Forecasts for what 2015 will bring for business travel have been broadly positive, coming as they do after a long recession – but, as 2014 demonstrated, the world can prove to be anything but predictable. Amon Cohen reports
Autumn, John Keats tells us, is the “season of mists and mellow fruitfulness”. It is also, though curiously the great Romantic poet neglects to mention this point, the season of fat annual pricing forecasts thudding on to the virtual desktops of travel managers. So what do the 2015 crop tell us about how much companies will pay for travel in the year ahead?
At time of writing, only Advito (the consulting wing of BCD Travel) and GBTA Foundation/Carlson Wagonlit Travel (CWT) had issued their documents, with American Express yet to publish and Egencia opting not to join in for 2015.
Often, the only thing one can forecast with any certainty is that these companies’ predictions will contradict each other, but actually that isn’t correct this time. True, the Advito and GBTA/CWT’s figures don’t wholly align on air pricing, but the broad conclusions are the same.
Airfare and hotel rate rises in Europe will generally be modest (London hotel prices being a major exception), but elsewhere in the world, it is hotel rates that will be the big worry rather than airfares.
What is more, Advito and GBTA/CWT are remarkably consistent on hotel rates. For example, Advito quotes a 1-3 per cent range for Europe and 5-7 per cent for Latin America, while GBTA/CWT plumps for figures of 1 per cent and 6.3 per cent respectively.
The background to both reports’ thinking is that demand for business travel will expand in 2015, whereas supply will remain limited. Advito cites a forecast by Oxford Economics that global gross domestic product (GDP) growth will improve from 2.6 per cent this year to 3.1 per cent in 2015.
“Muted advances in travel supply will begin to put upward pressure on rates, particularly in high-demand travel markets,” GBTA/CWT concludes.
Improving economic conditions
Yet, as GBTA/CWT’s own figures, and those from Advito, attest, there are no predictions of the rampant price inflation one might expect this growing supply/demand imbalance to cause. That’s because the story is more complicated, as Advito explains.
“Companies will want to travel more, as economic conditions continue to improve in 2015,” its Industry Forecast says. “Yet more than five years after the height of the global recession, businesses remain cautious about spending too much too soon, so travel growth will be modest rather than spectacular.
“The same is true for price. In advanced economies, the combination of growing demand and limited supply expansion should, in theory, push prices up quickly. Yet travel suppliers remain deeply aware that recovery is fragile, so they are reluctant to raise fares and rates too fast.
Rises in line with, or just ahead of, consumer price inflation are most likely, although, of course, we will see many local variations.”
Those local variations are most likely where supply and demand are especially out of kilter. Hotels in New York, San Francisco, Buenos Aires and London are just a few examples.
In the aviation market, Advito expresses concern about the growing strength of the big three US carriers after the merger of American Airlines and US Airways in 2013 completed consolidation of the major domestic airlines.
Advito reports the big three have started pulling out of their competitors’ hubs, leading to higher domestic fares.
In Europe, however, not only is demand weaker than the rest of the world, but competition remains intense, both from low-cost carriers on short-haul routes and the Middle Eastern airlines on long-haul. That said, Advito draws a distinction according to the direction your long-haul travellers are flying.
“Fares may start to rise faster on transatlantic routes, as airlines operating in joint ventures realise the pricing power of consolidation,” it states. “However, for flights to the eastern hemisphere, the continuing introduction of new aircraft by Middle Eastern carriers should push down prices even more.”
Advito gives recommendations for how to manage air costs better in 2015. It urges challenging airlines on their surcharges and ancillary fees, which it says will keep rising, and increased use of demand management.
Stronger demand for hotels
Turning to accommodation, GBTA/CWT offers a blunt outlook of the challenges. “The hotel industry is currently enjoying a robust period of stronger demand, moderate expansion of new room supply, favourable capital costs, and an increase in investor interest,” it says.
“The improved outlook for hotel operating results in many major business travel destinations will mean greater pressure on negotiated rates for travel managers and buyers through 2015 and beyond. Whether via rates or through ancillaries, hotel operators will be in a better negotiating position than they have been for quite some time.”
In Europe, that fear holds particularly true in the UK, where GBTA/CWT forecasts rate rises of 3.5 per cent, driven by steep hikes in London. For the region as a whole, it predicts a more modest 1 per cent.
All is not lost. Advito suggests several tips for survival in this tougher pricing environment. It continues to emphasise its belief that hotels feel more brittle than they appear. “Don’t submit to hotel demands for large rate rises, especially if your spend with them is substantial,” it urges. “Hold to the rates you think are reasonable and below market levels.”
Other advice Advito offers includes negotiating combined deals for transient travellers and meetings with the same hotels and re-doubling efforts to hit negotiated volume commitments to preferred suppliers.
