BCD Travel's Advito consultancy issued a corporate travel price forecast for 2015 that shows generally modest year-over-year increases for airfares and hotel rates in most geographies. Projections in part are based on expectations for improving economic conditions in many regions—though perhaps more so in developed markets than emerging ones—and the growing influence on airfares of low-cost carriers.
"Companies will want to travel more, as economic conditions continue to improve in 2015," according to Advito's report. "Yet more than five years after the height of the global recession, businesses remain cautious about spending too much too soon, so travel growth will be modest rather than spectacular."
North America
Though Advito expects North American air capacity in 2015 to increase more than in recent years, it wrote that consolidation continues to push fares higher. "For now, airlines are generally continuing to post low single-digit fare increases for fear of killing off demand," according to the report. "However, once reduced corporate discounts and early closure of low-fare buckets are taken into account, the underlying price paid by business customers is climbing fast."
For next year, Advito forecast regional economy fares to increase 4 percent year over year and regional business fares by 2 percent. For intercontinental routes, it projected 3 percent higher business fares but flat economy fares.
Advito also noted the challenges related to negotiating air agreements in a market that has consolidated to three global airlines. "Only the very largest corporations (with travel budgets above US$400 million), or buyers that consistently purchase higher-yield fares, can sustain deals with all of the 'Big Three,' " according to the report, referring to American Airlines, Delta Air Lines and United Airlines. "Everyone else is likely to be spreading their travel dollars too thinly and may face pressure to reduce to two carriers, or even one. ... With load factors at high levels, airlines are more tightly managing their corporate agreements and the Big Three are becoming quicker to drop clients who do not deliver increased business."
Due to the increasing complexity of airline negotiations, Advito pointed to appetites on both sides for three-year deals rather than the more typical two-year arrangements.
In the North American lodging market, Advito predicted average rates to rise between 3 percent and 5 percent (excluding such high-demand markets as New York, Chicago and San Francisco, where rates seem set to rise more), despite limited new supply and a push by suppliers to achieve higher increases.
"Possible reasons include growing competition from mid-priced chains and lack of confidence about the strength of economic recovery, making hotels anxious to retain corporate clients who consistently deliver business," according to Advito. "As a result, clients with well-managed travel programs are successfully negotiating corporate rate rises close to inflation. Those with less developed programs risk increases of 7 percent to 10 percent or no deal at all."
On the car-rental front, Advito wrote that it's not seeing the corporate rate increases that some suppliers have claimed. "Clients who resign supplier agreements without going through a [request-for-proposals] process are achieving zero increases, or in some cases suppliers volunteer lower rates to prevent an RFP taking place," according to Advito. "That said, rates will have to move upwards soon, and 2015 may well be the year it happens—though, even then, only 2 percent to 4 percent."
Regional Highlights
Latin America - With demand outpacing supply growth, Advito projected average airfares in Latin America to increase by a few percentage points, though intercontinental economy fares specifically are expected to retreat 2 percent "as the softening economic situation takes some heat out of demand in major markets like Brazil."
With the exception of Venezuela, Latin American markets are projected to have some of the highest average hotel rate hikes in the world, with Chile up by as much as 6 percent, Brazil as much as 8 percent and Argentina as much as 10 percent. Advito cited "a combination of inflation and fast-expanding business travel." An earlier forecast issued by Carlson Wagonlit Travel and the GBTA Foundation also projected Latin America's hotel rate growth to lead the world.
Europe - Advito noted that despite improving economic conditions in the region, companies are "cautious about spending more on travel, especially for internal meetings, so expansion in demand will not be rapid."
It expects corporate airfares to rise by a few percentage points (with growing low-cost carriers helping to keep increases modest), except for intercontinental economy fares, which are projected to decline marginally. However, transatlantic joint ventures are starting to "realize the pricing power of consolidation."
In terms of hotel pricing, Advito projected low single-digit percentage increases in most markets. "Even German cities that have traditionally been ultra-expensive during trade fairs are not selling out as they once did, giving buyers a chance to secure good rates year-round," according to the report. Portugal and Spain, though, may see slight reductions.
Asia - Advito expects that Asian economic growth "is unlikely to slow much further in 2015," but nevertheless anticipates that corporate buyers in Asia will see lower airfares on regional routes and in intercontinental economy class (but higher fares for intercontinental business class). It cited the increasing penetration of low-cost carriers and "stiff" competition from Middle Eastern airlines. "However, Asia's full-service airlines typically command fierce loyalty from regular business travelers because of the quality of their service and the strength of their frequent-flyer programs," according to the firm. "Travel managers find it hard to move their travelers to other carriers."
Advito expects hotel rates across Asia next year generally to increase between 1 percent and 4 percent, as "growth in demand and supply will be well-matched." South Korea is an exception, where the average rate may rise as much as 7 percent.
Southwest Pacific - Business fares within, to and from the region—underpinned by the large Australian market—are expected to rise by an average of 2 percent. Advito cited recovering economic conditions in Australia and stronger inbound demand from other regions. Economy-class fares, meanwhile, are predicted to remain essentially flat—domestically due to heavy competition between Qantas and Virgin Australia, and internationally thanks to expanding operations by Gulf airlines.
Middle East - The region is the only one in Advito's report with lower airfare expectations across all categories (ranging from a 4 percent decline in regional economy fares to a 1 percent drop in intercontinental business fares). Authors pointed to "intense" competition between the region's carriers (and Turkish Airlines) and fare discounts used to fill seats on a growing number of flights. For hotel rates, the pan-regional outlook calls for an increase between 3 percent and 5 percent.
Africa - The region's price forecasts reflect the slowing economy of South Africa, where Advito has found that businesses are cutting travel. Intercontinental airfares are expected to drop back between 2 percent and 3 percent, while regional airfares will increase only by a few percentage points, if at all.
Meetings
Given rising demand and limited new supply, Advito characterized the current meetings sector as "a seller's market." Yet, it expects rates related to meetings to grow only moderately (other than such very popular markets as New York and San Francisco). The firm also noted greater interest among clients in leveraging transient and meetings spending, bigger availability and rate challenges for those booking later, and a spate of new or higher meetings fees imposed by venues.
"Rates in the U.S. have returned close to previous record levels of 2007-08," according to the report. "Although businesses are keen to hold more meetings, they remain very cautious about cost, so they continue to stage events with fewer frills than before the 2009 recession."