[UPDATE, Nov. 24: Forecast data from American Express Global Business Travel is included.]
[UPDATE, Oct. 1: Information from NYU’s outlook on expected hotel rate increases is included.]
For 2016, corporate travel buyers should expect hotel rate growth in the low- to mid-single-digit percentages while airfares on average show little change. Those are the bottom-line conclusions forecast by BCD Travel’s Advito and, separately, Carlson Wagonlit Travel with the GBTA Foundation. As always, expectations vary by region and actual prices fluctuate under the influence of many factors.
Both Advito and CWT/GBTA based 2016 price projections on improving global economies. They also assumed oil prices would stay relatively flat at around $60 per barrel (Advito) or gradually increase during 2016 to $70 per barrel (CWT). CWT/GBTA also expect global business travel spending to rise by nearly 7 percent next year, following similar growth in 2015, with Asia/Pacific growing fastest at 9.4 percent and North America around 5.4 percent.
On airfares, as always oil prices are the key. The lower prices that have held this year mean higher airline profits, emboldening some carriers to add capacity. That in turn usually means lower fares. Higher oil would mean less capacity growth — possibly capacity cuts — and higher fares. Overall, CWT expects global fares to rise 0.5 percent next year, down from 2.2 percent it had predicted for this year.
For North America, both Advito and CWT/GBTA referenced Southwest’s faster-than-expected growth this year. “Traditional full-service airlines are growing more slowly,” according to Advito. “They’ll have to add capacity if they want to retain market share.” As a result, “fares won’t rise in most markets,” and could drop where competition is “most intense.”
According to the BCD Travel consultancy, routes between large business centers and secondary cities are competitive, applying downward pressure on prices. “On all other routes (approximately 70 percent of the U.S. domestic network), especially from hub airports to smaller cities, competition is falling away and therefore fares are rising fast,” Advito wrote. “Return coach fares in excess of $1,000 from Atlanta to cities like St. Louis and Austin are not unusual.”
Yon Abad, senior director of CWT Solutions Group in the Americas, speaking today during a webcast, said competition is growing in Seattle, Los Angeles and Chicago.
Overall, CWT expects airfares in the United States to inch up 0.5 percent, with demand softened by a weakened oil sector. In other sectors, “companies also are traveling smarter, which means they control their demand — the amount of travel — and are implementing technology and policy adjustments really focused on looking for the best fares,” Abad said.
Different story north or the border, where the CWT/GBTA report calls for a 5 percent decline in average airfares. Abad cited soft demand stemming from “a high dependency” on the downturned oil sector.
Both Advito and CWT/GBTA noted healthy competition on transatlantic services as carriers — U.S. and foreign — add capacity. “There are real bargains to be had on some transatlantic services,” Advito wrote. “Of course such fares come with restrictions, like 30-day advance booking. Even so, discounting at this level indicates weakness in the market, and should encourage buyers to seek better corporate deals.”
Growing transatlantic competition also “means the joint ventures are offering higher negotiated discounts,” Advito added. “But in return they expect corporate clients to drop rival joint ventures from their air programs.”
For the other side of the pond, Advito wrote that while European air travel demand is expected to grow, “supply and competition will grow even faster, especially on eastbound long-haul routes.” Overall, it projected the region’s airfares to remain flat or drop by a percentage point or two.
The CWT/GBTA report for the Europe/Middle East/Africa had a similar take, anticipating very little change in airfares. It projected some markets to be down a percentage point or two, with any market-specific increases not exceeding 1 percent. CWT Solutions Group EMEA senior director Geraldine Valenti discussed how low-cost carriers are “adapting their offer to corporate travel” by serving additional primary airports and offering business class services.
For hotel rates, CWT/GBTA expects a global increase of 2.5 percent, nearly in line with the 2.6 percent they had predicted for this year. In North America, CWT/GBTA and Advito both projected average rate increases in excess of 4 percent. As in recent years, the story in most major markets is generally strong demand and limited new supply pressuring rates upwards — notably excluding New York.
Much bigger hikes again are expected in and around San Francisco. Advito described that market as a “nightmare for corporate travel buyers” because of the strong local economy and tech companies relocating “from the South Bay into the city.” CWT projected a 9 percent increase in San Francisco hotel rates and 8 percent in Los Angeles, compared to 1 percent in New York.
NYU School of Professional Studies Tisch Center for Hospitality and Tourism expects a national corporate rate increase to average between 6.5 percent and 7.5 percent. “This is a larger increase than the approximately 6.25 percent for 2015, which was the largest increase since 2006,” according to the report, authored by NYU clinical professor Bjorn Hanson. According to NYU, some buyers are looking to offset rate hikes by replacing some higher-tier properties with those in the select service and limited service categories.
