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Business Travel Demand to Outpace Capacity, Drive Up Rates in 2008 »
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Business Travel Demand to Outpace Capacity, Drive Up Rates in 2008

Demand for business travel services will again outweigh supply in 2008, continuing to drive increases in rates for air travel, hotels, car rental and corporate meetings and events, according to (pdf) the American Express annual Global Business Travel Forecast.

Hotel rates, in particular, will soar with double-digit increases in demand-heavy markets across the US, Europe and Asia, projects the forecast, prepared by Advisory Services.

Shortcuts to tables that appear in this article:

“In 2008, we expect a domestic trip inclusive of airfare, car rental and hotel stay will increase 6%, or $63, bringing the average trip cost to a total of approximately $1,110,” said Mike Streit, vice-president and global leader for American Express Business Travel Advisory Services.”For an international trip, the increase is expected to be nearly 7%, or approximately $205, bringing the cost of an average trip to $3,171.”

Other findings from the study follow:

North America - Air/Hotel/Car Forecast and Trends

The Forecast projects that in North America prices will increase across transient segments, although at a slower pace due to anticipated slowing growth in business travel.

Forces driving prices up (as much as 14% for hotels in key US cities) include these:
- Air: More sophisticated airline pricing technology and premium prices for certain seats such as flat beds, seats with more 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 these:
- 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

Europe - Air/Hotel/Car Forecast and Trends

Pressures that may lead to increases in 2008:
- Air: Strong demand, particularly to Transatlantic, Far East, and South Asia
- Hotel: High occupancy (exceeding 80% in London)
Factors that could soften increases:
- Air: Competition between air and high-speed rail and low fare penetration
- Car: Highly competitive market

Latin America & the Caribbean - Air/Hotel/Car Forecast and Trends

Rate increases can be attributed partially to the following:
- 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:
- 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

Asia/Pacific - Air/Hotel/Car Forecast and Trends

The summer Olympics in Beijing is expected to drive up prices, along with economic growth, an increasingly mobile population as well as the following:
- 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:
- Air: Growth of low-fare airlines; also, airlines are expected to focus on building market share over profitability in the shorter term

Online Penetration Expected to Increase

Procurement and emerging technologies drive usage of online booking tools, with 51% 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.