Businesses Plan to Spend More on Travel in 2010, Yet Buyer’s Market Will Continue

Friday, January 15, 2010

Corporate travel forecast shows stable prices for air travel, hotels and rental cars

 

The start of 2010 brings good news and more good news for travel buyers.

 

After deep cuts in travel spending in 2009, businesses are starting to travel again, and the buyer’s market for travel services—air, hotel and car—is expected to continue at least through the first few months of the new year.

 

The global economic downturn which began late in 2008 forced many companies to take a hard look at travel spending in 2009. Some companies reacted by slashing budgets for travel. Others made dramatic changes in travel policy that sharply reduced spending.

 

In fact, 59% of the more than 100 travel managers responding to a poll by Egencia, a travel management company in Bellevue, Wash., say company travel slightly or significantly dropped in 2009, compared with 48% the year before. Ten percent saw a slight increase in business travel in 2009.

 

Findings of a survey of 180 travel buyer members responding to a National Business Travel Association (NBTA) survey late last year concur: Nearly half saw a drop of 15% in travel spending.

 

Survey respondents see this trend starting to right itself: Eighty-seven percent see travel stabilizing or beginning to pick up in 2010.

 

Analysts at corporate travel management consulting company Advito in Atlanta also saw travel volumes beginning to stabilize at the end of 2009, forecasting the number of trips to gradually move upward in the second half of 2010, gaining more momentum in 2011.

 

“Business travel has leveled off,” says Deanne Dale, vice president for strategic account management and consulting services at travel management company Travelocity Business in Dallas. “After about an 8–9% decrease in 2009, travel has come up a bit mid year and I think that’s where it’s going to stay. While we can’t expect levels to get back up where they were in 2008, we don’t see any further decreases unless something dramatic happens in the economy.”

 

Of the NBTA travel buyer survey respondents who say their companies plan to spend more on travel this year, 42% say the increase will come from employees taking more trips than in the year before. Another 18% say there will be more employees traveling. Ninety-three percent of these travel buyer NBTA members say their companies spend more than $1 million on travel annually.

 

The pick-up in demand for travel services isn’t likely to result in increases in prices at least for the near term. In 2009, respondents to the NBTA survey saw airfare decrease on average 24% to $299 (airline ancillary fees may increase the cost of a ticket by 30% or more); hotel rates fall 10% to $136 on average and car rental rates rise 2% to $46.

 

Looking ahead, travel buyers expect airfare to remain relatively stable, with pricing to change on average -2% to +3%; hotel room rates to continue falling by 2–8% and car rental rates to decline 1–3%. Here is a closer look at market conditions and pricing outlooks for air travel, hotels and rental cars:

 

AIR TRAVEL. In response to the lower demand for travel services which began late in 2008 and continued throughout last year, airlines reduced capacity, cutting routes and using smaller-sized aircraft. Their efforts brought total capacity in the second half of 2009 to their lowest levels since the same period in 2005, according to the airline guide publisher OAG. “As a result, this has been the most buyer-friendly marketplace in living memory, especially for business-class seats, where corporate discounts have been at historically high levels,” according to Advito’s 2010 industry forecast.

 

While Advito expects small increases in airfares this year, the travel management consulting company still has a negotiating outlook that will remain “excellent” for corporate clients, which “genuinely deliver business to their airline suppliers.”

 

Likewise, Carlson Wagonlit Travel in Minneapolis expects fares to increase somewhat in 2010. The TMC sees domestic airfares rising 3–5% by the fourth quarter of 2010. On the international front, the company forecasts a 4–6% increase in international economy class fares and a 5–8% rise in international business class fares.

 

Travelocity’s Dale sees airfares heading up a bit higher. “We are going to see increases of about 8% in the first quarter that we believe are going to stick,” she says adding that she tells her clients looking to hold costs in line that, “With air, it’s all about traveling smart. Take advantage of lower fares by pushing advanced purchasing and buying non refundable tickets. We’ve seen significant savings among our clients who do this, even with the increases in average ticket prices.”

 

Tom Gleason, North American president for HRG in New York, sees airlines “doing away” with business class in Europe. “We think the smart ones will create a better premium class into Europe, one that makes it easier for people to work on the aircraft and that has faster access through and out of the airport,” he says. “The price will be determined by how much the customer will be prepared to pay for the premium.”

