Amex Forecasts Higher 2006 Worldwide Travel Costs

With business travel demand growth outpacing supply in most regions, published and negotiated air and hotel prices will grow by varying degrees on a global basis in the coming year, according to an American Express forecast released today.

Amex anticipates domestic, short-haul economy class fares on a global basis to increase by 3 percent to 6 percent, while international and long-haul business fares are expected to jump between 3 percent and 5 percent globally. Midprice hotel rates will increase by 1 percent to 3 percent, as full-service properties will increase between 3 percent and 5 percent, Amex said.

"Corporate clients are traveling more, and increased globalization is leading to strong demand for long-haul air travel and hotel space at their travelers' destination. Whilst global fares are rising across the board there are significant variations by region and even the countries within those regions," said Matthew Davis, director of global consulting at American Express.

While capacity cuts by major airlines and high fuel costs are creating a difficult air pricing environment in most regions, Amex said pricing pressure by low-cost carriers should help to temper those increases. North America should see the greatest spike in domestic economy published airfares-between 5 percent and 8 percent-while Latin America and the Caribbean should boast up to a 7 percent increase on international and long haul fares.

"Attempts by the airlines to significantly increase fares in response to increased passenger traffic and rising oil prices, however, are likely to be dampened by the still burgeoning competition from low-cost carriers, depressing short-haul yields," Amex said in its forecast.

Strong demand coupled with limited supply growth favors hoteliers for 2006 rate negotiations. However, Amex asserted fluctuations vary not only by region, but also by market.

"Yesterday's good rate may well be unobtainable tomorrow-leading to unpredictable hotel costs and, occasionally, an inability to obtain a suitable room. Unless a company locks in a negotiated rate with 'last room availability,' prices will likely rise in proportion to occupancy levels in a given city," Davis said.

Ruth Philpott, director of hotel procurement for Eclipse Advisors, a division of American Express Business Travel, said some lodging markets-particularly those suburban or highway locations-have yet to recover as fully as their big city counterparts. The largest increases fall on higher-tier hotels in large business travel markets. Such international business travel destinations as London are the beneficiary of high occupancies and limited supply growth, with expectations on rate increases tipping double-digit percentages.

China and India-two countries that have seen a surge in business travel demand-could see even more considerable hotel price growth than other regions, but the possibility of an avian bird flu outbreak and rising oil prices could calm demand.

Meanwhile, Amex did not break out rental car pricing on a global basis, yet in North America rising fleet costs should lead to increases of up to 8 percent.