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Business travel demand to outpace capacity by 2008: American Express

The recent American Express annual Global Business Travel Forecast states that Asia Pacific expects greatest price hikes as economic growth impacts the industry

The American Express annual Global Business Travel Forecast reports that demand for business travel services will again outweigh supply by 2008, driving continued increases in rates across air, hotel, car rental and corporate meetings and events. While worldwide airfares are expected to continue their climb, hotel rates are projected to experience high double-digit increases in demand-heavy markets across the US, Europe and Asia.

Libby Roy, GM and VP of American Express Business Travel, Japan Asia-Pacific and Australia (JAPA), said, "Travel managers and procurement professionals can expect another capacity-restricted, challenging year and a continued push to keep travel and entertainment budgets in check. However, opportunities still exist to further control costs without curtailing business travel. Heading into 2008, successful T&E management strategies will focus not just on controlling travel expenses, but also on identifying additional areas to control costs and save, such as entertainment and related services including corporate meetings and events."

The Global Business Travel Forecast, prepared by Advisory Services, predicts that in the Asia Pacific region the average cost of a domestic trip and an international trip will increase.

Libby adds, "In 2008, we expect a domestic trip inclusive of airfare, car rental and hotel stay will increase by just over eight per cent, or $99 AUD, bringing the average trip cost to a total of approximately AUD $1,293. For an international trip, the increase is expected to be more than five per cent, or approximately AUD $197, bringing the cost of an average trip to AUD $3,990."

Global airfare forecast

Pricing pressures that have influenced the rise in airfares in the past are expected to continue in 2008, but more competition in certain markets will help ease increases.

• Fuel costs, improvements in airline inventory and pricing technology, capacity constraint and demand for long-haul are likely to drive price increases.
• Greater competition anticipated through the USA-EU Open Skies Accord, growth of low-fare pricing models and more efficient aircraft will temper increases.

Global hotel rate/meetings spend forecast

Hoteliers around the world expected to continue to benefit from their market position in 2008.

High demand and slow growth of supply is likely to force prices up and will impact access hoteliers given to last room availability rates. Companies may also encounter minimum and maximum stay requirements and instances when corporate rates do not apply.

• Continued infusion of capital to hotels should benefit travelers through renovations and upgrades of properties and additional amenities, particularly in lower market tiers. However, these improvements will force hotels to maintain rates at historic highs.
• Rising hotel rates are likely to contribute to the expected increase of 8 per cent -10 per cent in global meeting spend (guestrooms account for nearly half of all meeting spend, excluding airfare).
• Focusing on meetings are an area of savings will help drive down T&E expenses.
• The summer Olympics in Beijing is expected to drive up prices along with economic growth, an increasingly mobile population and:
  * Air: High cost of fuel, aircraft upgrades, soaring demand, consolidation.
  * Hotel: Real estate and construction costs (slower growth in supply than demand), competition between leisure and business travelers.
• Downward pricing pressures include:
  * Air: Growth of low-fare airlines and airlines are expected to focus on building market share over profitability in the shorter term.
  

North America - Air/Hotel/Car Forecast and Trends

In North America increased prices are expected across transient segments, although it is expected to be at a slower pace due to anticipated slowing growth in business travel.

• Forces driving prices up (as much as 14 per cent for hotels in key US cities) include:
  * Air: More sophisticated airline pricing technology and premium prices for certain seats such as flat beds, legroom and seat location within a cabin.
  * Hotel: Demand still outpaces supply in key markets; hotels have improved yield management practices to maximize profits.
  * Car: Pressure from taxes and fees add to overall cost of rentals.
• Pressures that should help mitigate price increases include:
  * Air: Low-fare airlines, stronger policy compliance, increased competition from the USA-EU Open Skies Accord and increased Canadian flight pass products and web-based tools.
  * Hotel: Occupancy remains near flat as a result of newly-added supply in some markets.
• Pressures which may lead to increases in 2008 include:
  * Air: Strong demand, particularly to Transatlantic, Far East, and South Asia
  * Hotel: High occupancy (exceeding 80 per cent in London).
• Factors which could soften increases include:
  * Air: Competition between air and high-speed rail and low fare penetration.
  * Car: Highly competitive market.
• Rate increases can be attributed partially to:
  * Air: Strong demand from economic growth and high oil prices.
  * Hotel: Low supply and high demand for majority of the year.
• Several forces may deflate rate increases including:
  * Air: Increased capacity, the growth of low-cost airlines and fare matching strategies by incumbent airlines.
  * Hotel: New mid-range properties are expected to be added by the end of 2008.
  * Car: More competition for travelers' business.

Other 2008 trends to watch

Compliance & Change Management Strategies

• To handle increasing costs, companies should consider building travel program compliance through subtle change management techniques including seeking greater high-level executive involvement in policy implementation and clearly communicating policy details.
• Change management will likely focus attention on changing behavior in five key areas:
  * Lowering use of refundable airfares
  * Optimising use of advance purchase fares
  * Defining more narrowly when first/business class fares can be used
  * Driving online bookings
  * Improving use of preferred suppliers, especially hotels where compliance has historically hovered around 50 per cent
• Out of policy monitoring tools are expected to be implemented more widely generating greater policy compliance. We anticipate a 15 per cent to 20 per cent increase in sales of tracking/monitoring tools could be achieved.

Eco initiatives evolve into 'Responsible Business Travel'

• Companies are expected to increase the focus on responsible business travel practices related to the environment and the safety and security of travelers.
• Companies are expected to increasingly focus on understanding and measuring a trip's 'carbon footprint'.
• Although carbon offsetting remains popular, we think that this is likely proved to be a short-term solution that will be combined with policy and program management strategies.
• It has been seen that procurement and emerging technologies drive usage of online booking tools, with 51 per cent of American Express Business Travel clients in the US booking transactions online.
• Travel counselors are increasingly booking the complicated and multi-part trips while companies are taking advantage of online solutions for more simple itineraries.

Forecast methodology

Projections were based on a combination of statistical forecasting, in-depth research of supplier markets, regional economic trends, interviews with American Express industry analysts, and analyses of reports generated within and outside American Express. Smith Travel Research was also utilised for hotel research into specific markets and trends.

The forecasts and projections provided in this report are based on information gathered from a number of different internal and external sources and no representation or warranty is made as to the accuracy of the forecasts or projections made herein. In addition, actual changes in business travel costs could vary significantly from forecasted data, particularly as a result of unforeseen future political, economic and/or environmental events. All ranges represent forecasted year-over-year increases.