Hotels in particular lost pricing power compared with the
previous year, while food costs stayed steady and car rental companies even
gained a little pricing power, according to Business
Travel News' annual tabulation of daily costs for hotels, car rental and
three daily meals in 100 U.S. business travel destinations.
Similar to 2009, hotels made up about 43 percent of the
average daily cost in the 2010 Corporate Travel Index, while car rental
overtook dining costs as a slightly larger piece of the per diem pie.
Overall costs were slightly up compared with the 2009
Corporate Travel Index, but these largely are the result of a change in
methodology. New York, Washington, D.C., Boston and Detroit are the most
expensive major U.S. cities for business travel. Outlying areas of New York,
including White Plains, N.Y., and Newark, N.J., also became comparatively more
expensive than other cities, while several destinations with large leisure and
group contingencies fell significantly.
Las Vegas, which became a politically charged destination
following criticism by elected officials as an example of corporate excess, was
the 30th most expensive city overall last year, but fell to 45th. Honolulu also
dropped out of the top 10, falling from ninth to 20th.
With hotels facing unprecedented average daily rate and
revenue declines in 2009, buyers have lowered corporate negotiated hotel rates
in top cities, though not without a grueling effort that required constant
renegotiations throughout the year to keep pace with market conditions.
New York remained the most expensive city for hotels, though
its premium over other cities eroded significantly. The city's total average
hotel rate, nearly 30 percent higher than the second most expensive city,
Washington, D.C., in 2009, was less than 10 percent higher than Washington's
rate this year.
New York University Tisch Center associate professor Bjorn
Hanson said that while New York occupancies remained much higher than the
national average, rates deteriorated significantly in the upper tiers. The city's
average daily rate in the luxury tier dropped a staggering 40 percent in 2009
compared with 2008, he said. A change in index methodology skews year-over-year
comparisons, but Advito vice president Bob Brindley said the firm's data show
New York's overall rates dropped 25 percent compared with the previous year.
Other cities with significant decreases include Miami, down 17 percent, and Las
Vegas, down 21 percent.
Washington, meanwhile, was among the most stable of the most
expensive cities, Brindley said. Presidential Inaugural activities gave it a
boost in January, when other cities' hotels were facing their most difficult
times, and government travel kept its levels steadier than corporate travel.
The overall 10 most expensive cities remained largely
unchanged this year, except for Hartford, Conn., which had no midprice hotel
rates reported, replacing San Diego, which fell to 18th. The order changed
slightly, with San Francisco and White Plains, N.Y., outpacing Chicago and
Baltimore.
Even with overall economic conditions improving, hotels face
an additional influx of supply this year above the rate of demand, particularly
in the upper upscale and luxury tiers, Hanson said. Consultants do not expect a
repeat of last year's constant renegotiations, however.
"Hotels are definitely going to rebound, but probably
not as fast as the hoteliers will like, so 2010 will be status quo,"
Carlson Wagonlit Travel Solutions Group global project manager of hotel
consulting Monica Eiden said. "Hotels will maintain where their rates are
this year, and it will be tough for them to negotiate and implement increases
moving into 2011."
Hanson indicated some renegotiations are likely, but
Brindley said they would mostly be on a small scale and limited to select
markets that are adding a lot of capacity. "Clients will be looking for a
few adjustments or possibly trying to lock in rates for 2011," he said. "From
a pendulum perspective, by the end of 2010, booked rates will start trending
up, though negotiated rates will still be locked in at a big decline.
The best-case scenario for hotel rates is to reach
pre-recession levels by 2013, Hanson said, while the worst-case scenario has
rates not recovering until 2017. Buyers will have to be vigilant of hotel costs
outside of rate, however. Hanson projected an increase in total collected fees
and surcharges by U.S. hotel companies this year compared with 2009. The annual
total, now well over $1 billion, has steadily increased over the past decade.
Fees pose a budgeting problem for travel buyers because they
are difficult to anticipate and vary even among hotels under the same brand
flag, Hanson said.
"You could stay at a Marriott, Starwood or Hilton hotel
one night, and stay at a different Marriott, Starwood or Hilton hotel the next
night, and the fees and surcharges will be different," he said. "These
are hotel by hotel, and they also come and go."
