Smarter Sourcing Seen Needed to Counter Rising Air, Hotel and Car Rental Rates

Buyer demand, tightened inventories and higher supplier operating costs to continue upward pressure on corporate travel prices in 2007, predicts American Express Business Travel


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.

European Market

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.

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