Dysfunctional Economy & Currency Propel Cost Confusion in Caracas

As Venezuela confronts governmental dysfunction, currency distortion, runaway inflation and price declines for oil, its primary export, the average daily cost to conduct business travel in its capital city, Caracas, has skyrocketed, based on BTN Corporate Travel Index data.

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

The cost for a hotel room night in the city translated to $690 when converted at the official exchange rate from the native bolivar currency. Add in miscellaneous travel expenses of $210 and three meals a day coming in at $425, and the $1,325 travel per-diem rate documented for Caracas in BTN's annual report far exceeded that of any other city in the world.

Travel per-diem pricing for the remaining Latin American cities in the Corporate Travel Index come back to earth. To illustrate, there is nearly a $1,000 per-diem difference between Caracas and the second-most expensive non-U.S. city in the Americas, Lima, Peru.

While pricing across South America fluctuates based on varying local supply/demand profiles and national currency exchange rates, 2015 travel pricing forecasts produced by major travel management companies anticipated an uptick in hotel rates, which consistently form the largest on-the-ground travel expense.

Regarding this year's largest outlier, astoundingly high travel costs in Caracas are more a function of inflation and foreign currency translation than anything approaching surging travel demand. In fact, recent moves by the Venezuelan government to restructure its currency exchange system further blurred the actual costs of doing business there.

Venezuela's 68.5 percent inflation rate in December "marked the highest inflation rate since 1996" for the nation. That compares with a 40.6 percent rate for the prior-year period, according to FocusEconomics, which aggregates economic data and provides analysis on nearly 100 countries.

FocusEconomics attributed consumer price inflation increases in Venezuela primarily to higher prices in "alcoholic drinks and tobacco, restaurants and hotels, as well as for food and non-alcoholic drinks," according to analysis published in February.

Not that an influx of business travelers are flocking to Venezuela or its center of business, Caracas. Even before the Venezuelan government in early March tightened visa restrictions for incoming U.S. visitors, the U.S. Department of State had issued travel alerts warning of high murder and kidnapping rates. Further, international airlines, including U.S. carriers that have operations in the country, last year moved to gut flight capacity amid a dispute with the socialist government regarding the repatriation of earnings.

Demand issues aside, consumer and travel pricing in Venezuela this year has become even more confounding. In February, the Venezuelan government modified the tiered rate structure of its currency system, introducing "a new mechanism called Simadi that allows for legal trading of the bolivar," noted FocusEconomics. "Venezuelan authorities are hoping that Simadi will help ease dollar shortages and counteract widespread black market activity in the country."

That adjustment has further distorted pricing for foreign travelers. For example, Bloomberg in February reported that the new rate, which would be applied to transactions on a foreign credit card, exchanged at 172 bolivar to the U.S. dollar. Compare that with another rate exchanging at 50 bolivar to the dollar at the time of the report. While Corporate Travel Index data suggest a business trip to Caracas would be terribly expensive, Bloomberg reported that, at the new exchange rate, "a room at the five-star Marriott hotel in Caracas is $60."

Quoted in the Bloomberg report, Barclays economist Alejandro Arreaza said, "At one rate Venezuela is the most expensive country in the world and at the other it's the cheapest. Both of them are ridiculous."

Ridiculous or not, inflation in Venezuela is expected to hang in the stratosphere this year, even if official estimates are questionable. "Per its 2015 budget, the Venezuelan government expects inflation to range between 25 percent and 30 percent in 2015," noted FocusEconomics, whose panel of regional economic analysts made a less rosy projection. They expected inflation to hit 66.3 percent by the end this year and reach 79.6 percent in 2016.

While a methodology change to food-price calculations in this year's Index make direct year-over-year comparisons in overall per diem difficult, Caracas in the 2014 study faced similar currency and inflation headwinds, with a $611 total per diem, even then the highest in the region.

Elsewhere in South America

Rio de Janeiro in last year's Index followed Caracas as the second-most expensive city in the Americas outside the United States but this year ranked sixth, with a per diem of $316. Hotel prices in the city, which can be compared to CTI's figures from a year ago, fell to $190 from $248 when converted into dollars for each respective period.

HRG in its 2015 Hotel Survey released in February suggested that a decline in Rio de Janeiro hotel rates would be expected because it is experiencing the "aftereffects" of hosting major world events, including last year's FIFA World Cup.

BCD Travel's Advito consulting unit in December 2014 projected hotel rates across Brazil to rise by up to 8 percent this year from 2014 levels, though American Express Global Business Travel in its 2015 forecast released in November 2014 did not anticipate growth, citing for Brazil "concerns that there will be a slowdown economically, and prices are expected to remain steady."

Across all of Latin America, hotel rate growth "continues to be strong," Advito noted in its 2015 forecast. Advito projected rates across Latin America to rise between 5 percent and 7 percent year over year in 2015. A 2015 pricing forecast jointly produced by Carlson Wagonlit Travel and the Global Business Travel Association braced for a similar rise. "Inflation in hotel prices in Latin America will be the most aggressive in the world as prices are set to soar 6.3 percent in 2015," their forecast noted, citing strong business travel demand and limited hotel room inventory.

American Express Global Business Travel concurred: "Demand from U.S. companies with manufacturing facilities in Latin America will likely help create a seller's market and contribute to mid- and upper-range hotel property increases across the region," the forecast noted. "With reduced supply compared to demand in many cities, prices at business-focused hotels are expected to rise."

Meanwhile, In Canada

Each of the five Canadian cities represented in this year's Corporate Travel Index—Calgary, Montreal, Ottawa, Toronto and Vancouver—witnessed a year-over-year decline in hotel rates, as converted each year into U.S. dollars. On average, among Canadian cities, the hotel rate captured in this year's Index fell to $156 from $195 in last year's study.

Calgary came in as the most expensive Canadian business travel market with a US$319 per diem.

HRG in its 2015 Hotel Survey reported year-over-year daily hotel price declines in Vancouver, Montreal and Toronto, as pricing, represented in Canadian dollars, was impacted "by new bed stock."

CWT and GBTA in their forecast for 2015 anticipated hotel prices across all of Canada to rise in 2015 by a mere 1 percent year over year "as room demand struggles to advance."

This report originally appeared in the March 16, 2015, issue of Business Travel News.