AmEx projects higher airfare, hotel rates worldwide in 2011

WORLDWIDE Increases of up to 10% are expected for airfare and hotel rates in key markets around the world in 2011, according to the latest projections from American Express Business Travel.

Throughout 2010, companies have lifted travel restrictions brought on by red bottom-line fears, and this is expected to continue into 2011. Yet pricing power will swing back to carriers and hoteliers for the first time in two years as more competition for limited seats on planes and increased occupancy levels at hotels are expected, says Christa Degnan Manning, director of eXpert insights and research for American Express Business Travel. “As a result, companies should reexamine program strategies and policies undertaken in the past few years and look to manage budgets and cost-control tactics competitively to protect them from the significant rate increases expected,” she says.

Based on continued economic growth, increased demand and constrained capacity, airfare and hotel rates are expected to grow up to high single digits in 2011, effectively bringing prices back to pre-recession levels. Asia is expected to lead pricing increases, with hotel rates there rising 5% to 10% on average, while established Western economies will see less pricing expansion—closer to 2% to 5%.

Companies will likely increase spending and frequency of meetings, however they will likely spend less per meeting on average, as meeting size decreases and sourcing efficiencies increase. Aligning with this prediction, more meetings are expected to be held on local or regional levels and will continue to have fewer amenities, with audio/visual services being the only exception. As planners incorporate virtual alternatives and supplements to face-to-face experiences, investments in these technologies are expected to continue to go up.

In spite of the nearly across-the-board increases in business travel prices next year, most procurement and travel departments will still be expected to return incremental year-over-year savings to the business. This calls for a reexamination of many corporate policies and procurement procedures, such as lowest logical airfare selection, as travel suppliers offer fewer promotions and corporate negotiated rates resume importance in containing costs over time.

“Even with the expected increases in rates, businesses can preserve travel budgets and efficiencies by staying knowledgeable about industry pricing trends, planning appropriately and supporting travelers to make the best decisions of how to spend those dollars,” Manning says. “For example, average daily rates of hotels are expected to rise above 10% in many locations in 2011; however, corporate negotiated rates will be lower as hoteliers compete for corporate loyalty business and lock in volume business commitments. Companies will likely forfeit a lot of savings when employees book outside preferred agreements and channels and end up paying consumer rates in 2011.”

As hotel occupancy goes up next year, hoteliers will likely do less promotion and room block wholesaling to discounters and will carefully monitor yields to recoup the dramatic drops in rate they experienced over the last two years, Manning says. Blackout dates may also increase in corporate hotel programs, and AmEx recommends that business travelers be cautious during the hotel negotiation season of increasingly stringent terms and conditions that hotels are adding to corporate contracts.

The hotel industry in North America is encountering higher occupancy levels and as suppliers look to regain loyalty among business customers and increase rates, average booked rates are expected to trend higher. Corporate negotiated rates will likely increase 1% to 5% for midscale properties and 2% to 6% for upscale hotels, while non-negotiated ADR is expected to rise.