New York — October 29, 2008 — Airfares may fall back somewhat in 2009, but business travelers may wind up paying more to get where they're going as airlines continue to pursue new fees to boost their own bottom lines, according to the latest "Global Business Travel Forecast and Trends" report from American Express Business Travel.
Originally slated to release the report in September, the American Express Advisory Services department responsible for producing the study delayed its release in order to evaluate the impact of market activities that have occurred over the last 30 days.
In particular, over the past weeks, modifications were made to reflect the potential impact of the anticipated global economic slowdown. In certain markets, the forecast predicts a negative increase in 2009 to airfares and hotel rates. Both suppliers and buyers of travel and related services are expected to face new operating challenges in the coming year.
"Based on forecasted economic conditions for 2009 and the substantial increase in fares already experienced in 2008, it is possible that airfares in 2009 may decrease," said Hervé Sedky, vice president and general manager for Global Advisory Services at American Express Business Travel.
"However, this doesn't necessarily correlate to a decrease in prices paid as airlines continue their pursuit of expanding the suite of fees charged for services such as in-flight meals and baggage," Sedky continued. "In this difficult economic environment, successful [travel and entertainment (T&E)] management strategies will be based upon the total cost of a business trip, which takes into consideration costs such as parking fees, airline fees, meals and other related expenses."
Global Business Travel Forecast
Sedky said that, considering airfare, car rental and hotel stay, American Express expects the average domestic trip to increase 2.8 percent, or $31, to a total of approximately $1,139. An increase of 4.3 percent, or approximately $147, is expected for international trips, to bring the average cost to $3,556.
"However, if you include the costs of additional travel expenses, including baggage fees, dining, airport parking and even package shipping, it can add an estimated $400 to the total trip cost," Sedky said.
Global Airfare Forecast
The proliferation of new fees and a delicate supply and demand balancing act will determine whether airfares remain steady, increase or potentially decrease compared to 2008.
"In response to the record energy prices in 2008, many airlines began charging fees for different services such as checked luggage, in-flight refreshments and aisle seating. To help mitigate the impact of these new charges, which can increase air travel costs up to an additional 15 percent per trip, we advise companies to consider increasing their focus on demand management to ensure planned trips meet the guidelines designed to promote the most effective use of their business investment," continued Sedky.
Additional trends highlighted in the report:
- Capacity cuts are likely to lead to a shortage of available seats at lower price points, while changes in ticketing and minimum-stay requirements, uncertainty surrounding the future price of jet fuel, movement in airline consolidation and alliances and tighter controls over contract performance measurement are likely to drive price increases.
- Prices are predicted to experience downward pressure due to a slowing global economy, improved demand management by corporations and stronger traveler compliance. The expansion of low-cost carriers, more efficient aircraft and airline operations and the continued liberalization of the industry are also expected to mitigate increases.
Global Hotel Rate Forecast
Strategic Meeting Management Forecast
Cost Containment Strategies for 2009
- Companies should revisit their travel policies to ensure that travelers have a comprehensive guide to navigate the current travel environment.
- In addition to a tight travel policy, demand management and an increased focus on traveler compliance can deliver savings.
- Benchmarking that is based on average segment cost or average ticket price is no longer sufficient due to the expansion of airline fees. Companies should benchmark the entire cost of a trip in an effort to minimize expenditures related to business travel.
- Air: In keeping with global trends, the North American segment will likely see reduced capacity, increased ticketing restrictions, menu-based pricing (especially in the U.S. market) and stricter contract enforcement.
- Hotel: Demand for hotel rooms in key U.S. cities will likely continue to put upward pressure on rates.
- Car: Rental taxes and higher fuel prices may add to the strain on rental car budgets.
- Air: Reduced demand, potentially falling fuel prices and efforts by companies to gain greater policy compliance and demand management will likely help keep costs down.
- Hotel: As the pendulum swings toward a buyer's market, slowing domestic demand and occupancy rates (which could be offset by increases in international demand) coupled with increased inventory and tighter restrictions from corporations could moderate fare increases.
- Car Rental: Competition will help to moderate any increase in the cost of a car rental, while an anticipated increase in demand, which is expected to be led by corporations directing employees to car rentals instead of using their personal vehicles, will add pressure to increase the cost of a rental.
- Air: Increased demand on Asian business routes may drive higher pricing along with volatile fuel costs and a decrease in capacity for short-haul routes.
- Hotel: Demand is strong in cities with substantial oil and natural resource sector and gateway cities linked to this sector such as Aberdeen, Dubai, Oslo and Moscow.
- Air: The slowdown in the economy could cause a decrease in demand at the same time as competition for international and long-haul routes increases.
- Hotel: Decreasing demand as a result of slowing business traffic to areas exposed to the financial services industry (specifically London and Frankfurt) should help mitigate increases in 2009.
Latin America and Caribbean
- Air: Capacity reductions, driven partially by industry consolidation and liquidation, along with rising fuel costs should put upward pressure on airfares.
- Hotel: Higher operating costs may drive rate increases in the coming year.
- Air: Improved corporate travel policy compliance and demand management, along with increased penetration of the market by low-fare carriers, may help negate some of the projected increases.
- Hotel: A decrease in demand based on the current air industry situation and the introduction of additional supply to the market should help mitigate rate increases.