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BCD Travel's Advito consultancy anticipates across-the-board increases for global business travel costs in 2009, generally ranging from 4 percent to 8 percent. "The rising price of food and commodities is having a noticeable effect on travel and entertainment budgets," Advito added in its 2009 industry forecast, issued today. "With the cost of meals, taxis and the like increasing, expense claims have started to inch upwards. A view of the total cost of travel is therefore essential."
Advito also noted that currency fluctuations and "local inflationary effects" complicate business travel budgeting and create further challenges for organizations considering how to best operate in a slowing global economy. Therefore, many are "focusing more closely on cost control and demand management," the group wrote in its report.
Looking specifically at air transportation, Advito projects that worldwide net airfares in 2009 will rise between 6 percent and 8 percent over 2008 levels and new fees on passenger services will push costs even higher. Primary factors providing upward pricing pressure include capacity reductions and fuel costs. While lower than the record highs this summer, crude oil prices still are running well above 2007 levels, and Advito's forecast assumes 2009 crude oil prices to range between $110 and $130.
"In the past, mainline carriers argued that there was too much capacity and that was the justification for lowering their fares," according to Advito vice president Bob Brindley. "Yet if load factors are at 85 percent to 90 percent, it is hard to argue there is too much capacity. They were really arguing that prices were low."
In any case, diminished capacity, according to Advito, means higher absolute fares as well as "reduced availability of lower fare types, forcing the traveler to buy higher fares."
Advito also expects corporate fares to increase into 2009 as airlines move away from guaranteed fares in favor of discounts off rising published fares, "particularly in Europe."
In Europe, intra-regional airfares are projected to rise 3 percent to 5 percent while intercontinental fares grow as much as 7 percent. In Asia-Pacific, Advito anticipates that intra-regional airfares would edge upward between 2 percent and 4 percent while intercontinental fares increase by 7 percent to 9 percent. The biggest regional airfare increases are predicted for North America and Latin America, with intra-regional and intercontinental fares jumping as much as 10 percent, year over year.
[By comparison, Carlson Wagonlit Travel said it expects international airfares in 2009 to jump as much 20 percentand domestic U.S. airfares to increase as much as 12 percent.]
Other factors potentially pushing fares higher, according to Advito, include mergers (evidenced in the recent past by price hikes between Germany and Switzerland after Lufthansa bought Swiss International Air Lines) and deeper alliance coordination (possibly providing organizations with fewer contracting options).
But Advito also suggested that airlines could raise prices only so far. "As carriers continue to push through increases in fuel surcharges and base fares, more and more corporations will be forced to tighten their budgets," according to Brindley. "If corporate business starts to dry up, there will be pressure to relax some of those price increases."
In the lodging sector, Advito's forecast calls for a global average rate increase of 4 percent to 8 percent, "just around the rate of inflation." Despite what it described as "softening demand" and " an easier negotiating environment," the consultancy said "rate cuts are unlikely, in part because of the sophisticated revenue management systems put in place in recent years."
By region, Advito predicted that North American rates would increase up to 3 percent, with higher year-over-year changes in certain high-demand markets (including up to 6 percent in Houston and New York). According to the forecast, European rates in 2009 would rise 4 percent--with bigger increases in Milan (6 percent), London (8 percent) and Moscow (12 percent)--while Latin American rates jump between 10 percent and 15 percent.
The largest average increases would be seen in Asia-Pacific (10 percent to 20 percent) and the Middle East/Africa (as much as 25 percent). "Hotel rates in India and China, markets which have overheated in the past two or three years, will continue to rise but less strongly, as a steady stream of new properties opens up in the coming year," Advito said.
On the ground, car rental rates are forecast to increase 3 percent to 4 percent globally, with significant regional variations. For example, in Europe, Advito projected that rates would remain flat in 2009 "due to fierce competition between the major suppliers," but pricing in Asia-Pacific will be noticeably higher next year.
Overall, poor economic conditions and weaker demand suggests that many organizations will be in a favorable negotiating position with car rental firms, Advito indicated. "Previously, only the big corporations could get multiyear deals but we see more deals being struck now with a wider range of customers," according to senior director Bill Knepper. "Buyers want to lock in a good rate, and suppliers want to protect their volumes."
In terms of executive car services, especially in New York and London, buyers "should be in a better bargaining position" as suppliers suffer from severely weaker demand from financial institution clients.
Meanwhile, rail travel costs again should "vary widely from market to market," Advito suggested. However, changes in the regulatory environment for rail means that Europe will become "an easier place to negotiate for buyers."
On the meetings front, Advito predicted corporate costs in 2009 would increase 4 percent to 8 percent--similar to transient travel cost trends. "Despite the softening economy, competition for good meeting space will still be strong and the seller's market in the meetings space will continue."
Noting "significant variation" in meeting costs between high- and low-demand markets, Advito suggested that "planners should also consider broadening out their sourcing to a wider range of venues outside their existing preferred suppliers. Deals do still exist, and may help increase negotiation leverage. Hotels may be prepared to offer deals on audiovisual, meetings space rental or on food and beverage, as long as they feel comfortable with the room rate."
Advito said it published its 2009 forecast despite an uncertain macroeconomic situation. By contrast, American Express last week delayed its forecast"due to the unprecedented activity in the financial markets," and now expects to release its report in the coming weeks. But like Advito and CWT, Amex generally expects higher corporate travel prices next year.
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