2015 Business Travel Forecast: Air, Hotel Prices to Rise

By John Hall

August 18, 2014 at 8:00 AM

Two months before the Global Business Travel Association (GBTA) opened its annual convention in Los Angeles in late July, early attendee registration was already at its highest level ever and went on to set an all-time record, validating the group’s positive outlook about corporate travel this year and next. 

In its second-quarter report, in fact, the GBTA reported that companies spent more than $71 billion on U.S.-originated business travel during the first three months of 2014 – a nearly 8% increase from the year before – echoing signs of continued economic recovery, positive hiring trends and improving consumer confidence.

Even as turmoil and unrest seem to be cropping up like Whac-a-Mole™ through parts of Eastern Europe and Western Asia this year, there are no signs business travel is slowing down as international outbound trip volume continues to build momentum. In fact, global travel spending is up and expected to grow in the 5% range in 2014 and possibly more in 2015, GBTA reports.

HOTEL_RATE_FORECASTS.jpgGBTA tells corporate travel procurement organizations to expect moderate price increases across the globe. Domestically, buyers will see flat ground transportation rates, but can expect air price hikes of about 3% and hotel price increases of about 4.5%.

Meanwhile, the number-one challenge nearly every corporate travel buyer/manager will continue grappling with in the coming 18 months will be keeping business travelers from straying beyond corporate negotiated arrangements with preferred airlines and hotels.

Calm Pricing Rest of 2014

As robust as U.S.-originated travel volume was in the first quarter, it still was down for the first time in three years, according to GBTA, which attributed the drop to a seemingly endless spate of bad weather, as well as fewer exports, structures and equipment investment, inventory accumulation, housing, and weak state and local government spending.

With spring weather, however, comes a far rosier outlook for the remainder of 2014, according to GBTA. Much of it stems from very encouraging economic signs that typically accompany fatter travel budgets and fewer travel restrictions, according to the 2015 Global Travel Price Outlook sponsored by GBTA and Carlson Wagonlit Travel. When the year comes to an end, U.S.-originated business travel is expected to reach close to $293 billion – a nearly 7% increase, according to the report. Moreover, group business travel is outpacing so-called “transient” business travel for the first time since the Great Recession.

Among the positive economic signs the report cites are:

  • Improving consumer spending (up 3% this year).
  • Jobs growth (June net job growth reached 288,000 in total, up from a revised 224,000 in May).
  • Slowing rates of unemployment and layoffs (near pre‐recession levels).
  • A positive, albeit sluggish, link between corporate profits and domestic business travel trips and spending.
  • Oil supply that is currently tracking well above oil demand, which could mitigate otherwise huge spikes in airfares.
  • Borrowing and capital equipment spending are up.

Even though factors such as higher hotel average daily rates, meal and rental car prices kept it up this year, GBTA expects travel price growth will stay reasonably low through December 31 (about 1.9%) before picking up steam in 2015 (a little over 3%).

2015 Forecast

According to Joseph Bates, GBTA Foundation Vice President of Research, most travel procurement managers already are bracing and prepared for the forecasted single-digit increases in air, hotel and ground pricing in the coming year.

bates_joe_12_GBTA_4c.jpgThe expansion of emerging markets is largely fueling healthy gains in the global GDP (projected to hit 4%), tempered by slower exports, higher domestic inflation, flat-to-falling commodity prices, and financial imbalances. Meanwhile, sluggish gains in travel supply could pressure rates to climb, especially in high-demand travel markets, according to the GBTA/CWT report.

The biggest bite out of corporate travel dollars is likely to come from emerging markets such as China and India, where sluggish supply could keep prices quite high in the hottest destinations, according to the joint forecast. China leads the top 15 travel markets in the world in forecast travel spend for 2015 – a 17.8% increase. Russia follows with a whopping 13.6% increase from the minus 5.4% in 2014, followed by India, where 2015 travel spend is expected to go up 7.6% (from 2.1% in 2014). It’s unclear what impact existing trade sanctions on Russia will have, however.

 Still, the most recent forecast points to very healthy increases in U.S.-originated international outbound travel spend, which GBTA and CWT expect will grow by nearly 10% next year. Overall global travel spend is expected to increase 8.6% in 2015, up from about 7% this year. Among the top 15 business travel markets in the world, only the U.S. and Brazil are expected to have lower increases in travel spend from 2014. 

AIRFARE_FORECASTS.jpg

Here’s a brief look at forecasts in major travel spend categories:

  • Air. Airfare will continue taking the biggest chunk out of corporate travel budgets in 2015 as capacity grows sluggishly, according to the GBTA/CWT report. Expect airfare prices globally to go up 2.2% (about 2.5% in North America). The growth of low-cost carriers in North America and Asia-Pacific, meanwhile, could keep a lid on significant fare hikes among the more established carriers.
  • Hotel. Favorable capital costs and surging demand could make price negotiations tough in the coming year, in which overall global prices will rise about 2.6%. If your travelers are heading to Latin America, be prepared for sticker shock: hotel costs there are expected to boom by more than 6%.
  • Ground. The ground transportation industry is awash in inventory and competition is high – the perfect storm for what GBTA is forecasting as a flat year in terms of pricing just about everywhere except Latin America (2% hikes are seen). Expect much of the same with car rentals.
  • Meetings. Expect meeting costs per attendee to rise globally about 3% except, yes, in Latin America, where they will likely soar close to 9%.

Challenges for Buyers

Travel spend is an area of corporate procurement that’s rich in as many opportunities to save as there are challenges. Here are a few key ones and how buyers may or may not be addressing them.

