Buyers should expect 2010 airfares to increase by single-digit percentages and hotel rates to continue to fall, especially in the early part of next year, according to recent industry forecasts and analysts, who project total business trip costs to creep up in the second half of 2010 as economic activity and, in turn, business travel begins to increase.
American Express Business Travel expects the average cost of a North American domestic business trip, which includes air, ground transportation and hotel accommodations, to remain nearly the same as in 2009, with just a $5 decrease in cost per trip to $1,108, according to the company's 2010 Global Business Travel Forecast, released late last month. It projects North America-originating international trips to increase by an average of 3.5 percent to $3,413.
Amex predicts U.S. domestic and short-haul economy fares to increase 2 percent to 7 percent and international and U.S.-originating long-haul business fares to rise 3 percent to 8 percent in 2010 from 2009.
Carlson Wagonlit Travel's 2010 North American forecast, released in August, estimates published airfares for all classes will increase 3 percent to 5 percent over 2009 prices. The travel management company sees international economy class fares rising 4 percent to 6 percent and business class fares 5 percent to 8 percent.
Much of the airlines' ability to raise prices in 2010, even with stark demand declines, will come as a result of moves to significantly reduce capacity this year.
Those aggressive capacity cuts, which began taking hold a year ago in response to the fuel crisis and broadened this year after demand replaced oil as carriers' major concern, will help carriers stabilize prices, said BCD Travel consulting unit Advito vice president of business development Bob Brindley.
"I wouldn't be surprised to see prices go up slightly for 2010," he said. "That's taking out any kind of fuel impact or H1N1 impact, but looking purely at demand and capacity, I would expect the capacity reductions to result in some marginal price increases."
Airfare analyst and FareCompare.com CEO Rick Seaney said, "Year over year, fares are down anywhere from 12 to 14 percent, but it's not a good comparison, because fuel this time last year was still over $100 a barrel. Most fuel surcharges weren't dropped off last year until the end of October.
"The supply of seats is probably correct, but the problem is the demand for business travel is down," he added. "It's hard to say. Some say it might be firming up a little bit, but firming up just means the bleeding has stopped."
Airline pricing remained soft this year, even though low-yield leisure travelers propped up high load factors. "Definitely, things started to firm up a little bit in June, but it was in a complete freefall from November through May—the cheapest I'd ever seen," Seaney said.
Travel buyers also should expect some moderate airfare increases abroad.
According to American Express, European domestic and short-haul economy airfares will remain flat or increase by as much as 2 percent next year, and international and long-haul business fares will rise 5 percent to 7 percent.
These increases will come gradually next year as business travelers return to the skies with expected economic improvement and as airlines continue to adjust capacity, said Joakim Johansson, vice president of Amex global advisory services for Europe, the Middle East and Africa.
On the hotel side, the buyer's market is expected to continue at least for the first half of the year.
"Most markets will see reductions for 2010, especially for those who haven't already renegotiated," Advito's Brindley said. "A lot of hotels have been trying to hold the line on prices and have offered to extend 2009 deals through 2010. It might be appealing to some clients, but given a buyer's market, that is short-sighted."
Amex's forecast has U.S. average daily mid-tier hotel rates falling 1 percent to 4 percent, and 3 percent to 6 percent at upper-tier properties. Hotels in several top U.S. business travel destinations also will suffer ADR losses. Amex said New York's average daily rate would remain flat or decrease by as much as 2 percent for mid-tier properties, and upper-range New York hotel rates would drop from 1 percent to 4 percent. The forecast predicted rates in San Francisco to fall by as much as 5 percent.
CWT said domestic average daily room rates would decrease about $10 compared with 2009 rates, taking into account promotional rates and upgrade offers.
CWT Solutions Group Americas director of hotel consulting Neysa Silver in August said decreases in average corporate negotiated rates would depend on when travel buyers negotiated hotel programs. For those completed last fall, CWT forecasts domestic average daily rates to decrease 6 percent to 8 percent. Buyers who negotiated closer to the end of 2008 are expected to see rate drops of 1 percent to 3 percent
(BTNonline, Aug. 20).European hotel average daily rates are anticipated to remain relatively stable year over year. Amex forecasts ADR at mid-tier properties to shift by as much as a 2 percent decrease to a 2.5 percent increase. Upper-tier ADR is expected to fall within a 2.5 percent decrease to a 2 percent increase range.
