Given the wide variance between business travel industry cost predictions for 2009, it will be interesting next year to assess which forecasters came closest. The latest projections--issued separately in the past few weeks by the National Business Travel Association and corporate travel management firm Egencia--exemplify just how cloudy crystal balls may be this year, amid uncertainties around the economic climate and worsening business travel demand trends.
NBTA expects generally higher airfares and hotel rates, while Egencia's forecast calls for lower or much lower prices. In addition to intensifying challenges for business travel suppliers, another factor leading to the disparity in predictions is timing, perhaps more so this year than in any other. The later a prognosticator releases its report, the more time it had to digest the most recent, volatile market conditions.
Among the latest indicators, Travelport and the Airlines Reporting Corp. each reported steep declines in transactions. Travelport GDS reported a "serious" and "increasing" slowdown as a result of economic conditions, with segments booked between Oct. 1 and Nov. 11 down 16 percent overall. Travelport Ltd. CEO and president Jeff Clarke during a conference call with analysts last week noted an accelerating decline as overall segments booked during "the last couple weeks" were down by more than 20 percent.
According to ARC, total U.S. travel agency sales in October dropped by more than 11 percent versus a year earlier on 15 percent fewer transactions. Domestic and international sales each were down by double-digit percentages versus October 2007.
Meanwhile, the International Air Transport Association said global premium airline traffic in September declined 8 percent, the fourth consecutive month of slowing global premium volumes. "The sharp fall in business travel coincided with a steep decline in the confidence of manufacturing businesses in Europe, Japan and the U.S.," according to IATA. The drop-off in financial-sector traffic contributed to a 2 percent decline in premium passengers across the North Atlantic, a market that had previously showed continued growth. Given worsening economic conditions in October, IATA expects "a further substantial decline in premium travel."
Despite weakened corporate demand, some expect the trends of rising airfares, hotel rates and other travel costs to continue into 2009 as suppliers attempt to cut supply or otherwise improve their financial positions. NBTA said 147 travel managers surveyed between Sept. 15 and Oct. 21 "project an increase of 5 percent to 8 percent for business travel costs in the coming year."
But Egencia expects "a moderation in business travel pricing" across 20 key U.S. cities. "Shrinking demand combined with a number of other factors will cause average airline ticket prices and hotel average daily rates to remain flat to slightly down for businesses and business travelers in these important business cities," said senior vice president of North America Rob Greyber. Egencia also suggested that it is "likely that key business markets will experience less capacity compression than average because airlines want to hold share among business travelers."
Egencia's city-specific price forecasts, in some cases, are more pronounced than "slightly down." The largest average ticket price reductions are predicted for Atlanta (down 12 percent to 16 percent), Seattle (down 10 percent to 14 percent) and Denver (down 9 percent to 13 percent). Other markets with cuts expected to possibly reach double-digit percentages include: Boston, Dallas, Houston, Minneapolis, New York, Philadelphia and Washington.
Egencia is not alone in preparing clients for potentially lower U.S. airfares. American Express North America vice president of Global Advisory Services Frank Schnurlast month said that "there is a good likelihood we'll see a reduction in domestic economy fares." Amex predicted such fares could shrink by as much as 3 percent year over year or grow as much as 5 percent, while long-haul, business-class fares could increase between 1 percent and 6 percent.
Speaking this week at an Association of Corporate Travel Executives meeting, Bob Harrell of Harrell Associates said domestic U.S. airfares in 2009 "will probably drop 7 percent." While leisure fares likely would show a noticeable decline, "business fares will resist this change, down maybe 1 percent or 2 percent," he said.
A recent report by AirlineForecasts predicted average fares next year could fall as much as 12 percent, according to Travel Weekly. AirlineForecasts cited lower oil prices and weak demand.
On the other side, NBTA predicted U.S. airfares would rise 7 percent to 10 percent in 2009 (with total air costs possibly up another 5 percent, given ancillary service fees). For the first quarter of 2009, NBTA projected the average domestic airfare would be $354, higher than levels recorded in 2001. Others predicting higher airfares for 2009 included Carlson Wagonlit Traveland BCD Travel consulting arm Advito.
In the lodging sector, NBTA forecast rates to rise 1 percent to 4 percent. Fifty-percent of its survey respondents said the current environment is "not yet" a buyer's market, "despite the current economic situation."
CWT previously said corporate buyers overall "should expect to see [hotel] rate increases of 2 percent to 3 percent but with more leverage in 2009 negotiations compared to recent years." Amex said midrange hotel rates in North America could decline slightly or increase as much as 6 percent, while upper-range hotel rates could drop as much as 2 percent or rise by more than 4 percent. Advito anticipated that corporate hotel rates for 2009 generally would increase by 4 percent to 8 percent globally, with average North American rates remaining flat or growing up to 3 percent. Such high-demand U.S. cities as New York and Houston could see rates rise by 6 percent, Advito said.
Egencia's hotel forecast noticeably diverged from those previous reports, with predictions of average daily rate cuts for most major U.S. cities partly due to falling demand, new supply and airline capacity cuts that "will bring fewer business travelers to some markets and add to downward pressure in pricing." The TMC's largest predicted declines are for Chicago (down 8 percent to 12 percent), Phoenix (down 7 percent to 11 percent), and New York and San Diego (each down 6 percent to 10 percent).
Meanwhile, NBTA and Egencia predicted only minimal changes for corporate car rental rates.
In terms of 2009 travel demand, 62 percent of 200 decision makers surveyed by Egencia in mid-October expect no change to their travel budgets. More (27 percent) anticipated larger 2009 travel budgets than those preparing for smaller ones (11 percent).
NBTA concluded that "the number of business trips will continue to expand but at a slower pace than the annual growth from 2004 through 2007."
For such expectations of modest growth in business travel to come to fruition, the industry would have to reverse the declining trend now underway. The 16 percent decline in transactions observed by Travelport GDS between Oct. 1 and Nov. 11 included a 15 percent drop in the Americas, about 20 percent in Asia and 16 percent in Europe, the Middle East and Africa, according to executives. Online travel agencies are making about 7 percent fewer bookings than a year ago, with global accounts down more than 20 percent and regional accounts down about 18 percent. "These numbers are as much of a decline as we have measured in many periods, and they are quite serious," Clarke said.
In the three months ending in September, segments booked by the Apollo, Galileo and Worldspan global distribution systems fell 10 percent compared with the same period in 2007, Travelport said.