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Overall global demand for corporate travel increased by 10.2 percent during the second quarter of 2010 compared with the same period one year ago, according to an analysis of client data by BCD Travel’s consulting unit Advito.

Published: 12 Jul 2010

Overall global demand for corporate travel increased by 10.2 percent during the second quarter of 2010 compared with the same period one year ago, according to an analysis of client data by BCD Travel’s consulting unit Advito.

Increased demand is resulting in higher air fares overall, with disparities among individual regions. Meanwhile, a sluggish recovery in some advanced markets, including Europe, and an abundance of room capacity in developing and emerging markets is keeping hotel rates down.

In response to a stronger global economic recovery than anticipated, Advito is revising earlier market projections in a second-quarter update to its 2010 Industry Forecast. In its April 2010 World Economic Outlook update, the International Monetary Fund reported world economic growth of 4.2 percent, compared to a contraction in 2009 of 0.6 percent. China led world economies in the second quarter of 2010, expanding by 10 percent over the same period in 2009.

Other key findings in Advito’s 2010 2Q Industry Forecast update include:

• • Advanced economies are emerging from the global recession more sluggishly than emerging markets
  • Ongoing concerns about the European economic outlook and governmental austerity measures are suppressing demand and fare evolution in both the air and hotel categories
  • Premium travel is increasing on transatlantic and transpacific flights
  • April’s volcanic eruptions brought new emphasis to duty of care initiatives and traveler communication

• • Advanced economies are emerging from the global recession more sluggishly than emerging markets
  • Ongoing concerns about the European economic outlook and governmental austerity measures are suppressing demand and fare evolution in both the air and hotel categories
  • Premium travel is increasing on transatlantic and transpacific flights
  • April’s volcanic eruptions brought new emphasis to duty of care initiatives and traveler communication

Airfares in the second quarter rose sharper and faster in North America and Asia-Pacific than originally anticipated as these regions emerged from the global economic crisis more quickly than other regions. Other parts of the world, most notably Europe, did not improve as rapidly – but travel buyers everywhere can expect to pay more for their air travel by the end of this year than they did in 2009.

Asia-Pacific

Perhaps the most dramatic revisions to the 2010 Industry Forecast involve Asia-Pacific. Advito was forecasting airfare increases of 3-4 percent in APAC as recently as March, following severe price cuts in 2009. However, a fast exit from the recession in some Asian countries and resumed ultra-high growth in China has changed the APAC outlook. Advito now has revised its forecast to reflect overall fare rises in APAC of 9 percent year-over-year.

Revised Airfare forecast for Asia-Pacific:

Source: Advito

While economic recovery continues at a gradual pace in key regions, the outlook for hotels continues to reflect a buyer’s market. New rooms commissioned during the boom years continue to come online. Advito is revising downward its figures for hotel average daily rates in Asia Pacific by one point to -3.8 percent;, Europe, by one point to -3.2 percent; Latin America down 2 points to -4.5 percent and the Middle East down two points to -2.6 percent. ADR 2Q forecasts for North America ( -1.6 percent) and Africa (7.5 percent) remain unchanged.

Revised forecasts for hotel rate growth by region:

Source: Advito

While hotel rates in APAC were down overall, individual markets there fluctuated. Since its 2010 Q1 forecast, Advito is revising upward hotel rate figures for Singapore from -4.8 percent in Q1 to -2.8 percent in Q2; India was adjusted downward from -4.5 percent to -6 percent; and Japan downward from +0.3 percent to -1 percent. The forecast for China stayed the same at -4.5 percent.

For airfares, the big question is whether worldwide increases are likely to be sustained. “We reckon the answer is yes, depending on two things happening,” says Advito Vice President Bob Brindley. The first factor is the ability of airlines to maintain their capacity discipline, as has been the case for the last 18 months. One more quarter of strong increases in demand could tempt some carriers to expand their fleets.

A second caveat is that economic growth in North America and Asia-Pacific continues to outweigh concerns about national currency and debt problems in some European Union member states. “If those problems escalate into a Europe-wide crisis, worldwide business travel could take a second dip globally, but right now buyers should budget for the likelihood of higher air costs,” says Brindley.

Airfare market analysis

Revised Airfare forecast for North America:

Flight bookings made by BCD Travel customers in the first quarter of 2010 were 20 percent higher than in the same quarter in 2009.

Source: Advito

Average ticket price rose by 15 percent in April. This reflected not only a rise in fares but also a partial return to business class. Some companies are relaxing formal travel policies, but more often upgrading is taking place because travelers entitled to fly in business class are ending their period of voluntary downgrading. Another contributing factor to rising average ticket price is a boom in demand for long-haul travel, with transpacific routes the best performers of all.

