To keep executives traveling while containing costs, companies will need to source smarter, tighten travel policies, strengthen compliance and adopt online booking tools, travel specialist advises
New York, NY — November 2, 2006 — Continuing demand for corporate travel without a commensurate lift in supply will push costs higher across the board in 2007, with airfares worldwide forecast to increase, albeit at a slower pace than in 2006, and hotel rates pegged to remain at heightened 2006 levels and surge in key business centers, according to the American Express Global Business Travel Forecast.
"Keeping executives on the road while holding budgets in check will be a challenge for organizations in 2007," said Mike Streit, vice president and global leader for American Express Business Travel, Advisory Services. "For instance, as compared to 2006, the Forecast indicates an average domestic North America trip inclusive of air fare, car rental and hotel stay will increase $46, or 4.5 percent, in 2007, and an average international trip with its airfare and hotel stay will increase $180, or 4.6 percent."
The American Express Business Travel Forecast prepared by Advisory Services shows a 3-5 percent increase in global domestic economy fares, and a 3-7 percent rise in global international business-class fares. Moderate airfare increases are expected as airlines pare back fare hikes, corporations focus on smarter buying and traveler security remains an area of concern.
Meanwhile, skyrocketing demand for hotels across all regions will continue to give hoteliers more control over negotiations, with few downward pressures available to stabilize pricing. Rising occupancy, limited supply growth and competition between leisure and corporate travelers will leave hotels with the confidence to increase transient rates.
Increases forecast for properties in North America range from 2-6 percent for mid-range hotels and 3-8 percent upper-range properties. In the Europe/Middle East/Africa (EMEA) region, the forecast ranges from 2-5 percent to 3-6 percent; for Asia-Pacific, 0-25 percent to -1-25 percent; and for Latin America and the Caribbean, 2-4 percent to 4-7 percent.
The Corporate Response
"We anticipate that more organizations will ramp up their procurement focus, implement new technology tools at the point of booking, update and strengthen their travel policies and focus on traveler behavior to ensure that negotiated savings are fully realized," added Streit.
He said that the migration to online booking, already well underway in North America, and the "visual guilt" associated with fare transparency will gain even more momentum as a strategic imperative across other regions of the globe. "We also expect to see a growing number of corporations zero in on corporate meetings spending as this area, until now, has been under-examined and is ripe for savings and control opportunities," Streit continued.
Global Air Trend Highlights
Airfares are expected to climb in 2007, though low-cost carrier penetration continues to dampen prices across the global airline industry. In North America, the continued emergence of low-cost carriers, along with weaker demand, will be balanced by reduced capacity and industry consolidation.
"Compliance-to-policy and tighter controls are necessary as airlines reduce capacity, increase fares and work with more sophisticated yield and contract management technology," noted Streit. "Containing costs often becomes as simple as communicating with your travelers about doing the right thing."
In Europe, upward pricing pressure continues to take hold in most regions. More passenger traffic and higher oil prices will be offset by continued low-cost carrier growth, increased capacity on high-traffic routes and competitive fare structure changes.
Within Asia-Pacific, low-cost carriers have maintained their momentum, consistent with the continuing deregulation in the region. The low-cost carrier trend coincides with an increased level of affluence across Asia-Pacific, improved mobility of the population and increasing demand. At the same time, full-service carriers continue to invest in product upgrades to retain the high-yielding corporate traveler, while shedding other operating costs. These developments will generally manifest themselves as upward pricing pressure.
In Latin America and the Caribbean, improving economic conditions are expected to spur business travel growth, both domestically and internationally. High oil prices and increased passenger traffic will be somewhat offset by greater capacity and the growth of low-cost carrier competition.
Global Hotel Trend Highlights
The hotel environment will continue to be challenging for buyers in 2007, with prices similar to those seen last year. Hoteliers are pricing discounts based on higher corporate and rack rates, as well as focusing on revenue and inventory management techniques, such as dynamic pricing.
"While the hotel industry will clearly continue to be a sellers' market in 2007, companies that take advantage of their long-term partnerships, negotiate aggressively and monitor program compliance will mitigate these increases and manage hotel spending better than companies that do not," added Streit.