Risk Management. Chances are very good this was the singular most important challenge every travel manager faced in the days, weeks and months after 9/11. And although the world has become exponentially more volatile and dangerous since that time with the current Ebola outbreak and conflicts raging in Ukraine, Syria, Israel and the Congo, buyers have far better and more sophisticated tools now to manage risk. Risk and security management is still one of the primary functions of a corporate travel program,” GBTA’s Joe Bates tells My Purchasing Center

“It seems every year there are more and more perils for travelers but it’s hard to quantify that,” he says. “Perhaps because we’re more interconnected and the media is more globally focused, we’re seeing those things being highlighted. Travel managers today know where travelers are going, when they’re there, how many are there. They monitor state department alerts. Private companies provide real-time security information. There’s a lot that goes on behind the scenes that travelers never think about. Clearly, if you have a hot spot in one place it will impact travel to and from that location, but other than that, I don’t think it’s really impacting travel that much. I don’t think it’s really changing behaviors that much.”

Paying Suppliers. The challenge isn’t actually paying the bills, but how those bills are paid. One area that keeps travel managers up at night is the increasing use of mobile payments. “Use of mobile technologies is still an issue many travel managers are struggling with,” Bates adds. “Within the payment space, both mobile and virtual payments have a great deal of interest.” At GBTA’s recent convention, payment solutions were popular topics in many breakout sessions. One explored the concept of single-use virtual accounts in the B2B space and how they have evolved to address security and control concerns. Another explored the problems that happen when meetings management, travel procurement and expense processing are managed and reported by separate units inside companies. Still another dealt with the confounding amounts of transaction and fees associated with automatic payments to suppliers.

joel-wartgow.jpgDynamic Pricing. It’s a practice hoteliers have used for years. “Dynamic pricing, or a percentage discount off of a hotel’s best available rate (BAR), has been strongly advocated by hotel suppliers over the past years, but corporate travel buyers have not been convinced, continuing to opt instead for flat negotiated rates,” CWT notes in a recent study it conducted.  

“Hoteliers haven’t yet figured out a value proposition that makes sense for buyers,” Joel Wartgow, Senior Director of the CWT Solutions Group, Americas, tells My Purchasing Center. “It may be good for hoteliers because they can adjust pricing based on demand, but it’s not so good for buyers needing to set budgets.” 

Bates, meanwhile, says the practice is here to stay and that about one-third of corporate programs currently participate in some kind of dynamic pricing arrangement. “In the past, it’s been ‘Let’s negotiate a flat rate across all the properties for certain room types and that’s what we’re going to live with for the next year’,” he says. “Because the hotel space has moved ahead of that due to consumer travel – not business travel, hoteliers are offering certain rates through yield management techniques that the airlines have been doing for a very long time.” Meanwhile, travel managers are getting frustrated by the access their travelers have to Web-based sources like Expedia and even social media. “The hotels are simply providing rates based on supply and demand. Even if travelers find a cheaper rate and take it, they very well might get into trouble with corporate for doing that because of the existing contracts they have.”

Fee Creep. Consumers may grumble about all the fees they have to pay, but many corporate travel buyers agree ancillary fees are getting out of hand, Colleen Lerro, Senior Manager, GBTA Communications, tells My Purchasing Center. The most recent headache is the Transportation Security Administration’s (TSA) decision to more than double its fees across the board on non-stop and connecting flights. GBTA expects the proportion of revenue airlines capture from ancillary fees such as baggage fees, seat upgrades and inflight services will only continue growing. It’s not just [the TSA] fee, airlines are now trying to raise passenger facility charges to the maximum,” says Lerro, adding that ancillary fees currently represent 20% or more of an average plane ticket today. “It’s almost as if business travelers are being treated as an ATM with a bottomless amount of money to spend,” she adds. “We’re trying to raise awareness about all these taxes and fees and are saying there needs to be a better way. There is bound to be a tipping point.”

 colleen-lerro.jpgCoping with Price Increases. While many travel buyers are successfully navigating price hikes with thoughtful, strategic planning, others are stymied when confronted with 2015 budgets that look pretty much like 2014. “They’re being told by their bosses ‘You need to hold the line on spending’ but the travel manager is saying ‘there’s this simple thing called inflation and we at the very least have to budget for inflation’,” Bates says. What can travel managers do to cope with this? Shift volume in the airspace to low-cost carriers, putting additional restrictions around flight scheduling options and more strategic meetings management. Wartgow adds a few more tips: Negotiate better deals with suppliers, consolidate the volume and number of suppliers, and evaluate commitments, policies and guidelines.

Compliance. It likely is the single most pressing issue corporate travel buyers face today. And it probably represents the greatest opportunity for savings, says Wartgow. “You can continue eking out small levels of savings by negotiating better contracts over time or controlling your spend differently, but the bigger opportunity is getting travelers to make better travel decisions,” he says. “The most advanced, mature travel programs today have established relationships in the vendor space such as preferred hotels, airlines, etc. that allows them to take advantage and capture all the savings from those activities. Once you’re able to convince travelers to use those preferred vendors and follow the guidelines you’ve established and communicated, compliance is much less of an issue.” 

CWT, for example, rolled out a new mobile “gamification” app that engages travelers with light-hearted games, as well as a report card tool that rates individual travelers’ behaviors. Such efforts have lowered costs by about 4%. “This may seem small, but remember it addresses a category that’s historically been very difficult to have an impact on – compliance,” Wartgow adds.



Tags: purchasing Supply chain management Procurement sourcing travel airfare hotel meetings ground transportation room rates
Category: News Article

John Hall

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John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com


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