD anticipates more rail options available through global distribution systems, "allowing travelers to comparison shop between rail and air for the most cost-effective mode of transportation."
The Americas
According to the Amex forecast, average daily hotel rates in 2007 throughout the Americas will rise between 2 percent and 8 percent as travel volumes continue to grow, with expected increases in the United States and Argentina at the higher end of the range. In some U.S. business markets, notably New York, ADRs may spike by high double-digit percentages. BCD projected a more significant increase in Latin American average daily rates, between 13 and 16 percent.
Expected airfare increases will be larger in South America, where long-haul business class tickets could run as much as 9 percent above 2006 levels in Argentina and Brazil, Amex said, citing improving economic conditions.
In the United States, domestic economy fares may rise as much as 6 percent, Amex added. "More low-cost fares and a tighter focus on corporate policy compliance will be balanced by reduced capacity and continued industry consolidation," the company said. International business-class fares are expected to climb by as much as 4 percent.
Meanwhile, in Canada, preliminary findings from a Canadian Alliance of Business Travel survey suggested that a vast majority of travel buyers polled anticipate increased business travel expenditures in 2007. For example, more than half said they are raising hotel budgets.