As Asia/Pacific Demand Falls Short of Supply, Business Travel Costs Drop

Although the region is home to some of the priciest cities in the world, corporate travel costs are moderating across much of the Asia/Pacific region. Growing demand there struggles to keep up with a glut of hotel supply.

[Please click here to view the digital edition of the 2015 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf.]

Combined hotel rates and miscellaneous costs for 2014 declined year over year in 15 of the 22 Asia/Pacific markets measured by the BTN Corporate Travel Index, many of them by double-digit percentages. With the exception of Jakarta (up 7.2 percent)—which has seen strong business travel growth in recent years amid a strengthening economy and growing middle class—and New Delhi (up 5.5 percent), increases were about 2 percent or less. Overall, the average daily hotel cost in the Asia/Pacific region in 2014 was $184, down 14.7 percent from the 2013 CTI.

In its forecast for 2015, BCD Travel consultancy Advito noted that in emerging markets within Asia, "plentiful new rooms are applying downward pressure on rates and encouraging hotels to seek deals with corporate clients. Companies with well-managed programs can dictate some very attractive deals in the region."

As of January, STR Global reported 2,400 hotels totaling more than 540,000 rooms in planning stages or under construction. About a quarter of those rooms are in China; other countries with big hotel growth in the region include Indonesia, India and Malaysia.

While not measured by CTI, corporate travel costs also benefit from the proliferation of low-cost carriers across the Asia/Pacific. During the past 10 years, LCCs have increased their traffic share in the region from nearly nothing to 58 percent, according to Advito. Chinese officials also want to expand LCCs' current 7 percent local market share. Some LCCs, though, including Tigerair in Singapore and Qantas subsidiary Jetstar Asia, have curtailed growth as they struggle to keep pace with overall capacity growth in the region. The three largest U.S. carriers, meanwhile, have added several routes to the Asia/Pacific region, and Delta Air Lines is especially hard at work trying to develop a new transpacific hub in Seattle.

Hong Kong, despite some demand hiccups from pro-democracy protests in the second half of the year, maintained its status as the most expensive corporate travel market in the Asia/Pacific region and is the third-most expensive market among the 100 non-U.S. markets measured in the CTI. Combined hotel rates and miscellaneous costs there increased 0.9 percent year over year, and hotel rates alone are more than 75 percent higher than any other city in the region.

Average daily meal costs in Hong Kong are among the highest in the world, though still shy of Shanghai, which is cheaper than only inflation-plagued Caracas (see page 22). While Shanghai hotel and miscellaneous costs are average for the region and flat year over year, sky-high food costs propelled the city to fourth-most expensive Asia/Pacific market, compared with 10th last year.

In Marriott International's fourth-quarter earnings call, CFO Carl Berquist said his company projects continued strong travel demand in Shanghai this year and improving strength in Hong Kong.

Elsewhere in mainland China, combined daily hotel rates and miscellaneous costs declined across all cities measured in the CTI, including Beijing (down 5 percent), Shenzhen (down 3.1 percent), Guangzhou (down 8.9 percent) and Tianjin (down 1 percent). Beside rapid supply growth, travel demand in the country is still down thanks to government austerity programs that slowed corporate travel among state-owned enterprises, though business on that end picked up in 2014, Hyatt Hotels Corp. president and CEO Mark Hoplamazian said in the company's fourth-quarter earnings call.

Meanwhile, the United States and China in November reached a reciprocal agreement that extended short-term business and leisure visa validity from one year to 10, which could boost corporate travel traffic between the two nations.

"China obviously has seen some slowdown in broader economic growth, but it is still one of the highest-growing markets in the world," Hilton Worldwide CEO Christopher Nassetta said in the company's fourth-quarter earnings call. "We are still managing to drive pretty healthy growth there."

Tokyo and Seoul were the second- and third-most expensive cities, respectively, for corporate travel in the Asia/Pacific region. While corporate hotel rates in Tokyo declined significantly year over year, miscellaneous costs, which include such daily costs as taxi rides, are the highest in the region. Still, combined hotel rates and miscellaneous costs were down 15.7 percent there, the largest drop in the region.

That figure increased 2.3 percent in the Osaka-Kobe market. Advito noted that Osaka hotel corporate rate increases were among the highest in the region, along with Kuala Lumpur and Suzhou, China.

The Economist this month named Singapore the most expensive city in the world to live in, but prices in the city-state have moderated for business travel visitors. Its hotel rates are the second highest in the region, but overall daily hotel rates and miscellaneous costs declined 5.5 percent year over year in the CTI. As such, Singapore fell from the second-most expensive Asia/Pacific market for business travel in 2013 to fifth this year.

The two Australian cities in the CTI both saw large year-over-year drops in hotel rates and miscellaneous costs. In Sydney, they fell 14.4 percent, as the city dropped to the sixth-most expensive in the region in 2014 from third in 2013. Hotel rates and miscellaneous costs in Melbourne declined 13.2 percent year over year.

Combined hotel and miscellaneous costs declined significantly in Bangkok (down 12.2 percent), where the travel industry has continued to suffer from Thailand's political unrest. Overall, Bangkok dropped to the CTI's third-cheapest city in the Asia/Pacific region, while it ranked in the middle in 2013.

Corporate travel in India has struggled in recent years, with hotel rates plummeting amid slowing demand and significant hotel supply growth. While combined hotel rates and miscellaneous costs increased in New Delhi, they declined significantly in Mumbai (down 11 percent) and Bangalore (down 12.8 percent). Those two remained the cheapest for business travel in the Asia/Pacific, as they were in 2013. Mumbai's hotel rates have declined with new hotels opening in northern business districts, according to HRG's Hotel Survey 2015. However, Bangalore is experiencing a "modest rise" in hotel rates as demand picks up, and Hyderabad also is growing rates as the IT sector booms, according to the survey.

There are other signs of a turnaround. Former Starwood Hotels & Resorts CEO Frits van Paasschen, speaking on the company's fourth-quarter earnings call prior to his February resignation, noted that Prime Minister of India Narendra Modi, who took office in May 2014, had "brought a fresh focus on business generally and on tourism in particular." Starwood in March 2015 also temporarily relocated its global headquarters to India, repeating previous moves in Shanghai and Dubai.