In particular, hotels are adding charges to hold travelers'
bags after they check out, applying extra room service charges and increased or
stricter cancellation and early checkout fees. On the group business side, Hanson
noted a growth in master folio charges, audiovisual charges and set-up and
breakdown fees for meeting rooms.
Hotels also are upping charges for such business services as
received faxes to as high as more than $5 for the first page, he said. This
stems from a trend of hotels outsourcing their business center operations due
to declining demand.
To add to the challenge, buyers often are not able to
negotiate these fees because of technology limitations at the hotel. "It's
really hard for hotels to bundle some services in corporate rates because the
property management systems don't allow them to do accounting that way,"
Hanson said.
At the same time, Hanson said buyers are being more
aggressive and successful in negotiating high-demand business travel amenities,
such as parking, breakfast and complimentary Internet access.
Hanson offered his views during this month's Business Travel News/National Business
Travel Association Strategic Travel Symposium in New York. The program opened
with a forecast from Economic Outlook Group chief global economist Bernard
Baumohl, who said the U.S. economy has better-than-even odds of a swift
recovery, which will lead to a slower but steady level of recovery for business
travel.
"I think the worst is over for business travel, which
came to a screeching halt in 2008 and 2009," Baumohl said. "There is
a recovery underway, but there's going to be a longer lag time between when the
economy comes back and how soon we'll see a recovery in business travel."
Business travel's recovery would be at a slower pace because
of continued cost-cutting measures at corporations as well as increased
reliance on such technology as remote conferencing, according to Baumohl.
Service industries, including hotels and airlines, also will continue to face
pricing difficulties, and upscale hotels in particular will have to consider
further discounting, he said.
Though his forecast leaned on the side of optimism, Baumohl
also cautioned about several disruptive factors that could change the odds.
These include, domestically, a significant uptick in commercial real estate
defaults and tight credit, and internationally, the bursting of China's credit
bubble, Greece's debt crisis spreading across Europe and inflated oil prices
due to Iran's developing nuclear capabilities.
"There are clearly economic risks and geopolitical
events could throw everything off-kilter," Baumohl said. "This is a
year we'll have to be exceptionally vigilant and quite nimble as business
managers."
Car Rental
After several years of struggling for profitability, car
rental companies have tightened fleet controls and operating costs, leading to
steady or even increased rates for corporate buyers across the United States.
The average corporate car rental rate for a full-size car in
this year's index, before taxes and fees, was $85.55, up from $81.44 last year.
Rate totals are based on compact, intermediate and full-size rates pulled on
six midweek days.
Neil Abrams, president of car rental research firm Abrams
Consulting Group, said the days of car rental companies cutting corporate rates
to unprofitable levels in order to retain an account are over. The industry
itself was on the verge of collapse even before the onset of the economic
downturn but has vastly improved its operations in recent years. Leisure rental
rates, in fact, reached historical highs in 2009, he said.
Abrams pointed to stock performance as an indicator: Dollar
Thrifty Automotive Group, which just a few years ago was trading at less than a
dollar a share, in March was trading for more than $30 a share. "The
industry is stronger than it has been in years," Abrams said. Much of this
has come through fleet control. Major car rental companies in the past four
years trimmed fleets from a total of about 2 million cars to about 1.3 million,
Abrams said.
Not only did this put car rental vendors in a position to
maintain or raise rates, it also allowed them to change policies that make the
rates appear even higher in the index, Brindley said. Several cities had
significantly higher rates than last year. The most expensive city, Detroit,
was up to $175.25 from $138.63 last year. New York was up to $163.19 from
$128.37. Houston, the 12th most expensive city last year at $114.89, increased
to fifth with an average of $152.95 per rental.
With better inventory control, car rental companies in the
past 18 months have increased usage of two-day rental minimum policies, so
business travelers only needing cars for one day actually will have to pay two
days' worth of rental charges, Brindley said. While these policies always have
popped up in large cities like New York, tighter fleets made them more
widespread and pushed reported rates upward in many cities, he said.
