Additional support for projections of continued corporate-travel price hikes in 2008 emerged over the past couple weeks, with forecasters predicting demand-driven, generally single-digit percentage increases in air, hotel and car rates. Gains in published rates are expected to be steeper than increases for corporate negotiated rates, but travel managers can figure on budget impacts across all supplier segments, analysts said.
The Travel Industry Association this week said business travel in 2008 would grow by 0.4 percent to total about 502 million trips. "This slight increase will offset a projected decline of 1.7 percent in business travel for 2007, compared with a year ago," according to TIA.
The average domestic trip next year is expected to cost 6 percent more (totaling $1,110) than this year, according to the latest industry price forecast, from American Express Business Travel Advisory Services. Amex's 2008 Global Business Travel Forecast projected for North American purchases a 1 percent to 5 percent increase in domestic/short-haul economy fares and a 5 percent to 10 percent increase for international/long-haul business-class tickets. Hotel rates at mid-range properties are expected to rise 4 percent to 7 percent, with rates at upper-range properties increasing 5 percent to 8 percent in 2008. Car rental rates will also rise in North America next year, according to Amex, by an average 2 percent to 4 percent.
"Globally, three factors drove up the cost of business travel in 2007," said Mike Streit, vice president and global leader of advisory services for American Express Business Travel, during a media briefing. "Airlines operated at full capacity levels, the price of oil continued to rise and hotels remained at record high occupancy levels, in part because of greater competition between leisure and business travel. In 2008, we'll see little reprieve and these will again be the leading pressures causing fares and rates to increase."
Management consulting firm Runzheimer International forecasted a rise in average 2008 U.S. business travel expenses of 4.5 percent. Average domestic airfares will grow by 5 percent, according to the company's annual business travel forecast. Runzheimer expects buyers to resist hikes in hotel rates, tempering the average increase to 5 percent. The firm said car rental rates would increase by 3 percent.
The National Business Travel Association also issued its business travel forecast for 2008. A survey of 215 member travel buyers projected an average increase of 6 percent to 8 percent in U.S. business travel expenses. Members expected a 6 percent to 10 percent rise in their average airfares next year, fueled more by higher ticket prices than more trips.
Travel management companies BCD Travel and Carlson Wagonlit Travel previously predicted average rate increasesfor 2008. CWT estimated domestic published airfares would grow 4 percent to 7 percent and international fares would rise 15 percent to 20 percent. BCD projected a 2 percent to 4 percent increase in worldwide, published airfares, and a 2 percent hike in negotiated fares.
Now recovering from economic crisis, airlines are using more yield management techniques to increase revenues, according to Amex. "In both the U.S. and Canada, pricing technology will become more sophisticated and will lead to more menu-based pricing strategies, meaning airlines will be able to charge more intelligently for their products based on customer specifications. So, charging a premium for seats on the aisle, with more legroom and seats located closer to the front of the cabin," said Mitch Cwanger, air practice leader in American Express Business Travel Advisory Services.
Airfares are back to levels seen before Sept. 11, 2001, according to NBTA. All airlines have emerged from bankruptcy protection, and planes are flying fuller and more frequently then ever before. Eight percent of NBTA's buyer respondents said they were beginning to curtail non-essential travel to mitigate the higher costs, and 16 percent said they would cut business-class travel next year.
NBTA projected hotel rate increases of 5 percent to 7 percent for next year, although it also said lodging demand would begin to soften by the end of 2008 while a nationwide building boom continues to grow capacity. Citing Lodging Econometrics, NBTA said it expects 230,000 new rooms to the market next year. However, key cities such as New York, Chicago and San Francisco will continue to experience tighter occupancy and higher rates than the rest of the country. Dynamic pricing, meanwhile, may have been just a fad, as the number of hotels pushing for it has dropped, according to the NBTA report.
"Last year there was a lot of talk about the introduction of dynamic pricing contracts," said Amex's Streit. "But this didn't materialize to any great extent. Suppliers have started to back off from this topic."
Buyers are beginning to "revolt" against double-digit annual increases in their hotel costs, and if they cannot secure the rates they want, they are likely to downgrade, according to the Runzheimer forecast. NBTA members suggested they were trading down tiers, with 74 percent of respondents saying they would book fewer luxury hotels in favor of mid-priced properties.
In addition to Amex's 2 percent to 4 percent forecast on car rental rates, NBTA projected increases of 5 percent to 7 percent. Fleet cost increases for vendors have begun to soften somewhat, according to Amex, mitigating rate increases. Interest rates are also rising across the board, increasing expenses for vendors, as local tax proposals continue to loom. The average corporate base rate is $42, said NBTA, and negotiations are now including fees such as fuel charges and insurance.
Travel costs beyond air, hotel and car are also expected to rise, according to the industry forecasts. Meal costs will grow an average of 5 percent, according to Runzheimer, as hotels seek to pad profits with ancillary revenues. However, some of the companies surveyed by Runzheimer have placed caps on daily meal costs and are asking for complimentary breakfast service in their rate negotiations. NBTA members projected a 7 percent to 9 percent increase in their average meal costs in 2008, according to its survey.
Meetings-related travel is also growing, leading to higher costs for corporations. Thirty-one percent more of NBTA's respondents than last year expected to spend between $10 million and $20 million on meetings next year, and there was a 46 percent increase in the number of respondents projecting their companies would spend more than $20 million on meetings.
Amex projected a 10 percent increase in sleeping room rates for meetings due to high occupancy, leading a 34 percent increase in overall spending on corporate events. To contain costs, corporations are placing more emphasis on policy compliance, and half of U.S. corporations have a meetings policy in place, Amex said. " Compliance practicesbecame more common, and tools such as pre- and post-trip auditors gained attention based on their ability to assist in enforcing policy compliance," Streit said.