Abad said the “good news” is that the pipeline of new rooms across the United States will increase during 2016, especially in the upper midscale segment, which should relieve upward pricing pressure from 2017.
Both Advito and CWT/GBTA noted that Airbnb has in some cases helped minimize rate hikes (again, notably in New York). Advito also suggested that “fears about economic problems in the eurozone and China could make hotel companies less bullish about pricing, even in the strong U.S. market.”
Meanwhile, for car rental rates, both reports projected little if any change versus current year pricing. Both pointed to better fleet management by suppliers. However, Advito reported that some locations “are selling out more often” and corporate clients face “an expanding list of blackout dates” when rentals at negotiated rates are not available.
Advito also said demand for car rentals is up, but like with airlines, “not spectacularly.” It said rental firms have been disciplined in maintaining flat fleet sizes to match demand.
Given hyper competition between the three primary suppliers (Avis Budget, Hertz and Enterprise/National), large corporate clients may secure “flat or even lower rates, particularly if they are prepared to change suppliers.” Advito hypothesized that a Hertz strategy to insist on higher corporate rates “could tip the balance.” It also suggested that some companies have accepted “minor rate increases” to re-sign with their preferred providers rather than going through the request-for-proposals process.
Additional info: Both reports based projections (see tables below) on various macroeconomic and travel industry forecasts. In addition to oil at about $60 per barrel, Advito assumed that global economic growth on 2016 would improve to 3 percent from 2.5 percent this year. Advito’s data sources included BCD Travel client data, International Air Transport Association, Oxford Economics, International Monetary Fund, Economist Intelligence Unit, Eurostat, OANDA (for foreign currency exchange rates), Official Airline Guide, U.S. Energy Information Administration, Flightglobal.com and Smith Travel Research. The CWT/GBTA report based projections on CWT transaction data, a Rockport Analytics statistical model, Moody’s Analytics, IMF, IATA, OAG, STR and GBTA travel manager surveys. The Amex GBT forecast is based on proprietary data and information from STR, Center for Asia Pacific Aviation and Airline Weekly.
2016 Hotel Rate Projections (year-over-year changes)
|North America||+4.3%||+4% to 6%||+3.8% to 6%/ +4.2% to 6.3%|
|Europe||+1% to +3%||+1.7% to 3.3% / +1.8% to 3.5% **|
|Asia Pacific||+3.0%||+1.3% to 3.7% / +1.6% to 4%|
|Asia||-2% to 0%|
|SW Pacific||0% to +2%|
|Latin America||+3.7%||+4% to +6%||+1.3% to 4.3% / +1% to 3.5%|
|Middle East & Africa||+1.0%||+1.7% to 3.3% / +1.8% to 3.5% **|
|Middle East||-1% to +1%|
|Africa||+1% to +2%|
** Covers all EMEA
2016 Airfare Projections (year-over-year changes)
|Intercon - Business||+1%||+0.4% to +2.9%|
|Intercon - Economy||-1%||+0.7% to +2.7%|
|Regional – Business||0%||+0.4% to +2.4%|
|Regional – Economy||2%||-1.5% to +1.1%|
|Asia Intercon -Business||0%||+0.6% to +2.6%|
|Asia Intercon - Economy||-2%||+1% to +2.7%|
|Asia Regional – Business||0%||0% to +2%|
|Asia Regional – Economy||-2%||+0.5% to +2%|
|SW Pacific Intercon - Business||-3%|
|SW Pacific Intercon - Economy||-1%|
|SW Pacific Regional – Business||+2%|
|SW Pacific Regional – Economy||0%|
|Europe Intercon - Business||0%||+1% to +3%|
|Europe Intercon - Economy||-1%||-3% to 0%|
|Europe Regional – Business||0%||-1% to +2%|
|Europe Regional – Economy||-2%||-2% to +1%|
|Africa Intercon - Business||-2%|
|Africa Intercon - Economy||-5%|
|Africa Regional – Business||-2%|
|Africa Regional – Economy||-5%|
|Middle East Intercon - Business||-3%||+1% to +3%|
|Middle East Intercon - Economy||-5%||0% to +1%|
|Middle East Regional – Business||0%||+2% to +5%|
|Middle East Regional – Economy||-1%||+2% to +3%|
|Intercon - Business||-2%||-3% to 0%|
|Intercon - Economy||-1%||-4% to -1%|
|Regional – Business||+3%||-3.5% to -0.5%|
|Regional – Economy||+1%||-4% to -0.5%|