Total taxes and fees charged also were almost universally
higher. "There also was a little more unbundling, with additional fees in
place for things like navigation equipment going up," Brindley said. With
such functionality now available on personal mobile devices, car rental
companies looked at those increases as an offset, he said.
Car rental taxes continue to grow as well, Abrams said. The
industry often is the target for municipalities and states needing funding for
a host of projects: sports stadiums, museums, schools and any other budget
shortfall. While the major vendors have banded together to fight them, these
taxes continued to proliferate in 2009. In the past decade, Abrams estimated,
targeted car rental taxes and fees, excluding sales taxes, totaled about $7.5
billion.
Food
Proving once again that dining out is less inclined to
year-over-year price fluctuations than the cost to rent a car and stay in a
hotel, corporate travelers this year can expect on average to pay just shy of
$98 for three square meals a day in the top 100 business travel destinations,
virtually unchanged from pricing one year ago.
Like other industries, the restaurant industry is coming out
of some of the most challenging years in recent memory, marred by shutdowns,
increasingly frugal customers and a general slowdown in demand. "The
watchword from a restaurant operator perspective for 2010 is cautious optimism,"
said National Restaurant Association senior vice president of research and
information services Hudson Riehle. "2010 will definitely be the best of
the three-year periods—including 2008 and 2009—but growth will still be soft
compared to historical performance. The industry will achieve record-high sales
of $580 billion, which is up 2.5 percent over 2009, but when the effects of
menu price inflation are taken into account, which we're forecasting at 2.6
percent this year, that equates into, in essence, no real growth for industry
sales."
Despite a difficult 2009 for restaurant operators, there was
at least one silver lining, as wholesale food prices—roughly one-third of the
cost to operate a restaurant—registered a rare decline. "In 2009,
wholesale food prices actually dropped 3.7 percent," Riehle said. "That
is almost an historical pullback on an annual basis. There's only one other
year, several decades ago, that the index came anywhere near dropping that
amount. That took some of the upward pressure on menu price inflation and
dampened it last year."
Just as demand for dining out is expected to grow in 2010,
so shall wholesale food prices resume it's upward trajectory, NRA predicts. "There
are already signs of that occurring, and we're basically looking at wholesale
food price inflation this year of about 2.4 percent," Riehle said.
Despite that expected increase to the cost base of dining
establishments, Riehle said such fluctuations rarely materialize on the checks
of diners, as restaurateurs are reluctant to pass along cost increases and
favor instead to cut other costs to maintain margins. "The typical pretax
profit margin for a table service operator will range anywhere from 2 to 4 or 5
percent," Riehle said. "It always has been and will continue to be an
extremely competitive industry."
BTN this year
again commissioned Organization Resources Counselors Inc. to survey
restaurateurs and calculate the cost of standard meals in each location. Those
meals assume a breakfast of two eggs with breakfast meat, toast, orange juice
and coffee; a lunch of soup, a hamburger or chicken sandwich, a slice of pie
and a soft drink; and a dinner of soup, filet steak, a glass of red wine,
dessert and a cup of coffee. The listed prices do not include tax, but do
include a 15 percent gratuity.
San Francisco continued its reign by a hair as the most
expensive place to eat three meals a day, leading second-place New York,
Seattle, Portland, Ore., and Los Angeles rounded out the Index's top five for
food costs.
Methodological
Changes
The 2010 Corporate Travel Index for the first time offers
actual average 2009 hotel rates paid by BCD Travel corporate clients, provided
to Business Travel News by the travel management company's Advito consulting
arm.
The charted hotel costs on pages 10 and 11 include
breakdowns of average upper upscale, upscale and midprice hotel rates in
addition to an overall average rate. However, the overall average incorporates
luxury and economy tier rates and is not an average of the rates of the three
listed tiers. Business Travel News
added hotel tax and fee information to the average hotel rate based on original
research into sales and occupancy taxes and surcharge through each city's
convention and visitors bureau, chamber of commerce or other public data.
Meanwhile, average car rental costs are based on information listed in the
Sabre global distribution system on the first three Tuesdays and Wednesdays in
November 2009, as provided by Advito.