Both Smith Travel Research and PricewaterhouseCoopers forecast continued drops in U.S. average daily rates through 2010. Both firms said the drops would be more moderate than those seen this year. Smith Travel Research said rates will decrease by 3.4 percent, and PwC said rates would drop by 1.1 percent.
An AirPlus-conducted study of 142 travel managers in North American and Europe showed that 70 percent had a top goal of gaining additional room rate discounts in their 2010 hotel negotiations. Additionally, 34 percent said they would be willing to change suppliers to get the lowest rates.
"Before, hotels would have cut-off points of 200 room nights before they would negotiate a rate," Brindley said. "Now they're reducing that level to 100 or even 50 room nights, so clients can look at small markets where they've never had preferred properties before. It might not be as attractive as a rate in a larger market, but they will be able to drive some additional benefit."
Starwood Hotels & Resorts CEO Frits van Paasschen said that while he sees something of a rebound in business travel coming in 2010, the recovery would probably not yet be robust. "We've had such a profound decline in both the economy and the hotel sector, this will be a multiyear trip back," van Paasschen said.
On the brighter side, however, companies have cut back so much that even small economic improvements would translate to profitable growth, he said. As a result, those better numbers could give business travel a boost.
"You also should consider that most of the stimulus programs haven't even been spent yet, let alone had their effects seen through the economy," according to van Paasschen. "It'll be hard to pull back on a lot of those stimulus programs."
Ground transportation forecasts are less clear. CWT projects daily car rental and limousine rates to drop 1 percent to 3 percent and 3 percent to 5 percent, respectively. Amex anticipates global car rental rates to remain stable, with prices between 1 percent lower to 2 percent higher than in 2009.
While supplier price changes are expected to offset each other and there are some signs of economic improvement, most buyers don't expect their corporations to crank up the business travel volume.
BTN's
Corporate Travel 100 benchmarking report of the largest buyers of business travel, released last month, showed a decline in U.S.-booked air spending to $10.3 billion in 2008 from $11.2 billion in 2007. Declines in travel spending are poised to be even more dramatic this year, as aggressive budget cuts, tightened policies and increased use of travel alternatives expanded late last year and continued well into 2009.
Of the 94 companies that appeared on the Corporate Travel 100 list this year and last, 48 show a decrease in U.S. booked air volume in 2008, compared with 2007. A couple of CT100 travel buyers said spending this year was down by a magnitude of 70 percent, though many said spending cuts were trending in the 25 percent to 30 percent range.
After hunkering down for the past year, some companies finally are beginning to take to the road again. One Corporate Travel 100 banking firm said travel budgets are "so defined by the business units, and we are fortunately in growth mode right now," suggesting a rise in trips.
Nokia global sourcing director of travel Paul Perry has seen company travel expenditures drop 50 percent year over year. Because of demand management initiatives, economic circumstances and a new way of looking at how the company does business, he doesn't expect budgets to increase in 2010, especially with increased receptivity from suppliers.
"They now realize that in order to compete they need to offer additional services," such as breakfast, gym access and airport shuttle service, Perry said, "all thrown in along with a discounted room rate."
Eastman Kodak manager of global travel and fleet Bill Lasky said the company's 50 percent travel budget reduction in 2009 is largely over, but there are no plans for increasing spending next year.
"For 2010, we wouldn't spike right up to where we were before on the same slope," he said. "We'll be more judicious on how we spend our travel dollars, but we're not going to do anything foolish and lose revenue or customer face-to-face opportunities that are important to our business."
A Topaz International survey of 260 travel buyers released in August showed only 28 percent expected business travel spend to increase for "the balance of 2009," while 49 percent said their companies would spend more on business travel in 2010. Forty-one percent expect flat spending next year.
(BTNonline, Sept. 7)."We are seeing a little bit of pickup in demand as the economic activity seems to improve," Advito's Brindley said. "We're hearing reports that the recession is kind of over, and we're going to start seeing growth in GDP again. From talking to clients, my sense is they're still trying to manage their travel demand as much as possible to manage travel spend, but it's all driven by business conditions and requirements. When business conditions improve and travel requirements start increasing, you're going to see people start to travel again."