Latin America's Business Travel Volumes, Costs Moderating

Latin American travel demand trends during 2012 remained robust but now are moderating as certain economies, notably Brazil's, show signs of slowing. But business travel still is growing in the region, which overall continues to be one of the world's fastest-growing aviation markets.

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With such demand trends, it's no surprise that business travel costs keep rising, even if at a slowing pace. Per diems covering hotel and food costs are higher than those of the prior year in 12 of the 14 Latin American markets in the 2013 Corporate Travel Index (including currency fluctuations).

Hotel rates in particular are increasing. Several travel managers and travel agency executives reported that 2013 negotiated rates spiked again by double-digit percentages. And in this year's Index, 13 of 14 markets have higher daily hotel costs than they did a year earlier. The largest increases were in Quito (25 percent), Caracas (21 percent) and San Salvador (16 percent).

'A Collection Of Countries'

But Latin America "is now largely behaving more like a collection of countries than a region," said Starwood Hotels & Resorts CEO Frits van Paasschen during a February conference call.

Starwood CFO Vasant Prabhu added more color: "It is a tale of three countries: Mexico, Brazil and Argentina. Mexican growth is accelerating as crime falls a bit, there's optimism around the new government and the wage rate differential with China narrows. Business travel in Mexico is up. We expect Mexico to be the engine of Latin American growth for us in 2013. At the spectrum's other end is Argentina. The inflation/devaluation gap is hurting Argentina's competitiveness and hitting exports and travel. This is only likely to get worse until a devaluation resets the equation. Brazil hit a soft spot as China slowed but is now recovering."

Marriott executives during a February conference call also noted intra-region variances: strengthening lodging demand in Mexico and the Caribbean, slower economic growth in Brazil and weaker hotel revenue trends in Panama brought on by new supply.

Overall, Carlson Wagonlit Travel is seeing transaction volumes in the region level off after rapid growth in 2012. "This year, in January and February, we are seeing a soft beginning—3 percent or 4 percent better than last year," said Andre Carvalhal, the TMC's regional general manager for Latin America and president for Brazil. He expects overall transaction volume in Latin America to grow by 5 percent to 7 percent for the full year.

Carvalhal said Peru and Chile, boosted by the mining industry, are performing well, as is Mexico and Colombia. But in Brazil, "the year has started very slowly."

Data from this year's Index shows the dichotomy. In Brazil, Rio de Janeiro's per diem is down 5 percent (due to almost no growth in daily hotel costs and a 15 percent drop in food costs) and São Paulo's is up by less than 1 percent. Panama City's per diem is flat versus the prior year, and while Buenos Aires overall has a per diem that's up more than 7 percent, its daily hotel cost is flat. At the same time, Mexico City's per diem is up nearly 6 percent, including 3 percent higher hotel costs.

"Brazil may not be growing as quickly as two years ago, but it remains a priority growth market, whilst Colombia and Peru are certainly markets we will watch closely during 2013," according to a January report from HRG. "We expect the Latin American hotel sector to remain bullish, particularly as it positions itself as a top large-scale event location."

CWT's Carvalhal cited an imbalance between increasing hotel demand and constrained supply, a situation that will lead to more hotel rate hikes. "In general, the investments still are behind the needs of our market, especially in Brazil," he said. "I don't see that getting balanced for the next five years or so."

'Stable' Air Pricing

Though airline pricing is not included in Index per diems, air traffic trends are informative. During the first two months of 2013, American Airlines, Delta and US Airways reported higher year-over-year traffic increases on Latin American routes than for any other region.

In a January report, Buckingham Research Group said airline capacity growth on U.S.-Latin America routes is up about 4 percent during the first quarter of 2013—"in line with overall demand growth in the region" and trailing only growth on U.S.-Asia routes.

"The capacity backdrop," Buckingham analysts added, "suggests overall pricing will remain stable to the region."

Carvalhal predicted 2013 fare increases between 3 percent and 6 percent—about the rate of inflation expected in the region—pressured upward by airline consolidation.

Up North, Prices Up

In Canada, Calgary again was the most expensive among the five largest business centers. The nearly 14 percent jump in daily hotel costs (including currency fluctuations) nearly was triple the rate of growth for hotel costs in the next most-expensive city for lodging, Toronto. Overall, Toronto again was the second-most expensive Canadian city included in this year's Index, with its overall per diem boosted by a 7 percent increase in the average daily food cost.

All Canadian markets this year have higher overall per diem costs than last year. Montreal, with the smallest increase at 1.8 percent, dropped to fifth most expensive from third a year ago.

Moving forward, 43 percent of 76 Canadian organizations polled in January and February expected their business travel volumes to increase this year versus 2012, with another 28 percent expecting volumes similar to 2012. The 29 percent who expected lower business travel volumes is much higher than the 11 percent who had indicated as such in the same poll a year earlier, conducted by the Association of Corporate Travel Executives and the Conference Board of Canada. In aggregate, respondent organizations expected a 0.6 percent rise in 2013 business travel volume.

Respondents on average expected 2013 business travel budgets to increase 1.6 percent versus last year, most commonly due to higher travel prices and more international travel. On average, they expected their domestic hotel rates to increase 1.4 percent and car rental rates to inch downward 0.2 percent. Airfares are expected to increase about 2 percent.

This report originally appeared in the March 18, 2013, issue of Business Travel News.