Non-U.S. City Per Diems Largely Hold the Line, as Hotel Rates Lag Demand Recovery

The global travel market may be recovering, but resurgent demand has not yet translated into higher subsistence costs for international corporate travelers. The 2011 Corporate Travel Index of 100 cities outside the United States shows the average per diem (consisting of one hotel room night, three meals and minor miscellaneous costs) is $352, almost unchanged from last year. In 2010, it was $348. The average room cost is even more stable, down by $1 to $189.

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For the second consecutive year, hotel rates for the index, provided by Advito, the consulting wing of travel management company BCD Travel, were based on actual prices paid by its corporate clients. With many companies reporting they had to concede higher negotiated rates for calendar year 2011, especially in such high-demand cities as London and Hong Kong, average paid rates could start to move higher during the coming months. For now, however, a state of equilibrium prevails: The average room rate in this year's Corporate Travel Index moved upward in half of last year's 10 most expensive cities for accommodation and downward in the other half.

The 2011 index, which includes one new international location, contrasts sharply with the unequivocal hotel buyers' market this time last year, when only six cities in the entire top 100 posted higher hotel rates than in 2009. Moscow dropped almost $200 to $309. This year, the Russian capital is up $2 to $311, enough to once more make it the non-U.S. destination in 2011 Corporate Travel Index with the highest hotel costs, after it fell to third in 2010. It is the only city this year with a rate above $300, compared with three cities in 2010 and 13 in 2009.

As was the case last year, destinations with oil and gas connections—Moscow, Muscat, Kuwait, Riyadh, Kiev and Stavanger (home to the Norwegian oil industry)—dominate the list of the 10 foreign cities with the highest hotel costs. Four of the top 10 are in Western Europe and four in the Middle East, although the cast of Middle Eastern cities has changed. Out of the top 10 go Abu Dhabi and Doha, as did Dubai the year before, and in come Tel Aviv and Riyadh. Kuwait and Saudi Arabia have not indulged in the feverish hotel-building of their neighbors in Qatar and the United Arab Emirates. Consequently, rates have stayed high. Riyadh rose from 23rd last year to sixth, with its average hotel rate growing from to $271 from $242. Meanwhile, Muscat remains the second-most costly city for hotel rooms, although the average rate fell to $294 from $316.

In contrast, oversupply in other Gulf states has driven hotel prices down much faster. Abu Dhabi in 2010 was the most expensive non-U.S. city for hotel costs, but this year fell to 18th, with the average rate down to $246 from $322. Dubai last year suffered a similar fate and dropped again this time, by another $22 to $216.

The other city that exited last year's top 10 is Caracas, where the average hotel rate is down to $211 from $273. Venezuela is facing mounting economic problems, including negative growth and a 30 percent inflation rate, and the value of its currency, the bolivar fuerte, since the beginning of 2010 has halved against the U.S. dollar. Small wonder that it slipped in the rankings to 30th from fourth. Another capital city in a country that has faced economic problems is Dublin, where the average hotel rate fell more than 10 percent to $153, dropping the city to 84th from 54th.

Meanwhile, several Asian cities have moved in the other direction. Among those with rates rising in excess of 10 percent are Hong Kong, to $257 from $229; Shanghai, to $210 from $173; Shenzhen, to $184 from $145; and New Delhi, to $248 from $212.

Hotel costs, though, account only for a little more than half of the per diem total in the Corporate Travel Index. When food and miscellaneous costs are considered, the picture of the priciest cities to visit changes. In particular, Western Europe looks more expensive thanks to its high dining costs. It accounts for eight of the hotel top 20 but 12 of the overall top 20.

