International Per Diems Show Oil Cities' Ascendance

This year's Corporate Travel Index shows a major geographical shift in gravity of the list's most expensive cities. Last year, seven of the top 10 destinations for hotel rates were in Western Europe, but this year, there are only two: Geneva in sixth, and Paris in 10th. Instead, the new global accommodation pain point is the Gulf. It has no fewer than four of the top 10 cities: Abu Dhabi at the top with $322, Muscat in second at $316, and Doha and Kuwait tied for seventh at $267.

However, it would be even more accurate to say the top 10 no longer is defined by geography but by sector. Along with the four Gulf locales, three more cities in the top 10 have strong ties to the oil and gas industry: Moscow, Kiev and Caracas. Not only is demand high in all the oil and gas cities, but supply remains a problem. They are well-represented in the five-star property bracket, but tend to have far less room stock below that tier that would be acceptable to a business traveler. In Western European countries, by contrast, there has been significant expansion in budget accommodation of an acceptable standard for business travelers in recent years, which has helped contain average room rates.

This year's Corporate Travel Index for the first time bases its hotel figures on actual rates paid rather than those booked or negotiated by corporate clients. This advancement in data quality was provided by Advito, the consulting wing of global travel management company BCD Travel, the longtime provider of hotel data for this index.

Advito also has provided comparative figures for the previous year that show just how dramatically accommodation costs have fallen in 12 months. Last year, BCD Travel clients paid an average $224 per night in the top 100 cities. This year, it is $190.

Looked at another way, a night's hotel accommodation cost north of $300 in 13 cities last year. This time, it only costs that much in three cities.

Although oil and gas cities dominate the top 10, they have experienced mixed fortunes over the past year. Caracas, with the list's sharpest increase at 14 percent, Abu Dhabi, up 7 percent, and Doha, up 4 percent, belong to a select list of only six cities in the top 100 that have experienced rate rises. The other three were Nairobi, up 9 per-cent—finally recovering after civil unrest caused a disastrous visitor slump in 2008—Mexico City, up 5 percent, and Sao Paulo, up 2 percent.

On the other hand, Moscow saw its hotel rate slump 39 percent from $505 to $309. This was the biggest percentage fall in the Index, but the Russian capital slipped only as far down as third in the table from its top position last year. Similarly, Kiev is 25 percent cheaper this year at $288, but has only slipped from second to fourth.

Three other cities experienced rate tumbles in excess of 30 percent, and all three are Indian: Delhi, down 32 percent, Mumbai, down 36 percent, and Bangalore, down 35 percent. In addition to general rate deflation, these cities have gone some way during the past 18 months to redressing critical supply shortages, and the Mumbai massacres of November 2008 may well also have been a factor.

The Gulf region's rates have been least affected by the downturn. Not only are Abu Dhabi and Doha up, but almost all other cities are down only by single-digit percentages, which can be considered an achievement in the current climate. The principal exception to this is Dubai. The spectacular and well-documented halt to its overheated growth, which had included a frenetic outburst of luxury hotel construction, led to rates plunging 26 percent to $238.

Western Europe has had its share of rate decline too. Its international gateway cities are clustered between the 10th and 30th position on the list of hotel rates, with prices down by double-digit percentages, including London, down 24 percent, Paris, down 10 percent, Frankfurt, down 14 percent, and Amsterdam, down 20 percent.

When food and miscellaneous costs, such as taxi rides and a newspaper, are added to hotel rates to provide a per diem total, the big Western European cities move up the top 100 significantly. While the Advito hotel rates are based on actual rates paid, the food figures, which are provided by the consulting firm Organization Resources Counselors, are more representative of the prices that would be paid to eat three full meals at some of the best dining establishments in the city. To take the most expensive example, daily food costs for Amsterdam are listed as $256, but a business traveler can eat very well there for much less than that. On the other hand, if they are wining and dining clients three times a day, $256 per person is an all-too-feasible sum to pay.

With that in mind, Western Europe accounts for 13 of the most expensive 20 cities in the top 100 per diems. Paris leads the way at $526, followed by Oslo at $508, both more than three times more expensive than Guatemala City, down in last place at $165. They illustrate what a difference food costs can make to travel managers' budget reckonings, because Paris is only the 10th most expensive city for hotel rates and Oslo 25th. Conversely, Abu Dhabi, which is down at 58th in the food table, slips to 12th in per diems and Muscat to eighth.

Wherever business travelers happen to be picking up a knife and fork or resting their weary heads, one factor that has had less influence than usual on the final bill is the health of the U.S. dollar. Although there have been some ups and downs, the dollar has ended pretty much where it was a year ago, despite the financial turbulence raging around it.

Paul Robson, a senior foreign exchange strategist with Royal Bank of Scotland in London, tips the U.S. dollar to fare moderately well against the other three traditional currency giants—the euro, sterling and the yen—for the rest of 2010. He expects all four to struggle against most others.

Starting with the euro, said Robson, "Currently, there are worries about Greece and the euroland project in general, which means money is flowing back to the dollar after flowing out for the last five years. What happens over the next year will depend on how the euroland countries, particularly the economies of its Mediterranean member states, perform, and also on U.S. interest rates. If the Federal Reserve starts to raise interest rates this year, that will tend to support the dollar, because capital goes where interest rates are highest, and the U.S. is expected to raise its rates before Europe or Japan."

Robson thinks the dollar will benefit in the short term simply by virtue of not being the euro, then keep rising in anticipation of a Fed interest hike. However, the increase will not be dramatic. Robson sees the dollar rising to $0.78 against the euro by the end of 2010, up from $0.73 earlier this month.

Meanwhile, the pound is under pressure ahead of a general election in the United Kingdom in May. Robson believes the fundamentals of the British and American economies are too similar at present to fuel significant medium term movement. "Both have weakened financial systems and are overleveraged," he said. "With the Fed likely to raise interest rates before the U.K., the dollar is likely to do well against sterling, but the pound is undervalued at the moment, so overall there will be little change." He predicts a year-end rate of £0.62 or £0.63, from £0.66 earlier this month.

Robson sees most hope for the dollar against the yen. "The yen has a lot of challenges ahead," he said. "It is very expensive for Japanese industry and the country's economy is lagging as a result, which means interest rates will not rise. The yen will be the weakest currency over the next 12 months." However, he warns that the dollar, yen, euro and pound will struggle against other currencies in Asia and in Australia and Canada. These countries have not fared as badly in the recession. Said Robson, "We are already seeing a lot of money flowing into the Canadian dollar because it has a much stronger economy than the United States."

Methodology

The 2010 International Corporate Travel Index is based on research by BCD Travel's Advito Consulting unit and Chicago-based management consulting firm Organization Resources Counselors Inc.

Advito provided 2010 average paid upscale daily hotel rates. ORC provided actual 2009 menu item costs for hotel continental breakfasts, lunches of sandwich, salad and nonalcoholic drink and dinners of a fish, chicken or beef entree, salad and a nonalcoholic beverage.

ORC also provided miscellaneous lodging expenses of two taxi fares, a newspaper, a bottle of water and a magazine. Local prices in 100 non-U.S. business destinations were converted to U.S. dollars using rates from Jan. 8, 2010.