During the holidays, I always get to see neighbors that I don’t see all that often. The diversity of these people range from UPS drivers to cell phone salesmen to executives at companies of various sizes. A guy named Leonard falls into the latter category, and talking with him is like getting a forecast for business travel. He’s an executive at a large global company that specializes in assurance, tax, transaction and advisory services.
During 2008, Leonard traveled the world on business. His stops included cities on pretty much every inhabited continent—and most of the travel, not surprisingly, occurred during the first three quarters of the year. Leonard said his travels will be greatly curtailed during 2009 as the global financial meltdown is in full swing. It’s guys like Leonard that make the global hotel industry tick, and judging by his plans, there’s one word hoteliers worldwide need to be familiar with: Yikes!
Everyone associated with hotels knows that business travel will be down in 2009. To what degree is the million-dollar question, but we can be certain that the reduction in business travel will put many hotels in tough spots. Two highly regarded organizations released their business-travel forecast for 2009 during the fourth quarter of 2008. And like all things that deal with projections, they can be obsolete before the ink dries.
American Express Business Travel’s Global Business Travel Forecast and Trends report anticipates that the average domestic trip in the U.S. will increase 2.8 percent (US$31) to about US$1,139. The same report expects the costs international trips to increase 4.3 percent (US$147) to US$3,556. However, it notes that an additional US$400 could be added to the international costs if things such as baggage fees, airport parking and package shipping are considered. Considering that the hotel industry (Including STR’s projections) is expecting dramatic declines in its key measurements, the increases that AEBT expects are dramatic.
The report’s data suggests the following scenarios:
* North America: domestic/short-haul air travel cost changes will range from -3 percent to +5 percent; International air travel costs will rise between 1 percent and 6 percent; Hotel rate changes will range from -1 percent to +6 percent for mid-range properties and from -2 percent to +4.5 percent for upper-range hotels; and car rental cost changes will range from -2 percent to +3 percent.
* Europe: domestic/short-haul air travel costs will range from being flat to up 4 percent; international air travel costs will rise between 1 percent and 9 percent; hotel rates for mid-range properties will be flat to up 6.5 percent and for upper-range properties will be flat to up 5 percent; and car rental costs will range from being down 1 percent to being up 2 percent.
* Latin America and the Caribbean: domestic/short-haul air travel costs will grow between 3 percent and 5 percent; international air travel costs will be up between 2 percent and 4 percent; hotel rates will be up between 4 percent and 6 percent for mid-range properties and will be up between 3 percent and 7 percent for upper-range properties; and car rental costs will range from being flat to up 2 percent.
Meanwhile, the National Business Travel Association projects that the overall cost of a business trip in 2009 will increase between 5 percent and 8 percent. It’s projections include:
Published airfares are expected to increase 7-10 percent over 2008. This year-over-year change is more difficult to project this year for several reasons: changes in airlines’ ancillary fees could add up to 5 percent to airfares, rapid fluctuations in oil prices impact airline pricing, and airline pricing strategies are designed to react quickly to changes in demand.
Hotel rates are projected to increase only 1-4 percent, which is less than increases seen in recent years.
Nominal car rental rate increases of 1-3 percent.
The bottom line is that we know fewer people will be traveling for business in 2009. But with business-travel associations expecting costs to rise, now is no time for revenue managers, general managers or owners to become skittish and dramatically drop rates. Hold the rate and negotiate by included value-added items, such as complimentary Internet access, parking and breakfast—it’s what business travelers expect.