BCD Travel Tempers Airfare Forecast

Published airfares will increase between 2 percent and 4 percent while corporate airfares will have a marginal increase of less than 2 percent in 2008, according to BCD Travel's 2008 Industry Forecast, released last week. Along with airfare increases, the forecast projects at least 5 percent increases in hotel average daily room rates and average daily car rental fares.

The new projected airfare increases are lower than the 6 percent and 10 percent published fare hike and 5 percent to 7 percent corporate fare hike predicted by executives from BCD's consulting subsidiary Advito in July. Advito vice president for the Americas Bob Brindley cited a projected softening in demand as a reason for the deviation from Advito's previous predictions, as well as an increase in corporate discounts and the March 2008 launch of the E.U.-U.S. Open Skies agreement, which will increase international competition. "You have the potential if demand softens, and we are seeing it soften, that carriers will start discounting aggressively again," Brindley said.

Airline capacity limitations are going to fuel higher fare increases than Advito's current projections, according to Dale Eastlund, director of air solutions for Carlson Wagonlit Travel's CWT Solutions Group consultancy. "Based on the fact that capacity has continued to be constrained on the domestic side, and carriers are not looking at adding capacity, and we are probably looking at a 4 percent to 7 percent increase for published fares domestically," he said. "In the international sector, there is some capacity growth out there. However, demand for a lot of the business class travel continues to grow. Based on what we've looked at in 2006 and 2007, published business class airfare went up between 15 to 20 percent and we are probably looking at somewhere in the double digits again."

Meanwhile, BCD Travel's forecast is less optimistic about hotel costs, as daily room rates are expected to climb by 6 percent to 9 percent on average with double-digit increases in some markets. "The demand is probably growing as fast as capacity, so while the occupancy rates aren't necessarily moving up dramatically, we have seen hotels be very successful in raising their average daily rates through better inventory control and moving people from standard rooms to premium rooms," Brindley said.

Accompanying the increases in the hotel market is an 8 percent to 10 percent rise in meeting costs, according to the forecast, which attributes some of the increases to a supply shortage for meeting space and hotel rooms, as well as rising fuel and food costs. Further constraining buyers in the hotel market is the continued trend of some hotels turning down group business in favor of elevated rates from transient business. "You are paying a premium for a large block of rooms instead of getting a discount because you are taking so much inventory out of the property, " according to Brindley.

Despite new supply, hotel and meetings demand is not expected to lighten until at least 2009, according to Advito general manager Mary Ellen George. "There will be a little more of a surplus in supply," she said. "For short-term bookings, they are going to pay a premium."

Advito did not provide concise projections for rail fares, but expects a general increase in Europe's primary markets, albeit at an uneven rate.