Amex, NBTA Forecast Substantial Travel Cost Growth

Companies next year will spend more on corporate travel as rates offered by all types of suppliers—coupled with the overall number of business trips—are expected to grow both domestically and internationally, according to separate forecasts released this month by the National Business Travel Association and American Express.

American Express' business travel forecast, released last week, predicted 3 percent to 6 percent growth for domestic, short-haul economy-class fares on a global basis, while international and long-haul business-class fares are expected to jump between 3 percent and 5 percent globally. Worldwide 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. Meanwhile, based on 130 travel manager respondents, NBTA said that overall travel management costs should jump 9 percent next year.

Most NBTA survey respondents are heading into 2006 with an acceptance of both cost and travel increases. Seventy-three percent said overall hotel costs would increase due to higher rates, while 61 percent said overall air costs would jump due to rate increases. Meanwhile, 50 percent said 2006 will bring more trips and 31 percent said there would be more travelers to manage.

Although only about 4 percent said they would cut back on air travel in the next year, several travel managers seek other ways to keep travel costs down.

American Standard Cos. global strategic sourcing director Tom Barrett said that despite the anticipated increases for air, car and hotel rates, he is determined to keep overall costs flat—even if that means limiting the number of trips taken by the company's travelers.

"We will manage to our budgets as approved by management and meet our customer demand," Barrett said. "This would include rationalizing our travel requirements, and this could include limiting the number of employee travelers to meetings and conferences."

Applera Corp. travel manager Suzen Moye would like to keep costs flat, but the realities of the marketplace may defy such efforts. "I'm told expenses will not rise, so I have to do everything I can to keep the costs down," Moye said. "In reality, look at hotels and what the rise is there and look at airfares and fuel in general. Where our sites are—Boston, San Francisco, New York, Washington—are all the places where you have the most expensive rooms and meals."

While capacity cuts by major airlines and high fuel costs have created a difficult air pricing environment in most regions, Amex said pricing pressure from 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 see up to a 7 percent increase on international and long-haul fares. NBTA respondent predictions of 6 percent U.S. airfare growth fell in line with Amex's forecasts.

However, despite the anticipated airfare increase, NBTA said, "year-to-date airfares have increased marginally. Average domestic fares are 18 percent below what they were in 2000."

Meanwhile, hotel demand continues its upward trajectory in the face of limited room supply growth. However, Amex asserted fluctuations vary not only by hotel type and 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," said Matthew Davis, director of global consulting at American Express.

Many buyers are echoing the sentiment. "In the U.S., we anticipate hotel rate increases in excess of 3 percent. In Asia, we're looking at a minimum of 12 percent increase on hotel rates," said Judy Bauer, travel manager at JPMorgan Chase. "From everything we've seen, we're advising the company that this wonderful situation we've had with the hotels is soon to pass."

However, hotels in secondary and tertiary markets may still be negotiable.

Amex expects rising fleet costs in North America to lead to increases of up to 8 percent. NBTA travel buyers expected a 5 percent increase in car costs.