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For Business, Corporate Travel & Meeting Buyers & Arrangers

Outlook 2018: forecasts for the year ahead

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What lies ahead in 2018? BBT reads the travel tea leaves

Gazing into the crystal ball to try to guess what the year ahead holds is always fraught with pitfalls and the potential to get egg on one’s face.

 But forecasting can be a useful exercise in readying ourselves for the key factors, developments and events that are likely to shape travel management in 2018.

One of the biggest questions will be whether the UK’s future trading relationship with its EU neighbours after Brexit will become any clearer next year. There has been plenty of talk from the government about ‘providing clarity’ for business, but very few real details as the negotiations meander on in Brussels. And what about the two-year ‘transition’ period that is now on the table?

While everybody waits for these answers, most businesses are putting their post-Brexit contingency plans in place while ‘keeping calm and carrying on’ in typical British style.

Will there be any big surprises in 2018 similar to the ‘snap’ general election that ended with the government losing its majority in the House of Commons? 
What will US president Donald Trump do – particularly with potential flashpoints such as North Korea?

Who knows what next year will hold in geopolitical terms. So let’s confine these prognostications to what may happen in the key spending areas of air, accommodation, ground transport and meetings. Some leading lights in the industry also give their views on their key priorities and what to watch out for in 2018.

Air travel
Intense competition among airlines around the world has put downward pressure on headline airfares which, in turn, has meant prices have not gone up as anticipated despite the mild recovery in the price of oil during 2017.

Of course, with the legacy airlines following the low-cost competitors down the road of ‘unbundling’ their fares, the picture becomes more complicated with an ever-growing list of ancillary services that travellers can choose to purchase or not, alongside the basic fare.

BCD Travel’s consulting arm Advito expects overall business class fares to rise by 1 per cent globally in 2018, with short-haul economy fares also predicted to rise by 1 per cent. Advito also says long-haul economy prices should remain flat year-on-year. 

There are significant regional variations within Advito’s forecast: long-haul business class fares in Europe are set to rise by 2 per cent year-on-year, while European short-haul business and economy fares are predicted to increase by 1 per cent and 2 per cent respectively. Fares for domestic flights within the UK are expected to stay at the same level as during 2017.

Meanwhile, Carlson Wagonlit Travel (CWT) and the Global Business Travel
Association (GBTA) are forecasting a global rise in airfares of 3.5 per cent, although this will be higher in Europe with fares in the western half of the continent predicted to increase by 5.5 per cent year-on-year and by 7.1 per cent in eastern Europe, partly due to the hosting of the World Cup football tournament in Russia during summer 2018.

There could be significant changes in some of Europe’s key aviation markets, particularly Italy and Germany, as the futures of Alitalia and Air Berlin – both of which were placed into administration in 2017 – should reach some kind of resolution. 

Will there also be some fallout from Ryanair’s cancellation of more than 20,000 flights between September 2017 and March 2018 due to rostering problems? 

Ryanair may not be a favourite of business travellers but the airline’s aggressive pricing is a key factor within the overall short-haul market.
In addition, 2018 could be the year when buyers and their travellers could start to benefit from the NDC (New Distribution Capability) projects being carried out by airlines and TMCs, which are designed to make it easier to buy airline ancillaries through third-party channels.

Accommodation
The big question during the current 2018 RFP (request for proposal) season has been: what impact will hotel consolidation – particularly Marriott’s takeover of Starwood – have on negotiated corporate hotels deals?

“There is a progressive push from suppliers to move corporate buyers away from fixed, negotiated hotel rates and toward dynamic rate pricing,” notes CWT/GBTA. “While technology can accommodate dynamic rates, historically the rates have not proven advantageous for buyers.”

With this in mind, CWT/GBTA is forecasting a 3.7 per cent increase in global hotel prices with rates in western Europe likely to outpace this at 6.3 per cent. The World Cup will push up rates in eastern Europe by an anticipated 6.6 per cent. UK hotel prices are forecast to rise by 9.5 per cent, as the lower pound makes it an attractive destination. Brexit is not expected to have any real impact until 2019.

Advito agrees Brexit will have “minimal impact” on the UK hotel market next year, although it expects more modest growth in average daily rates (ADRs) of between 1 and 3 per cent. It expects hotel rates in Ireland to rise by between 5 and 7 per cent.