 

As for the ancillary fees airlines are charging passengers for checking baggage, extra leg room and pre-boarding, Dale at Travelocity says they’re here to stay. Travel buyers are pushing their suppliers—both the airlines and the TMCs—to come up with technology to help them track and report,” she adds.

 

“There is push for additional technologies to capture and itemize these buckets at the point of sale and I think we’ll see some progress this year.”

 

HOTEL ROOMS. When companies cut back on travel spending last year, travelers not only started spending less time in hotel rooms, they also chose more mid-tier rather than upper-tier or luxury properties.

 

As a result, the American Express Global Business Travel Forecast for North America shows rates declining 1–4% at mid-range hotels and falling even further, 3–6% for upper range properties.

 

Smith Travel Research (STR) in Hendersonville, Tenn., tracks key metrics for the hotel industry. STR sees these metrics for 2009 off from figures of a year earlier. Occupancy is down 8.8% at 55%. Average daily rate (ADR), likewise, has dropped, 8.9% to $97.30, and revenue per available room (RevPAR) has fallen 17% to $53.52.

 

The outlook for 2010 looks slightly better, but still the industry is expected to end the year with decreases in all three key metrics: Occupancy is projected to fall 0.2%, ADR is forecasted to finish with a 3.4% drop and RevPAR is expected to close down 3.6%.

 

After completing negotiations with hoteliers for 2010 programs for its clients, Travelocity finds that rates have come in either flat with 2009 or with a decrease of 3% on average, says Dale. “Moving forward with the way capacity is going now, we don’t see rates increasing even through the 2011 negotiating season.”

 

Lower demand from business travelers is one reason for the decrease but perhaps as important, is a drop-off in hotels’ large groups and meetings business. “It’s freeing up capacity,” Dale says. “Add that to the fact that they started all this construction in 2008 and it costs them less to continue than to stop.”

 

Late in 2009, hotels are beginning to see an increase in demand from the groups and meetings sector. Companies, however, are very aware of their image especially in the media and do not want to be perceived as being lavish; they’re booking smaller events. “Instead of a party with 1,000 people, which essentially would be cheaper for them, they’re having smaller departmental celebrations,” says Dale.

 

CARS. Travel buyers negotiating agreements with car rental companies for 2010 and beyond will see little change in prices, say the TMCs. The American Express Global Business Travel Forecast shows rates holding steady with perhaps a 1% decrease to 2% increase this year. Reason: Declines in capacity due to travel cutbacks.

 

“Fleet costs are higher and car rental companies are keeping vehicles longer instead of turning them over when they hit a certain mileage level,” says Dale at Travelocity. “From a negotiations standpoint, we have not seen daily rates increase significantly, perhaps by 4% in the past year.”

 

Car rental companies too have come to rely upon fees for services as a source of additional revenue. Buyers will find fees related to higher fuel prices will remain intact as will charges for smoking and returning a vehicle whose needle on the gas gauge didn’t move during the length of the rental.

 

Dale expects buyers who negotiate agreements with car rental companies in 2010 to find the suppliers prefer a shorter term, 2–3 years rather than five years.

 

Top Five Most Pressing Issues for Travel Buyers in 2010

 

1. Reducing travel costs further

2. Travel policy compliance

3. Data/reporting

4. Uncertainties of the economy

5. Increasing the value of managed travel within the company

 

 

Top 10 Cost Containment Measures for 2010

 

1. Aduit T & E expenses (84%)

2. Strengthen mandates/enforcement of travel policies (77%)

3. Encourage or mandate online bookings (76%)

4. Reduce non-essential travel (71%)

5. Reduce number of attendees to conferences and events (69%)

6. Drive employees to travel alternatives (i.e., web-based meetings, conference calls) (67%)

7. Reduce number of meetings/events (58%)

8. Tighten purchase of requirements for business- or first-class tickets (54%)

9. Centralize meetings management/implement a strategic meetings management program (SMMP) (53%)

10. Reduce number of individual travelers (50%)

 

By Susan Avery — Purchasing, January 14, 2010