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July/August 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Forecast 2017...

MAKING PREDICTIONS AND FORE­CASTS IS A PERILOUS GAME – just ask the succession of distinguished economic bodies that have had to backtrack on their predictions about how the UK economy would perform following the Brexit vote.

Anybody daring to put their head above the parapet could find themselves in the firing line if their predictions turn out to be wide of the mark. As the Nobel Prize-winning Danish physicist Niels Bohr once said: “Prediction is very difficult, especially if it’s about the future.”

Brexit has also undoubtedly thrown something of a curve-ball into the usual calculations – a survey of members of the Institute of Travel Management (ITM) found that 64 per cent thought leaving the European Union (EU) would eventually push up the cost of flying.

Despite these factors, making pre­dictions is still a game worth playing; whether it be about this season’s winner of the Premier League or next year’s likely movement in airfares and hotel prices. Luckily, a couple of the major business travel companies – Carlson Wagonlit Travel (CWT) and BCD Travel’s research arm Advito – have risked creating hostages to fortune to produce their forecasts for the likely direction of corporate travel in 2017.

These predictions include the two biggest costs within business travel: airline fares and accommodation rates. Plus other elements such as ground transport, and meetings and events, as well as more in­tangible developments such as the advance of technology and the potential impact of Brexit during 2017.

Air Travel

AVERAGE AIRFARES ACROSS THE WORLD are ex­pected to rise by around 2.5 per cent in 2017, according to research carried out by CWT and the Global Business Travel Association (GBTA), although there will be significant regional differences with continued low oil prices forcing fares in some major markets below levels seen in 2015.

The movement in airfares is likely to be a ‘mixed bag’ in the Europe, Middle East and Africa (EMEA) region. While CWT/GBTA is forecasting a 4 per cent rise in fares in eastern Europe due to “limited competition” in this part of the region, airline ticket prices in western Europe are set to increase by only 0.5 per cent. In the UK, airfares are set to rise by 2.2 per cent in 2017. Ticket prices in western Europe are only set to increase modestly next year because “competition remains intense in western Europe, with both major and low-cost carriers fighting for the same market share and continuing to keep airfares nearly flat”, says CWT/GBTA.

An example of this tough short-haul competition is Ryanair’s decision to slash fares to keep its aircraft full – the Irish carrier is predicting that its average fares will be 10-12 per cent lower for the current winter 2016/17 season compared with last year. But CWT and GBTA warn that travel buyers need to look beyond the headline airfares due to the growing importance of ancillary revenue streams such as seat allocation, onboard meals and hold baggage, as legacy carriers continue to look to unbundle their fares.

Airlines’ ancillary income is set to contin­ue growing as a proportion of airline revenue in 2017 and beyond. A good example of this trend is British Airways’ move to start charg­ing economy passengers for food and drink on short-haul flights from January.

Advito believes that global airfares will grow at an even lower rate in 2017 – with economy fares set to be flat on average compared to 2016 and business class fares only likely to increase by around 1 per cent – although there will be significant regional differences. “This is particularly true for regional business fares, where we expect a range from flat prices in Europe and Latin America to 3 per cent increases in Asia and southwest Pacific,” predicts Advito.

“There’ll be less variability in intercon­tinental business fares, which will rise by 1 per cent in North America, Europe and Africa, but will not change in other regions.”

So European buyers should expect a fairly “stable” outlook for airline prices in 2017, according to Advito, as long as there is “no economic or political contagion across Europe” as a result of Brexit. It is also worth bearing in mind that there are major elec­tions in France and Germany next year.

Advito adds that intense competition within Europe has led to such an “abundance of cheap published fares” for short-haul regional flights that the proportion of negoti­ated fares in European travel programmes is now “half the level seen in the US” and continues to “drop fast”.

Accommodation

THE POTENTIAL IMPACT OF MARRIOTT’S US$13 billion acquisition of US rival Starwood was discussed in the last edition of Buying Business Travel (issue 82) and nobody is expecting it to have sig­nificant impact on the market in 2017, particularly as completion of the deal was delayed for a couple of months by the Chinese competition authorities.

The CWT/GBTA study predicts considerable regional variations, particularly within Europe: it sees hotel rates on the western side of the continent rising by 1.8 per cent next year, while prices are forecast to fall by 2.4 per cent in eastern Europe due to corporate travel continuing to be depressed by low fuel and gas prices for key destinations, such as Russia. Prices in North America are set to go up by 4 per cent in 2017 and by an even higher rate in West Coast technology hubs such as San Jose, Los Angeles, Seattle and Vancouver. However, rates in New York are likely to increase more slowly than average – or even drop – due to an “oversupply” of rooms in NYC.

