CWT Sees Higher Airfares, Lower Hotel Rates in 2010

With airlines further scaling down capacity in the fourth quarter of this year, oil prices remaining relatively steady and demand starting to creep up, travel buyers should plan for airfare increases in all classes of service, according to a 2010 forecast Carlson Wagonlit Travel North America released this month. CWT, however, projects average daily hotel rates to fall considerably.

CWT estimates published domestic airfares for all classes to increase 3 percent to 5 percent from 2009 levels. International economy class fares are expected to rise 4 percent to 6 percent and business class fares 5 percent to 8 percent.

However, "airlines are doing a lot on the yield-management side to manage the ultimate price," said CWT Solutions Group Americas senior director Dale Eastlund. "You may have the discount off the full walk-up fare, but you have to book into a lower inventory for the best fare."

Eastlund said airlines are implementing more tiered pricing in discounts, especially on international routes where premium-cabin load factors have fallen dramatically.

"As a company drives business to suppliers and overperforms, airlines reward the buyer with stronger discounts," he said. "For those buyers not doing the right things or not driving the business where they should, airlines are building in a scale so you not only can go up in your discount, but can fall down."

CWT anticipates the hotel buyer's market will continue in 2010 as the average daily room rate will drop about $10 domestically compared with 2009 rates, taking into account promotional rates and upgrades.

CWT Solutions Group Americas director of hotel consulting Neysa Silver said decreases in average corporate negotiated rates would depend on when travel buyers negotiated their 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. As rates fell, many buyers renegotiated deals in 2009 for greater discounts, which are expected to remain the same in 2010.

While low occupancy levels will continue to aid the buyer's market in 2010, a further slowdown in supply growth in could spell trouble for buyers when the economy fully rebounds, said Silver.

"That isn't going to have an impact today because occupancy is already low," she said, "but we are going to bump up against a time again where demand is high and the economy is booming, and because they didn't keep a steady build rate, we are going to have high occupancy issues and rate pressures again."

CWT also projects pricing relief in average daily car rental and limousine rates, with drops of 1 percent to 3 percent and 3 percent to 5 percent, respectively.

The forecast is based on 2010 U.S. gross domestic product growth of 1.5 percent, a 10.2 percent U.S. unemployment rate, an average oil price of $70 to $75 per barrel and research by economists at the University of Minnesota and University of California, Los Angeles.