In the U.S., hotel rates will continue their upward climb amid higher occupancy rates and limited supply growth. Europe will experience similar hotel rate increases.
In many corporate markets in the Asia-Pacific region, increased demand for hotel rooms will surpass the growing rate of air capacity, leading to higher overall hotel rates. In Hong Kong and cities in Australia, for instance, rates could grow in the double-digits in 2007. In India, demand is also outstripping supply.
Latin America and the Caribbean will likely experience increasing local and international travel, which will drive hotel rates higher, though results are expected to vary by country.
Regional Highlights: North America
In the U.S. market, domestic economy fares will rise 3-6 percent in 2007. More low-cost fares and a tighter focus on corporate policy compliance will be balanced by reduced capacity and continued industry consolidation.
International business-class fares will climb 2-4 percent as airlines boost nonstop flights to previously under-serviced destinations, though nonstop flights will be priced at somewhat of a premium.
In Canada, fares will rise 0-3 percent for domestic routes and 4-6 percent for international routes.
In the United States, hotel rates will continue their upward climb amid higher occupancy rates and limited supply growth. Rates in key U.S. cities, such as New York, may rise as much as 18 percent. Boston, Philadelphia and San Francisco rates are expected to climb 5-7 percent at midrange properties and 8-10 percent at upper-range properties.
In the North America car rental market, lower supply and fleet pricing increases should lead to four to six percent increases in 2007.
The Global Business Travel Forecast sees moderate air fare increases of 0-2 percent for economy fares and 2-3 percent for international fares throughout Europe. More passengers and high fuel costs will be partly offset by low-cost carrier growth and increased capacity.
In the United Kingdom, France and Sweden, airfares are expected to rise a moderate 1-3 percent. In Germany, the impact of low-cost carriers may push air fares down, and domestic fares may fall by 1 percent in 2007.
Hotel costs will increase amid significant business demand and higher occupancy rates. In the United Kingdom, rates will rise 2-6 percent; some cities, such as Edinburgh, will record rate increases as high as 11 percent. In London, overall rates will climb 2-5 percent in midrange hotels and 3-6 percent in upper-range hotels. Many London hotels will see already-high occupancy levels climb to as much as 80-90 percent in 2007.
In Europe, car rental firms will remain much more competitive than in the U.S. market. Rates are expected to increase 1-3 percent on a year-over-year basis.
Latin America and the Caribbean
In Latin America, improving economic conditions, more passenger traffic and high oil prices will continue to drive fares higher. However, these increases will be somewhat offset by greater capacity and the growth of low-cost airlines in the market.
Domestic fares in the region will rise 1-3 percent, while international fares will climb 4-7 percent, with Argentina and Brazil's business-class fares showing the largest price increases. Domestic fares in Mexico, however, are expected to decrease 5-9 percent due to the rapid growth of low-cost carriers.
On the hotel front, rates in most of Latin America's key business markets are expected to rise significantly due to more travel to the region. Hotel rates should increase an average of 2-4 percent in the midrange tier and 2-7 percent in the upper-range tier.
In Argentina, rates are projected to climb 4-6 percent at midrange properties and 4-7 percent at upper-range properties. Similarly, rates in Mexico should climb 2-3 percent at midrange properties and 3-5 percent at upper-range properties.
Car rental rates are expected to grow 1-3 percent on a year-over-year basis.
In Asia-Pacific, average air fares will climb 3-5 percent. Asia-Pacific also continues to power ahead on the low-cost front, and the region is expected to see its first long-haul, low-cost model by the end of 2006. India now has six low-cost carriers in the sky, with more to come in 2007, and the country is expected to be the world's largest low-cost carrier market by 2010.
On the hotel side, American Express Business Travel forecasts a 0-25 percent increase in midrange hotel rates across the JAPA region. Leisure travelers will continue to compete directly with business travelers for rooms, leaving hotels with the confidence to increase transient rates. Room inventory in the mature corporate markets of Australia, Hong Kong, Japan and Singapore is growing at a slower rate than air capacity, thus affecting supply and driving rates higher.
Rental car rates in Asia-Pacific are expected to grow 1-3 percent on a year-over-year basis.