Perhaps more so than usual, the business travel forecast for
the coming year is cloudy. Forecasting is far from an exact science, and a
bipolar 2011 has made it that much more challenging for 2012.
This year began strong for both buyers and sellers. Many
organizations were experiencing solid corporate travel growth and, as they
looked forward, expected more of the same. Simultaneously, airlines and hotels
were raising prices as their executives discussed favorable demand trends and
impressive revenue metrics. Now, nearing the end of 2011, forward-looking
demand appears shaky at best. But that hasn't brought a commensurate forecast
of lower travel prices next year; instead, given capacity reductions by U.S.
carriers and limited new supply in the lodging sector, fares and rates are
predicted to continue rising.
"Looking ahead to 2012, there is concern about the
potential for unstable economic conditions to impact pricing," according
to American Express Global Business Travel Global Advisory Services director of
research and media Christa Degnan Manning. "Intuitively this would suggest
conservative projected price increases, and while that is the case in some
categories, it is by no means the rule."
All year long, myriad industry surveys found that most
corporate travel buyers, when asked to look ahead for the remainder of this
year or into next year, generally split between expecting larger volumes and
expecting flat levels. In most of these surveys, small minorities expected
declining corporate travel activity. For example, in a recent BTN survey of 260 buyers, about half
expected a larger number of trips by their companies' employees in the coming
12 months while 11 percent expected a smaller number. But that survey was
conducted in June and July. In the subsequent months, macroeconomic trends
become less promising and aggregate corporate travel industry statistics have
shown slowing growth, if not a flattening. Anecdotally, for certain companies,
a less bullish view of corporate travel is emerging.
Radius senior vice president for the Americas Dee Runyan
recently told BTN that among
customers in the manufacturing sector, "there has been no slowdown
whatsoever. Of course, they tend to be in places like China and Brazil. As far
as our multinational financial companies are concerned, they are all totally
hunkering down. They are clearly seeing something in the foreseeable future
that is making them nervous."
BCD Travel Americas president Mike Janssen last month told BTN that, overall, "larger clients
expect a slowdown to happen," and that by year-end, the travel management
company will see flat travel transaction levels, or possibly levels "slightly
below last year." For 2012, according to a forecast issued last month by
BCD Travel consultancy Advito, business travel will grow by low single-digit
percentages in North America and Europe, while other regions should see
mid-to-high single-digit demand growth. Advito noted a particularly strong
appetite for travel to emerging markets, including Brazil, Russia, India and
China.
The picture may be different specifically for the U.S.
airline market. According to a research note issued Sept. 23 by JPMorgan
airline industry analysts, there now is "full anticipation of weak demand
beginning as soon as October." They also estimated that 2012 U.S. air
industry capacity would be down about 1 percent "as carriers are expected
to respond to demand weakness."
Business demand degradation isn't yet apparent in the hotel
industry. "If I read my own internal paper, it's very bright; if I read
the newspaper, it's gloom and doom," said Hyatt senior vice president of
sales Jack Horne. "No matter which company you talk to, [transient] demand
has surpassed 2007 levels, so it's very healthy. The meetings business is
somewhat healthy. 2012 looks pretty robust for us at this point."
Pegasus Solutions shared a similar observation in its most
recent hotel industry report, which for August showed a 10 percent
year-over-year increase in worldwide reservations booked via global
distribution systems. "Travel patterns do not automatically mimic those of
the financial markets," the company wrote. "Economic worries began to
increase in July, and came to a peak in August with the United States' credit
rating downgrade by Standard & Poor's and renewed debt concerns for various
European countries. Despite the stock market chaos that ensued throughout the
month, August corporate travel bookings experienced an upswing."
Prices May Moderate,
But Lower Rates, Fares Unlikely
It remains to be seen how long that phenomenon will
continue, and how quickly and for how long hotel rates will stay on an upward
course.
"The meetings business is coming back, demand is coming
back," said Wyndham Hotel Group executive vice president of marketing Flo
Lugli. "Of course, there hasn't been much supply coming into the market
and there won't be for a year or two. While demand is there, rate probably won't
recover [to pre-recession levels] until 2013."
Advito projected that hotel rates would not likely exceed
the high-water mark of 2008 "until 2012 or even 2013." Nevertheless,
it anticipates corporate hotel rate growth next year between 2 percent and 6
percent, varying by market. "Another year of double-digit increases is
probable" in New York and other "international gateway cities,"
Advito noted.
In a late September industry report, Carlson Wagonlit Travel
wrote that "2012 is shaping up to be the year hoteliers not only retain, but
further exert, [pricing] power. Not only are hotel rates expected to increase
worldwide, but CWT anticipates hotel suppliers will tighten their grip on other
contractual benefits and traveler perks, and hold organizations increasingly
accountable for their performance against volume targets."
CWT added that organizations would be challenged to secure
last-room availability for 2012 contracts as hotels likely reserve that benefit
for their largest corporate accounts. It also pointed out the tendency by hoteliers
to charge for amenities "that in the recent past were likely included in
the negotiated rate," including breakfast and Internet access.
The TMC suggested a familiar tactic for corporate buyers
facing hotel sourcing pressures: consolidating to fewer properties to leverage
spending (and/or, conversely, adding properties in high-occupancy markets,
especially where LRA cannot be secured).
"The hotel industry is nothing if not cyclical,"
CWT wrote. "While suppliers have the upper hand right now, just two short
years ago buyers were in the driver's seat. There is no telling what tomorrow
might bring, so both parties should remain focused on being good business
partners to one another, for both the short and long term."
On the airline side, carriers have demonstrated an ability
to control capacity and concentrate power through consolidation and joint
ventures. Advito therefore predicted that 2012 airfares would grow between 3
percent and 5 percent year over year. Increases vary within that range by
market, length of haul and class of service, and would build on this year's
upward pricing trends.
Jay Boehmer
contributed to this report.
This report originally
was published in the Oct. 10, 2011, edition of Business Travel News.