Economic upturn makes business travel more expensive

Annually, global business travel provider Carlson Wagonlit Travel and the GBTA Foundation jointly publish a Global Travel Forecast. The latest edition predicts a 3.5 percent increase in global airfares for 2018. Hotel prices are expected to rise by 3.7 percent, rail, bus and cab by 0.6 percent - significantly less than the three percent inflation expected for 2018. "The higher prices reflect the economic recovery and rising demand," said Kurt Ekert, president and chief executive officer of Carlson Wagonlit Travel. "The global numbers in this forecast can be seen as meaningful and leading indicators of what 2018 holds for businesses - we expect higher spending." However, according to Jeanne Liu, vice president of research at the GBTA Foundation, geopolitical risks, uncertainties in emerging markets and the ever-changing political environment in Europe and the U.S. mean travel managers need to consider more issues than ever before when designing their travel programs.

Flight forecasts for 2018

The upward trend in global airfares results from rising crude oil prices despite expectations that airlines will increase capacity by six percent in 2018. Contributing to the complication of airfares is the increasing segmentation of base fares by major airlines. Travelers now have a choice between restricted basic economy fares and various upgrade fares that include different services and prices depending on the airline. For the EMEA (Europe, Middle East and Africa) region, the 2018 Global Travel Forecast expects air travel to grow, with fares rising 7.1 percent in Eastern Europe and 5.5 percent in Western Europe. Countries in the Middle East and Africa, however, need only expect price increases of three percent, as they continue to face security threats and the oil sector is still recovering. Prices in Switzerland, on the other hand, are expected to fall by up to 2.6 percent. Currency fluctuations in Europe may also further affect airfares. Against the backdrop of limited competition and the 2018 World Cup in Russia, Eastern Europe could again see the most significant price increases for business travel.

In the Asia/Pacific region, prices for business travel are expected to rise by 2.8 percent in 2018, with growing domestic demand, especially in China and India. However, with the strengthening of the Asian economies, infrastructure weaknesses are becoming increasingly visible, especially at airports. In Latin America and the Caribbean, prices will change little in 2018 - up by just 0.3 percent. Airlines have been cautiously cutting capacity. An extended look at South America shows 20 percent more scheduled flights at the end of 2019. Low-cost airlines are well positioned in this region, as market penetration is still low. In addition, new and more efficient aircraft will enter service here, lowering operating costs in 2018. In North America, prices will rise moderately by 2.3 percent, according to the Global Travel Forecast. In view of stricter US entry regulations, flights to the USA have already been reduced accordingly. Canadian airlines are expected to build strong competition - there are new entrants to the market, and capacity will grow by eleven percent in 2017 and twelve percent in 2018.

Hotel forecasts for 2018

The global average hotel price increase of 3.7 percent hides what is actually happening in the regions. Europe is likely to see strong increases, while prices in other regions are barely keeping pace with inflation. In addition, prices in Latin America and the Caribbean are expected to fall. According to the forecast, the mergers of hotel groups in 2017 will make themselves felt in the 2018 tenders. Service providers are actively moving their corporate clients away from fixed, negotiated hotel rates and toward dynamic pricing. There is also a global trend toward "smart" hotels investing in beacon technology, messaging, room technology and other things. Increasingly tech-savvy guests will use apps to check in and out, open their room doors, control the TV, and adjust the room temperature.

In the EMEA region, hotel prices for business travel are likely to rise in 2018 - by 6.6 percent in Eastern Europe and 6.3 percent in Western Europe, but by only 0.6 percent in the Middle East and Africa. Switzerland is expected to see a 0.8 percent decline. Norway will lead the way with increases of 14 percent in 2018. Hotel prices in Russia will be 11.9 percent higher as demand increases due to the 2018 World Cup. In Asia Pacific, the hotel price forecast is plus 3.5 percent - with big differences, as Japan is expected to be down 4.1 percent, while New Zealand is expected to be up 9.8 percent. The economic upturn means that demand in the region is increasing. Buyers should prepare for challenging discussions with the newly merged hotel groups, especially in volume markets such as Bangkok, Beijing, Shanghai and Singapore. For Latin America, the Global Travel Forecast predicts hotel prices will fall by 1.2 percent - with significant declines in Brazil (down 8.7 percent) and Argentina (down 2.7 percent). Peru and Chile, on the other hand, are expected to see increases of 7.7 and 5.5 percent, respectively. Buyers may have advantages in 2018 as major brands buy independent competitors and upgrade their systems. Capacity will grow across the region, with an estimated 449,500 new hotel rooms being built between the end of 2016 and 2025, a 57 percent increase in supply. Hotel operators in North America, in turn, may be banking on economic growth, as demand has softened since the summer of 2016 - but supply is likely to continue to grow steadily through 2018. International travel is expected to grow four percent in 2017 and 2018, with U.S. hotel growth likely to be concentrated primarily on the West Coast and Washington DC. For Canada, hotels in Toronto, Vancouver and Montreal are expected to fetch good prices amid a weak Canadian dollar.

Rail, bus, cab forecasts for 2018

The Global Travel Forecast predicts rail, bus and cab price increases of 0.6 percent in 2018 (but 5.5 percent by 2022). Industry experts predict record sales of new cars over the next five years, driving up fleet costs per vehicle. At the same time, used car prices will drop 50 percent, lowering the residual value for used rental vehicles. This means that the current pricing structure in the rental car business is no longer sustainable. Due to market-specific regulations for curbing emissions and rising oil prices, providers have already increased the availability of "green" rental cars. Sharing economy companies like Uber and Lyft are likely to continue double-digit growth above ten percent in 2018 before settling into single-digit growth in 2019. Their growth is threatened by costly legal and regulatory prohibitions.

In the EMEA region, ground-based passenger transportation remains highly competitive. In Europe, prices are likely to remain largely stable, while in the Middle East and Africa they will rise by a meager one percent. In Switzerland, prices will decline marginally by 0.5 percent. Rail remains a viable alternative to air travel throughout Europe, particularly with increased security measures at airports. Continued uncertainty in the mining sector and a cautious recovery in the oil and gas sector will lead to stable prices in the Asia/Pacific region in 2018. In China, business continues to grow with the presence of most major rental car and sharing economy providers. Sharing economy companies Didi Chuxing in China, Ola in India, and Grab in Southeast Asia have achieved economies of scale that make them serious competitors for traditional car rental and cab companies. For Latin America, the 2018 Global Travel Forecast predicts slightly higher prices (one percent). Brazil and Mexico expect higher rental car demand in 2018 as their economies get back on their feet. Still, the rental car market there remains highly fragmented. Uber is betting heavily on its Latin America business (despite problems in Brazil, Peru and Argentina) - especially after pulling out of the Chinese market recently. Prices in Canada are expected to rise 4.6 percent in 2018, but overall prices in the region are climbing only one percent. The limited rail network along with rising per capita incomes and growing business travel will likely drive up rental car prices in North America. Sharing economy providers continue to grow, but face stronger competition from traditional cabs and regulatory requirements.

Source: www.carlsonwagonlit.ch