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Increased Airfare and Hotel Rates Across the Globe Expected According to the American Express Business Travel 2011 ForecastEconomic Improvement, Higher Demand, and Constrained Capacity Projected To Drive Airfare and Hotel Rate Increases

Companies Who Competitively Manage Budgets and Traveler Behavior Have Opportunity to Insulate from High-End Increases
NEW YORK,  October 20, 2010 -- 

American Express Business Travel today announced pricing projections from its annual Global Business Travel Forecast, indicating increases are expected up to ten percent for airfare and hotel rates in key markets around the world. Flat to slightly down prices are expected in car rental rates on average in North America and Europe, but up in Asia Pacific.

"Throughout 2010, companies have lifted travel restrictions brought on by red bottom line fears and this is expected to continue into 2011 as firms look more toward growing the top line. Yet pricing power will swing back to air and hotel suppliers for the first time in two years in 2011 as more competition for limited seats on planes and increased occupancy levels at hotels are expected," stated Christa Degnan Manning, director of eXpert insights and research, American Express Business Travel. "As a result, companies should re-examine program strategies and policies undertaken in the past few years and look to manage budgets and cost-control tactics competitively to protect them from the significant rate increases expected."

The annual Forecast, produced by American Express Business Travel’s Global Advisory Services research practice, eXpert insights, includes pricing predictions for 89 types of air fares (business and economy class tickets for long-haul, short-haul and trans border flights originating in 21 countries), as well as expected negotiated hotel rates for mid-range and upper-range properties in 317 North American cities, 36 Latin American cities, 127 European and Middle East cities and 55 Asia-Pacific cities. The Forecast also contains pricing trends related to ground transportation and meetings spending in key regions around the world, and a section on what companies and managed travel category managers should be doing to curtail their impact on companies’ bottom and top lines today.

Global Pricing Trends
Based on continued economic growth, increased demand, and constrained capacity, airfare and hotel rates are expected to grow up to high single digits in 2011, effectively bringing prices back to pre-recession levels. Asia is expected to lead pricing increases with established Western economies seeing less pricing expansion.

Global -- 2011 Forecast
Region Airfares Hotel Rates
  Domestic/Short-Haul (Economy Class) International/ Long-Haul (Business Class) Mid-Range Upper-Range
North America  2% to 6% 3% to 7% 1% to 5% 2% to 6%
Europe/Middle East  4% to 9% 5% to 9% 1% to 6% 2% to 6%
Latin America  3% to 7% 3% to 8% 1% to 5% 2% to 6%
Asia-Pacific  3% to 8% 5% to 10% 5% to 10% 5% to 10%


Meetings Projections

Companies will likely increase spending and frequency of meetings, however they will likely spend less per meeting on average as meeting size decreases and sourcing efficiencies increase. Aligning with this prediction, more meetings are expected to be held on local or regional levels, and will continue to have fewer amenities, with audio/visual services being the only exception. As planners incorporate virtual alternatives and supplements to face-to-face experiences, investments in these technologies are expected to continue to go up.

Setting the Agenda for 2011
In spite of the nearly across the board increases in business travel prices next year, most procurement and travel departments will still be expected to return incremental year-over-year savings to the business. This calls for a re-examination of many corporate policies and procurement procedures, such as lowest logical airfare selection, as travel suppliers offer fewer promotions and corporate negotiated rates resume importance in containing costs over time.

Manning continued, "Even with the expected increases in rates, businesses can preserve travel budgets and efficiencies by staying knowledgeable about industry pricing trends, planning appropriately, and supporting travelers to make the best decisions of how to spend those dollars. For example, average daily rates of hotels are expected to rise above 10% in many locations in 2011, however, corporate negotiated rates will be lower as hoteliers compete for corporate loyalty business and lock in volume business commitments. Companies will likely forfeit a lot of savings when employees book outside preferred agreements and channels and end up paying consumer rates in 2011."

Strategies for identifying savings in 2011 include:

  • Maintain Budget Competitiveness:
    A recent study produced by American Express Business Travel eXpert insights and the National Business Travel Association has linked both growth and contraction in corporate revenues to travel budget expenditures. Companies want to maintain a competitive budget for their industry by understanding the right level of spend to reach optimal revenue returns. Benchmarking travel expenditures to others in similar industries and peers is key to understanding a company’s competitive position in using travel to drive business in the marketplace. Understanding the competitiveness of supplier contracts, corporate policies, demand management and compliance techniques also helps to get the most trips out of those budgets and will help companies avoid absorbing expected price increases completely.
  • Fare IQ; Lowest Logical Fare vs. Preferred Fare Strategy:
    One of the areas where travel program tactics will likely need to be reexamined in 2011 is an approach called "lowest logical fare" in air booking. As airlines aggressively ran promotions to fill seats as people stayed home last year, many companies encouraged employees still on the road to take the lowest air fare available even with restrictions, as the cost to change a ticket plus the lower promotional seat base cost combined would likely be less than a more flexible but higher corporate negotiated fare. With fewer promotional fares expected to be available next year, a more likely strategy to reduce air costs will be more advanced booking, to both ensure a lower priced corporate ticket as well as availability on popular business flights. Airlines are expected to keep capacity constrained so business travelers will have to book out sooner for both cost and convenience purposes.
  • Book Transport and Lodging Together:
    Typically half of all air bookings with travel management companies today for an overnight trip do not include a hotel booking, leading to tremendous gaps in savings potential. As hotel occupancy goes up next year, hotels will also do less promotion and room block wholesaling to discounters, as well as carefully monitor yields to recoup the dramatic drops in rate they experienced over the last 2 years. Hotel cost-savings could be accomplished by ensuring employees book preferred hotels with an air reservation when appropriate, as well as drive volumes to preferred partners as a whole. This also helps plug potential security gaps in knowing where travelers are staying when they are on the road, hard lessons many learned during the ash cloud crisis in Europe in 2010.
  • Black-out dates increase in corporate hotel programs:
    Even with an aggressively managed hotel program from the traveler side, companies should be cautious during the hotel negotiation season of increasingly stringent terms and conditions that hotels are adding to their corporate contracts. Terms such as adding requests for cancellation fees and including more black-out dates on rooms and negotiated rates when availability may be tight are increasingly common. Volume commitment thresholds are likely to also be managed closely by hotel suppliers so vigilance is required when driving compliant traveler behavior in order to get the lower increases than what is expected from walk-up travelers next year.

A Decade of Air Fare Change
"Looking at the last decade, the industry has seen increased rates across all travel categories, with one exception: U.S. domestic base rates which are more than 16% lower than they were in 2000," said Manning. "This is likely a result of airlines supporting base rates through ancillary fees, making it more difficult for travelers and travel managers alike to calculate the true cost of flying. This point highlights the importance for travel buyers to be diligent in considering unbundled fees along with base rates in managing travel spending. However, we see that travel as a whole has not kept up with the rate of inflation in the US. With oil four times the rate of inflation over the last decade, travel prices are likely to continue to increase for the foreseeable future, making savvy travel management from both the supply and demand sides more important than ever."

As a whole, North America has already experienced a significant rise in rates in 2010 with domestic airfares up 39% for business class and 21% for economy short-haul; therefore only modest increases in airfare rates are expected for 2011.

The hotel industry in North America is encountering higher occupancy levels and as suppliers look to regain loyalty among business customers and increase rates, average booked rates are expected to trend higher. Corporate negotiated rates will likely increase 1%- 5% for mid-range properties and 2%-6% for upper range hotels while non-negotiated average daily rates are expected to rise.

Car rental rates are projected to be flat or decline in 2011 by up to 2% resulting from strong competition in the industry coming out of the recession and excess inventory. However, higher cancellation charges and new taxes and fees could drive the actual price per trip higher.

North America - 2011 Forecast
Region Airfares Hotel Rates
  Domestic / Short-Haul
(Economy Class)
International / Long-Haul
(Business Class)
Mid-Range Upper-Range
United States   2% to 6% 3% to 7%  1% to 5% 2% to 6%
Canada   2% to 5% 3% to 6%  2% to 6% 4% to 8%
North America 2% to 6% 3% to 7% 1% to 5% 2% to 6%


The Global Business Travel Forecast 2011 is available for purchase for $495 per individual user for existing American Express Business Travel clients and $995 per individual user for non-Business Travel clients. It is also included in the annual subscription to eXpert insights research, a series of more than 75 managed travel industry advisory publications and benchmarks offered at $1,500 per subscriber per year. To obtain a copy of the Forecast or subscribe to eXpert insights, please email advisoryservices@aexp.com or visit www.businesstravelconneXion.com.

Forecast Methodology
The 2011 Forecast is based on a number of primary data sources, including proprietary data from the American Express Business Travel Monitor, the American Express contracted rates database, aggregate transaction reports, and outside licensed data sources including Smith Travel Research (STR) Global Hotel Reviews and National Business Travel Association (NBTA) research on travel expenditures. Projections were based on a combination of these primary sources and interviews with American Express category and regional experts. All ranges represent forecasted year-over-year increases.

Although the forecasts and projections provided in the report are based on information gathered from internal and external sources that American Express Business Travel believes to be reliable, 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.

About American Express Business Travel
American Express Business Travel (www.americanexpress.com/businesstravel), a division of American Express Company, is committed to helping its clients maximize the return on their travel investment through cost savings strategies, world-class customer service, and greater spending control. With clients ranging from small businesses to multinational corporations, American Express Business Travel provides a combination of industry-leading technology, travel management consulting, and strategic sourcing and supplier negotiation support, alongside global customer service available online and offline. The Company also provides a dynamic online community (www.businesstravelconneXion.com) harnessing the collective intelligence of those in the business travel industry with a variety of perspectives, best practices, current research and industry news.

American Express operates one of the world’s largest travel agency networks with locations in more than 140 countries worldwide. Total travel sales volume in 2009 was $21.5 billion, including proprietary volume, volume processed through joint ventures, and American Express branded volume processed through its partner network.

American Express Company is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success. Learn more at americanexpress.com and connect with us on facebook.com/americanexpress, twitter.com/americanexpress and youtube.com/americanexpress.


Contacts

Tracy Paurowski212.640.8409tracy.j.paurowski@aexp.com

       
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