Corporate travel buyers sense an improving economy and a healthier travel industry, leading to higher airfares, hotel rates and car rental prices, and more challenging supplier negotiations amid growing demand. Drawn from survey responses of 170 direct National Business Travel Association members collected last month by the NBTA Foundation, these and other findings add to mounting evidence of a general corporate travel recovery.
Stemming from a combination of larger travel volumes and rising fares and rates, survey respondents--all from North America, representing a cross-industry sample--anticipated that total 2010 travel spending at their organizations would be up from last year by an average of 5.5 percent, according to the NBTA Foundation. For 2011, buyers on average projected an average 4.45 percent year-over-year increase.
American Express also recently issued projected 2011 cost increases--ranging from 2 percent to 10 percent for airfares around the globe, and 1 percent to 10 percent for hotel rates--and also predicted tougher rate negotiations.
According to the NBTA Foundation research, international travel spending is a primary contributor to overall spending growth, with an average annual increase among the survey base of 13 percent in 2010 and 11.4 percent in 2011. That compares to average domestic spending increases of 2.5 percent this year and 1.5 percent next year. As a share of total spending, international travel on average is expected to increase from 28 percent in 2009 to 32 percent in 2011.
The most cited factor behind the expected overall travel spending growth was higher rates/fares (67 percent), followed by increased airline fees (64 percent) and more trips (51 percent). Respondents also pointed to increased hotel fees (32 percent), increased car rental fees (18 percent) and higher food costs (16 percent). "Thus, inflationary pressures are certainly being felt by travel buyers," according to the NBTA Foundation.
Respondents anticipated higher airfares in 2010 over 2009, and again in 2011 over 2010 for domestic journeys (4 percent and 4.5 percent, respectively), and for both international economy and business-class tickets. Higher airfares, according to researchers, are "likely due to reductions by airlines in capacity over the past three years and a rebound in business travel this year." The report cautioned that average airfare projections ($460 this year and $481 next year for domestic flights) "do not include ancillary fees, which may increase the total cost of air travel by one-third."
Based on 2010 client transaction data across 22 countries and projections for overall business travel spending, American Express for North America points of sale predicted a 2 percent to 6 percent increase in 2011 short-haul tickets (economy fares) and a 3 percent to 7 percent increase for long-haul tickets (business class). "Clearly, the average [airline] ticket price has been going up because published prices are going up, but also the lack of availability of the promotional fares," according to American Express Global Advisory Services Group director of research and media Christa Degnan Manning. "It absolutely has to do with capacity constraints. Prices have already gone up dramatically in 2010."
For 2011 North America hotel rates, Amex projected a 1 percent to 5 percent increase for mid-tier properties and a 2 percent to 6 percent increase for upper-tier properties.
Meanwhile, the $1 decrease in domestic average daily hotel rates reported by NBTA Foundation survey respondents in 2010 versus 2009, to $159, "is not surprising given the weak occupancy rates that have plagued the industry since the onset" of the recession, according to the research report. "Reflecting the rebound in overall business travel and the resulting healthy occupancy rates, buyers expect hotel rates to rebound into 2011, with a nearly 3 percent increase, to $164."
Sourcing Sentiments
Generally higher business travel pricing partly is driven by growing demand, enabling suppliers to raise publish rates and fares, and hold firm during contract talks with corporate buyers. In particular, "airlines and hotels are wielding more power in negotiations as the economy begins to rebound," according to the NBTA Foundation.
That conclusion was based on respondents' sentiments. For example, more buyers expected their 2011 negotiated discounts to get "worse" than those expecting "better" discounts for air and hotel, the two largest spend areas (representing 35 percent and 19 percent on average, respectively, of total business travel spending among the survey base). The reverse was true for car rental, meeting venues and travel management company services.
Moreover, a larger number of respondents indicated they are dealing with "more strict" volume and marketshare goals this year versus last--compared with those dealing with "less strict" ones--from airlines, hotels, meeting venues and TMCs. The disparity was most apparent for airlines, as 52 percent of respondents said contract targets this year are stricter versus 6 percent indicating they are less strict.
"Volume commitments are being aggressively pursued for clients from the airlines' perspective," added Amex's Manning. For lodging, "with the return of the business traveler, [hoteliers] are going to be more aggressive in trying to recapture the money they have lost over the last two years."
The NBTA Foundation and American Express forecasts follow other corporate travel cost projections from BCD Travel's Advitoand Carlson Wagonlit Travel. Both travel management companies generally predicted mid-single-digit percentage increases next year for North America airfares and hotel rates.
Meanwhile, new research from the Association of Corporate Travel Executives found that 64 percent of buyer respondents from Europe and 70 percent from the United States expect their organizations' annual travel spending to increase in 2011, "with most attributing this to increased travel frequency and not just higher costs." ACTE officials at press time were not available to provide the sample size or other details.