“Demand has come back faster than anticipated, giving airlines the opportunity to put up their prices,” says Dave Mitchell, BCD Travel vice-president of supplier relations for the Americas. “Airlines have remained disciplined about capacity, which is not what usually happens. I think Continental and United will pull 5-8 percent of their capacity when their merger is approved, which is likely to be in Q4, although there is not a lot of overlap between the two.”

Revised Airfare forecast for Europe:

Concerns about debt issues in numerous European countries are keeping the brakes on recovery. Thomas Stöckel, vice-president of supplier relations for Europe, is seeing significant variations according to cabin class and geography. “In Germany, average ticket price in economy is up 8 percent but in business class it is down 2-3 percent,” he says. “On short-haul flights, the curtain is still moving closer to the front of the aircraft.

“We are also seeing a stronger recovery on long-haul flights than inside Europe. The euro crisis is boosting the export market, and aircraft to China and the Middle East are full, so we may see prices go up,” said Stöckel.

Other regions

Revised Airfare forecast for Latin America:

Revised Airfare forecast for Middle East:

Revised Airfare forecast for Africa:

Air tips for travel buyers

• • Wrap up your negotiations now - The negotiating environment remains excellent for buyers but will weaken as 2010 progresses. Now is a good time to make deals. “Buyers are still in a decent negotiating position, but as the market picks up, airlines will tighten their strategies,’ says Dave Mitchell, BCD Travel vice-president of supplier relations for the Americas.
  • Consider two-year deals: Consider your air spend as a whole. With airfares edging up, it may pay to lock in corporate fares for a longer period now.
  • Concentrate buying power: Remember that volumes are most likely smaller than 18 months ago, and travel programs may have less traffic in premium cabins. In consequence, concentrate buying power with fewer carriers.
  • Beware of the mergers and joint-ventures: Two mega-mergers – Continental Airlines with United Airlines and British Airways with Iberia – have been announced in recent months. A proposed transatlantic joint-venture between BA, Iberia and American Airlines is also expected to win regulatory approval soon. All of these consolidations will affect route deal negotiations, probably in favor of the supplier. It is therefore particularly worthwhile negotiating deals for the United States and North Atlantic now before the mergers and joint-venture are formalized.

• • Wrap up your negotiations now - The negotiating environment remains excellent for buyers but will weaken as 2010 progresses. Now is a good time to make deals. “Buyers are still in a decent negotiating position, but as the market picks up, airlines will tighten their strategies,’ says Dave Mitchell, BCD Travel vice-president of supplier relations for the Americas.
  • Consider two-year deals: Consider your air spend as a whole. With airfares edging up, it may pay to lock in corporate fares for a longer period now.
  • Concentrate buying power: Remember that volumes are most likely smaller than 18 months ago, and travel programs may have less traffic in premium cabins. In consequence, concentrate buying power with fewer carriers.
  • Beware of the mergers and joint-ventures: Two mega-mergers – Continental Airlines with United Airlines and British Airways with Iberia – have been announced in recent months. A proposed transatlantic joint-venture between BA, Iberia and American Airlines is also expected to win regulatory approval soon. All of these consolidations will affect route deal negotiations, probably in favor of the supplier. It is therefore particularly worthwhile negotiating deals for the United States and North Atlantic now before the mergers and joint-venture are formalized.

Hotel tips for travel buyers

• • Spot-buying: Take advantage of spot-buying opportunities for the remainder of 2010. Due to increasing corporate demand, these opportunities will be less frequent in 2011.
  • Identify primary preferred: For the 2011 negotiating season, identify primary preferred hotels in each market and move share to these properties in exchange for better rates. Increasing demand next year will lead to more sold-out situations than in 2009 and 2010. This will require secondary preferred hotels in high-volume locations.
  • Market price caps: Consider setting market price caps for 2011 to increase preferred property compliance and ensure that non-preferred hotels are only used if they are priced lower than the market cap.
  • Scale back: Also for 2011, revisit tier-down or limited-service opportunities to decrease average rates and drive incremental savings.

• • Spot-buying: Take advantage of spot-buying opportunities for the remainder of 2010. Due to increasing corporate demand, these opportunities will be less frequent in 2011.
  • Identify primary preferred: For the 2011 negotiating season, identify primary preferred hotels in each market and move share to these properties in exchange for better rates. Increasing demand next year will lead to more sold-out situations than in 2009 and 2010. This will require secondary preferred hotels in high-volume locations.
  • Market price caps: Consider setting market price caps for 2011 to increase preferred property compliance and ensure that non-preferred hotels are only used if they are priced lower than the market cap.
  • Scale back: Also for 2011, revisit tier-down or limited-service opportunities to decrease average rates and drive incremental savings.