Advito also warns about so-called dynamic pricing – agreeing a percentage off the best available rate on the day instead of a fixed corporate rate. Buyers have generally shunned this, partly because it makes budgeting difficult, but mainly because they fear it ends in a dearer rate more often than not.
Advito suspects some hotels are nudging corporate clients towards dynamic pricing by restricting the number of rooms available at the corporate rate.
Dynamic pricing does make sense in some cases, Advito believes, for example for businesses whose travellers usually book well in advance. But old-fashioned corporate rates usually remain the better option. Advito therefore recommends buyers step up their auditing of how often their agreed rates are actually available.
“Armed with this knowledge, buyers can confront the hotel with clear evidence if they’re not getting the rates they negotiated,” it says. “Hotels are far less likely to block out customers that are actively monitoring their bookings.”
Finally, a warning from both forecasts, which have generally assumed continuation of the current relatively benign global economy: it could all change. Risks pointed out include security worries (notably Ukraine and the Middle East), and that the eurozone could slide again or the Chinese bubble bursts. And that’s not even taking into account the Ebola outbreak, which erupted after both reports were published.
LOOKING AHEAD TO 2015: WE ASK THE EXPERTS
Name one trend or likely development you think will demand buyers’ attention in 2015?
Global category manager, Citrix
I expect travel apps to continue tempting corporate travellers away from corporate booking tools, leading to calls for TMCs [travel management companies] to innovate to counter this trend.
Head of global travel, Syngenta
Ancillary fees will grow more and more as airlines unbundle to offset falling fares. There may be some security issues, given the numerous political and medical crises we are seeing globally.
Travel manager, Kongsberg
Buyers will need to commit to long-term relationships with a limited number of suppliers. We need viable suppliers.
UK general manager, FCM Travel Solutions
Duty-of-care and travel risk management will command greater attention in the procurement process. Given the increase in global travel risks and terrorism threats, we see this topic coming more to the forefront of buyers’ minds and they will need effective real-time solutions that integrate well into the travel procurement workflow.
CEO, Guild of Travel Management Companies
Buyers will need to find new ways of capturing the sentiment and interests of their travellers to maintain and improve compliance. Recommendation and word-of-mouth are ever-more important and becoming increasingly transparent.
The emergence of on-demand services such as Airbnb and Uber is putting incredible spending power in the hands of travellers at the moment of booking. There is less planning or thought – these are ‘just in time’ services.
Managing director, Sirius Management
The debate around open booking will continue, driven by traveller demand and the emergence of a technological solution that satisfies all parties. The reduction of choice, driven by airline joint-ventures, will impact more heavily on corporate airline programmes.
Chief sales and marketing officer for Europe, Marriott
Demand for a product that appeals on a personal level as well as for business. Lifestyle is as important for business as for leisure, and today’s travellers are not prepared to compromise on the style and technology they enjoy in their homes when they travel.
Staff vice-president, sales and affairs EMEAI, Delta Air Lines
Airlines offering wifi across their international and domestic systems.
Dean De Beer
CEO, Tristar Worldwide
I expect upward pressure on rates and fares as the economy continues to improve, causing demand to outstrip supply.
What is the one thing you would like to happen in 2015 (even if you’re not sure it will actually happen)?
TMCs offer a truly global, consumer-like platform for online booking, and single source, real-time reporting.
Airlines allow corporate clients direct access to their content.
Tailor-made airline products for travellers, distributed through their managed travel programmes, not via targeting them independently. If suppliers want to continue with corporate agreements, they must understand who the real customer is.
Some standardisation within travel technology. The tools are crucial to the travel procurement process but to date all suppliers have worked in silos, with no standards for traveller HR data acquisition, policy management, supplier usage or travel data interchange.
British businesses need to truly understand how to trade internationally, particularly beyond Europe and the US. I want to see responsibility for travel moved from finance to the commercial departments and for business travel to be regarded as an investment, not a disposable cost.
Corporations embrace mobile as a platform and stop being so restrictive. The ability for travellers to truly leverage travel applications while on the move can be revolutionary – and there are thousands of road warriors out there fed up with carrying two phones.
As a traveller, that the US introduces fast-track arrivals like we have in the UK for premium passengers, because the Trusted Traveller programmes are not good enough. As a buyer, that NDC is harnessed as a force for good.
The hotel guest experience becomes more digital. Mobile check-in and check-out will soon become the norm, and travellers will expect further technological innovation in service and personalisation.
Corporate buyers evaluate the total proposition presented by airlines as part of the contracting process, including competitiveness, operational reliability and corporate sales support.
Dean De Beer
Another runway at Heathrow. If London is going to continue to be seen as a major business destination, we desperately need it.