BTN's 2009 Corporate Travel Index: Int'l Per Diems Illustrate Europe's Primacy
Just how expensive corporate travelers will find the cost of doing business outside the United States in 2009 will depend largely on a single question: Is their trip to Europe or another part of the world? If the answer is the former, then the price of a hotel for the night and three square meals is likely to be much higher, as the 19 most expensive cities in the 2009 BTN International Corporate Travel Index are all in Europe. The index paints a pricier picture of what it costs business travel buyers spending U.S. dollars to do business in European cities than currently is the case, as it is based on prices and exchange rates from the end of the last business travel season.
Since the turn of the year, there have been two developments favorable to buyers: The dollar continues to appreciate against most currencies, including the euro, while the hotel market in most of Europe has softened considerably.
The trend of a softer market and stronger dollar could well make the picture rosier by the middle of 2009. This is in strict contrast to 2008, when the dollar was at its lowest point in more than a decade.
Consultancy Advito points out that in the current climate, negotiated rates often can be regarded as a ceiling to be undercut by better prices on the day. A third factor that also may make the hotel rates published here look higher, said Advito, is that far more of them this year include extras, most notably breakfast.
Advito derives average international and domestic hotel rates for this index from rates negotiated by corporate clients of its sister travel management company BCD Travel for 2009. Many of these were negotiated before the end of 2008. Similarly, Chicago-based management consulting firm Organization Resources Counselors calculated the price of meals and such miscellaneous hotel items as laundry using December 2008 data and exchange rates.
"In terms of exchange rates, it is looking a lot better for American travelers," according to Paul Robson, a foreign exchange strategist with Royal Bank of Scotland. "Don't expect the dollar to go back to where it was last year."
In some cases, the appreciation of the dollar already had kicked in by the time the prices for the 2009 index were calculated. London, for example, is up sharply in local currency but nevertheless fell $4 from last year's figure, and is down from fifth in 2008 to ninth this time around. Moscow remains third, but given its position as the world's most expensive city by far for hotel costs at $398 per day, this year's per diem of $527 could have been a lot worse had it not been for the ruble falling nearly 20 percent against the dollar.
Among other European cities, top of the table at $574 is Amsterdam, swapping second place this year with Paris at $570. Both are immensely popular with business and leisure travelers alike—to the delight of their hotels' yield managers—and both have seen precious little room stock become available in recent years. Perhaps more of a surprise is the rise of Madrid from 22nd last year to a tie for fifth this time around. It may well fall again by this time next year. Along with Ireland and the United Kingdom, Spain is one of the European nations hit hardest by the recession.
The inclusion of Caracas in the top 20 for the first time also may surprise some, but there are sound reasons for its appearance there. Venezuela is awash with oil dollars, which has led to the country experiencing the highest inflation rate in the Americas. At the same time, Advito said, security problems in Caracas are worsening, leaving buyers with a smaller pool of hotels offering adequate levels of protection for guests.
In contrast, while Europe has no cities in the bottom 25 of the top 100, the Americas have no cities other than Caracas in the top 50. Indeed, five of the six cheapest destinations in the 100 are south of the U.S. border. Cheapest of all cities on the list by far is La Paz. Its per diem of $123 is $36 less than Guatemala City, the next lowest.
Cities outside Europe make more inroads into the top 20 when food costs are stripped out of the per diem totals. Non-European locations make up one-quarter of the hotel top 20: Mumbai, New Delhi, Kuwait, Nairobi and, again, Caracas. The presence of two Indian cities on this list confirms India as one of the world's fastest-growing business destinations.
Perhaps more of an eyebrow raiser is that Bangalore is not one of this pair. India's IT capital was regularly featured in tables of the highest global hotel rates in the middle of the decade, but demand in this market has since overheated and subsequently been cooled by new supply. Whether Mumbai will continue to be so expensive, however, remains to be seen following the terrorist attacks on hotels and other prominent landmarks in November 2008.
When it comes to the cost of dining, a combined total of $237 for breakfast, lunch and dinner in either Amsterdam or Paris is a reminder of just how much travelers can eat—literally—into their budgets. However, not all meal costs listed here necessarily apply if one or more of them is already included in the negotiated hotel rate. Another caveat is that ORC's figures are at the top end of what travelers would pay in reality. They may pay such prices when entertaining clients or eating in a leading hotel or other restaurant, but much more modestly priced dining is available in nearly all cities.
Even so, the index shows clearly that meal costs play a role in making Europe so much more expensive than other regions. Amsterdam and Paris are among the top five cities for hotel costs and jointly are number one for food. In contrast, non-European cities with the highest hotel rates tend to be much cheaper for dining. Mumbai ranks 86th for food, with a three-meal daily total tab of $71, and Moscow is 39th. At $129 daily, food in Moscow costs more than $100 less than what it does in Amsterdam and Paris.
Not that Europe is the only region where eating is expensive. Japan is another budget-buster, with Osaka-Kobe ranked third and Tokyo 12th, while prices in the Gulf are moving up too, with Doha in 18th place, followed by Dubai in 19th.
The city where business travelers are most likely to find dining bargains is La Paz. The Bolivian capital is cheapest for breakfast, lunch and dinner alike, at $4, $8 and $17, respectively. Seven dinners here would buy one in Amsterdam or Copenhagen.
Looking at exchange rate prospects in more detail, Royal Bank of Scotland's Robson believes the dollar will continue its climb against most other currencies for another three months before falling back to current levels by year-end.
"In the short term, the markets will be risk-aware and crave liquidity," Robson said. "That means hedge funds and banks don't want to hold risky funds. The base currency for a lot of those funds is the dollar, so there will be a natural flow back into the dollar as they are sold. Another contributing factor is that the United States already has cut its interest rates to zero, and now the rest of the world is following. The U.S. also has launched an aggressive restructuring package and the cut in oil prices has been like a tax cut for consumers in such an oil-dependent country. In addition, there is optimism that the U.S. was first country into the slowdown and will therefore be the first one out."
Each of these factors contributes to RBS's expectation that the dollar will keep strengthening—but the good news will not last, according to Robson. "We expect the U.S. to find the challenges greater than it thinks and that its authorities may have to print more dollars," he said. "If supply goes up, the price will come down."
As a result, Robson tips the dollar to hit ?0.87 by the summer before returning to ?0.79, the rate as BTN went to press. He also forecasts the dollar/U.K. sterling rate to climb from £0.70 at present to £0.77 before falling again.
One currency against which the dollar has fallen in the past year is the yen, a trend Robson expects to continue. "The yen is performing better than nearly every other currency," said Robson. "Investors are taking their money back to safer places, and the Japanese economy does not have the same exposure to property and banking as the U.S. and U.K. We think the dollar could go down to ¥80 [from ¥93 at press time and ¥108 at this time last year], but the Japanese authorities could act to slow down the yen's appreciation."