Buyers are set to face a 6.9 per cent increase in UK hotel rates, according to CWT/GBTA, which says that the UK continues to be “the strongest corporate market in Europe” despite the fallout from Brexit and the growth in the supply of hotel rooms, particularly in London since the 2012 Olympics.

But Advito is predicting a more modest 2-4 per cent increase in rates at British hotels in 2017, adding: “The UK has become a cheaper and more attractive destination for foreign travellers. With more UK travellers staying at home, and hotels anticipating an influx of foreign guests, pressure is growing on average daily rates”.

And there is further disagreement on UK hotel prices – Price Waterhouse Coopers (PWC) takes a much more conservative view on next year’s rates. It is predicting that average daily rates in London will increase only by 0.4 per cent from £141 in 2016 to £142 in 2017, while the average hotel rate elsewhere in the UK will rise from £68 to £70 year-on-year.

Liz Hall, head of hospitality and leisure research at PWC, explains: “Uncertainty is dangerous. And lower confidence pre- and post- the EU referendum, as well as an economic slowdown, has impacted corporate budgets. Add to this mix brisk growth in serviced apart­ments and Airbnb listings, and a case of weaker demand chasing more rooms.”

Road and Rail

 IT MAY NOT BE THE SEXIEST PART OF THE BUSI­NESS TRAVEL EXPERIENCE, but it’s probably the sector currently undergoing the most significant change and disruption – thanks to the likes of Uber and its competitors.

CWT thinks that this “intensely competi­tive climate” will keep ground transport prices flat across the world in 2017, and even decreasing by around 0.1 per cent in western Europe – although it expects prices in the UK to rise by around 0.5 per cent next year.

But looking beyond 2017, prices for car services could be pushed upwards by several factors, including some cities making it harder for the ‘sharing economy’ model to continue its rapid growth through the enforcement of tighter regulations, which has already led to several high-profile court cases.

“The outcome of these legal battles has already caused Uber to back out of certain markets, as regulating the business model could be complicated and costly, impacting its current attractive, low rates,” says the CWT/GBTA report.

Advito also thinks these legal hurdles in Europe could have an impact on the growth of “ride-hailing” services, while traditional taxi operators and car rental firms will continue to improve their technology to take on the likes of Uber.

“Daimler will merge its Mytaxi booking app with Hailo to better compete with Uber,” says Advito. “Europcar now oper­ates car sharing in five European countries through mobility start-up Ubeeqo. It’s using the company to develop a multi-modal platform, so that Ubeeqo customers can rent a car, order minicabs, book chauffeur services and rent cars by the hour with a single app.”

The picture for train travel is more fragmented and depends on each coun­try’s rail industry and level of government regulation. In the UK, regulated fares set by the government, which account for around half of all tickets, will go up by 1.9 per cent from January 2017 – a steeper rise than in 2016 when these fares rose by around 1 per cent.

Elsewhere in Europe, more high-speed rail links are being added, particularly in France and Spain, which will increase competition with airlines on short-haul routes around the region.

Meetings and Events

ORGANISING EVENTS AND MEETINGS IS A PROCESS WITH SO MANY WORKING PARTS that it can be difficult to work out how costs fluctuate between one year and the next – after all, every event has its own unique requirements and characteristics.

CWT/GBTA has at least had a go at assess­ing how these costs, per attendee per day, may change in 2017 and has estimated that they will remain flat in Europe, with only “modest increases” in North America and Asia Pacific. It also predicts that average group sizes will go up by between 3 and 6 per cent in all major regions, including Europe, apart from Latin America where groups are set to stay the same as 2016.

Advito says that the UK had been “leading European growth in demand for meetings” with strong forward bookings for both 2017 and 2018 before the Brexit vote – although some of these bookings have now been cancelled following June’s referendum result.

“Because of the devaluation of the pound, UK companies may be more inclined to hold meetings in the UK, rather than travel to Europe. At the same time, currency weakness will make the UK a more attractive option for European meeting planners,” argues the research firm.

“Brexit aside, 2017 is likely to be similar to 2016, with rates rising steadily and buyers facing challenges negotiating discounts and finding availability. They will try to hold down costs by choosing destinations closer to home.”

Relative stability in prices seems to be the main message from those brave enough to make predictions for 2017, but we live in volatile times and other currently unforeseen factors may come into play. This time last year, few believed the UK would really vote to leave the EU despite the looming referendum.

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