North American corporate airfares and hotel rates in 2011 generally will increase as rental and chauffeured car costs decrease, according to Carlson Wagonlit Travel. The travel management company this week issued its 2011 forecast, which also predicted per attendee meeting costs next year could jump by double-digit percentages.
The forecast was published against a backdrop of strengthening corporate travel and meetings demand. CWT said it handled 13 percent more transactions globally in the first half of this year versus the first half of 2009. Transactions increased by 18 percent in North America; 8 percent in Europe, Middle East and Africa; 44 percent in Asia Pacific; and 48 percent in Latin America. Nevertheless, "business travel has not yet returned to pre-recessionary levels, and it remains to be seen whether it ever will," according to CWT North America president Jack O'Neill. "As a result, it is tough for travel buyers who must begin budgeting, often without full visibility across their own organization or a crystal ball for corporate travel influences."
In the first half of 2010, CWT corporate clients that annually spend at least $500,000 on airline tickets experienced an average 18 percent increase in total air spending versus the same period in 2009. For 2011, CWT projected that international airfares purchased in North America would increase next year by 3 percent to 5 percent for both economy and business class, and by 4 percent to 6 percent for first class. In the domestic U.S. market, CWT anticipates a 3 percent to 5 percent increase for economy airfares. "Air suppliers are feeling positive about the future, with optimism fueled by their efforts in capacity reductions, as well as airline pricing strategies that limit the availability of the cheapest inventory types," according to CWT. The TMC also cited higher crude oil prices.
"The domestic front-cabin story is unlike years past," CWT continued. In 2008 and 2009, according to its report, volumes in domestic first/business class dropped and prices jumped "as price-sensitive customers dropped out of the market. The current economic recovery will lead to increased demand and a return to more normal volumes in the front-cabin segment in 2011." As such, CWT predicted as much as a 7 percent year-over-year drop for premium domestic airfares in 2011.
In terms of negotiations, CWT noted that "timing is typically ideal" during an economic recovery, as organizations have growing volumes that can be shifted to preferred suppliers in exchange for more favorable contracts. However, CWT cautioned that airlines--after a few years of huge financial losses--"are eager to recoup some of that loss. Not all proposals in the past months have resulted in an improvement; in some cases, initial discount proposals from airlines have actually suggested considerable net losses." The TMC also noted that "some carrier goals have been exceedingly aggressive," with one example of an undisclosed airline "requiring its customers to pay back their savings if they don't meet the goal requirements. Airlines are making it clear they are increasingly focused on goal performance."
Hotel Pricing Up, Ground Transportation Down
For lodging, CWT predicted a 6.4 percent to 7.4 percent increase in the average daily rate at U.S. hotels in 2011 and a roughly 5 percent increase at Canadian hotels. "While results always vary by market, CWT anticipates many hoteliers will apply pressure to gradually raise prices in an effort to return to 2008 levels as quickly as possible," according to the TMC. "Hotels in high-occupancy markets will have the most success with rate hikes."
To combat rate increases, CWT offered several suggestions, including finalizing 2011 rates as soon as possible, because "hotels will be less likely to negotiate rates as they see occupancy rates rise and the economy recover." It also suggested that two-year agreements, which hoteliers often favor to lock in business, "are a good way for travel managers to hedge costs before the recovery is complete."
On the ground, CWT anticipates for 2011 generally lower pricing (except for rail tickets, which the TMC predicted could rise as much as 7 percent). It forecast a modest 1.5 percent to 2 percent decrease in rental car rates and noted that "the commercial marketplace, which is based on long-term pricing, remains competitively priced to earn and keep corporate business. This trend is likely to continue into and throughout 2011." CWT also suggested that an acquisition of Dollar Thrifty by either Hertz or Avis Budget won't likely affect the corporate market "as [Dollar Thrifty] is not a major supplier in the space today."
For black cars and limousines, CWT predicted a 3 percent to 5 percent drop in pricing for 2011.
Meetings Activity Heating Up
The largest forecasted percentage increases in CWT's report is for meetings and events, an area in which activity has increased in 2010 and momentum is expected to carry through 2011 and beyond. "The Middle East has experienced quick recovery and is expected to see activity return to pre-2009 levels by the end of 2010," according to the report. "The Asia-Pacific region anticipates a full recovery by 2010-2011, Europe and North America by 2012-2014."
For the first half of 2010, per-attendee, per-day costs among CWT Meetings & Events clients increased 13 percent, and the TMC expects another year-over-year increase next year between 7 percent and 11 percent. It cited fewer hotel openings, fewer meetings and event suppliers (such as "providers of lighting, staging, audiovisual, food and beverage, etc."), and more meetings planned further afield after many organizations in 2009 kept events closer to home. CWT also noted a trend toward fewer cancellations than in recent years, which results in "fewer distressed property opportunities for M&E buyers."
Overall, CWT anticipates that M&E spending in 2011 on average would equate to 1.9 percent to 2.3 percent of an organization's revenue. "Once M&E activity returns to a volume similar to pre-recession levels, CWT is forecasting M&E spend to average 2.6 percent to 2.8 percent of revenue."