“The corporate rate availability issue will intensify as more hotels improve their inventory management,” Advito warns. “Business travellers will save money by staying in newly opened or refurbished high-quality midscale hotels.”

Looking at London, Price Waterhouse Coopers (PWC) is predicting its ADR is likely to rise by 2.2 per cent to £148 per room in 2018 – which would represent a slower rate of growth than during 2017 when rates are forecast to have increased by 3.6 per cent year-on-year to an average of £145.
PWC says hotels outside London are likely to see their average rates rise by 2 per cent next year to £72 per room per night.

PWC thinks Brexit is already having an effect on inbound corporate travel to the UK, which dropped by 3 per cent during the first seven months of 2017, according to figures from the Office for National Statistics (ONS).

“It appears that headwinds from policy uncertainty, including Brexit, have impacted this sector,” says PWC in its UK Hotels Forecast 2018, although it adds: “Hoteliers we speak to have not voiced concerns about corporate business levels.”

Ground transport
The traditional Cinderella element of business travel now generates a lot more interest – particularly around technology and the emergence of taxi-hailing services such as Uber and its competitors.

The most interesting development in the UK will be whether Uber can continue to operate in London after failing to have its licence renewed by Transport for London (TFL) in September. Uber can carry on serving the capital while it appeals the decision but it has already become a political “hot potato” with prime minister Theresa May questioning TFL’s decision for being “disproportionate”.

This issue has a long way to run yet. The key question will be what will happen to taxi prices in London if Uber is really kicked off the streets? Removing a major competitor from the market is unlikely to push prices downwards. Not surprisingly, competitors Mytaxi, Gett and Addison Lee saw a huge spike in app downloads following TFL’s Uber decision. Will other UK cities follow London’s lead in taking a tough stance on Uber?

There is disappointing news when it comes to UK rail prices, as a higher rate of inflation during 2017 means fares regulated by the government are set to rise by 3.6 per cent from the start of 2018 – the biggest increase in rail fares for five years and significantly higher than the increases of 1 per cent in 2016 and 1.9 per cent in 2017.

Looking more broadly, CWT/GBTA is forecasting ground transport costs globally will increase by 0.6 per cent in 2018. Although this rise is likely to be lower in western Europe at 0.1 per cent, and UK prices are predicted to be flat year-on-year.

Car rental is another one of the sectors where prices could be on the rise. “Corporate travel buyers should budget for a slight price hike in 2018 as the global car rental industry improves,” says CWT/GBTA in its forecast. “As demand improves, car rental companies will shift from a simple market-share focus toward profitability goals.”

In its predictions, Advito highlights the growth of new high-speed rail services in Europe, particularly in France, as an alternative to air travel. “Expect the appeal of high-speed rail for business travel to grow,” it says.

Meetings, incentives, conferences & events
Delegate rates in the EMEA (Europe, Middle East & Africa) region are set to rise in 2018, according to CWT Meetings & Events, which is predicting a 4 per cent increase in the cost per attendee per day across the region. 

Hotels are also beginning to “unbundle” their MICE prices, with CWT identifying a “move away from agreed-rate programmes to rate caps”, as well as hotels switching from delegate-per-day rates to prices based on rooms, food and beverages, and other services such as audio-visual facilities.

“This provides a good basis for negotiation: there are more angles open to discussion,” advises CWT. “Because there isn’t quite the same pressure on inventory [in EMEA], you can typically get better deals the closer you are to the meeting or event date.”

In terms of destinations, CWT predicts that the top three cities for meetings in Europe will be London, Barcelona and Berlin. 

Advito also expects meeting costs in Europe to go up in 2018 by around 3 to 5 per cent, which is similar to the level of increase seen this year, due to higher demand and a lack of new hotels with meetings space. Advito is also not convinced about the leverage that meeting buyers can now use on hotels.

“European buyers typically booked meetings early and renegotiated a better price nearer to the time,” says Advito. “Today, hotels know they can easily capture last-minute business through OTAs (online travel agencies), so they are refusing to lower the originally agreed rate. Buyers will have to think more creatively to keep costs down.”

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