On the per diem list, Moscow ranks sixth and Geneva emerges as the world's dearest city, with a total cost of $526 per day. It is just ahead of Oslo ($525), while Stavanger is in fourth ($512). Japan is another country that becomes much more expensive. Tokyo is the 14th most expensive destination for accommodation, but it's third on the overall list ($516). Similarly, Osaka is 41st on the hotel list but 15th on the per diem list. Conversely, the Middle East looks cheaper once food costs are factored in. Riyadh is 28th in the overall top 100, Muscat 36th and Tel Aviv 67th.

As always, a caveat is required about the food costs, provided by consulting firm Mercer. Top ranking this year goes to Sydney, with a total cost for breakfast, lunch and dinner of $244. There is no doubt a visitor could eat three good meals there for considerably less, but for a businessperson entertaining three times in one day, the figure is not unrealistic. Following Sydney on the food cost list are Tokyo ($237) and Oslo ($234).

With only a few exceptions, such as Caracas, costs in this year's Corporate Travel Index have not been affected dramatically by currency fluctuations. True, the U.S. dollar has fallen around 10 percent against the yen in the past year, but it has risen by around the same margin against the euro and is almost unchanged against sterling.

In terms of how the dollar will perform during the year ahead, Paul Robson, London-based senior currency analyst for Royal Bank of Scotland, foresees a mixed picture. He believes interest rates in the United States will rise during the next six months, pushing up the value of the dollar, although toward year-end it will weaken again as concerns about the U.S. fiscal situation intensify.

The dollar's path also will be influenced by pressures on other currencies. "For the euro, the outlook remains in the balance," said Robson. "European Union policymakers may have found a framework to tackle the weaknesses of some of its peripheral states, such as Greece, Portugal, Ireland and Spain. However, a lot of good news about the periphery has already been reflected in the price of the euro, so we think from now on it will struggle, although not dramatically." At press time, the dollar was worth €0.71. Robson thinks this could reach €0.80 by the middle of the year before moving back to around €0.77 by year-end.

Against sterling, Robson expects the dollar in the first part of 2011 to strengthen to around £0.66 from its early-March level of £0.61, before falling a bit by year-end. The yen is harder to predict. For several years it has defied forecasts of a major fall in value, but Robson still believes one eventually will happen. "Continuing deflation and a weak economy mean the yen looks very expensive against a wide range of economies," he said. "We would expect the dollar to rise fairly steadily against it throughout 2011." RBS tips a year-end figure of ¥90 compared to ¥82 early this month.

The dollar's performance against the euro, sterling and the yen is unlikely in the year ahead to drastically affect international costs. However, these three currencies now account for a smaller proportion of most U.S. corporations' foreign travel expenditure than they did a decade ago. Much of the growth is in Asia (beyond Japan), and on this point Robson raises a red flag for travel managers. Hotel rates in several Asian destinations rose significantly in this year's index despite the dollar staying virtually unchanged against their currencies. Robson thinks exchange-rate movements in the years to come could add to the problem.

"Generally, where the dollar will struggle most is against the currencies of Asian countries which have trade surpluses," he said. "It is likely their currencies will appreciate to slow the economies down. Countries like China, South Korea and India will become more expensive over the next one to two years. The days of cheap travel, hotels and food in Asia are long gone now."

Methodology

The 2011 Foreign Corporate Travel Index is based on research by BCD Travel's Advito Consulting unit and New York-based management consulting firm Mercer.

Advito provided average upscale daily hotel rates paid in 2010 by businesses. Mercer provided actual January 2011 menu item costs for hotel continental breakfasts, lunches of sandwich, salad and nonalcoholic drink and dinners of a fish, chicken or beef entree, salad and a nonalcoholic beverage.

Mercer also provided miscellaneous lodging expenses of two taxi fares, a newspaper, a bottle of water and a magazine. Local prices in 100 non-U.S. business destinations were converted to U.S. dollars using rates from Jan. 28, 2011.

The roster of cities in this year's Foreign Corporate Travel Index is identical to the 2010 roster, with one exception: The 2011 Index includes San José, Costa Rica, instead of Manama, Bahrain.