Economic recovery is fuelling a rise in business travel but competition is keeping price increases in line, says a report from American Express.
The American Express Global Business Travel Forecast for 2005, released last week, indicates a continued steady revival of the global business-travel industry.
The pace of the recovery varies among countries and regions, but air and hotel prices are expected to rise incrementally next year as business travel demand recovers, outpacing the growth of supply in several markets.
At the same time, increased competition – particularly in the airline sector in several regional markets – is likely to dampen any significant increases in business travel costs.
For 2005, American Express forecasts that global economy and short-haul fares will rise by zero to three per cent and international business fares by two to five per cent. Hotel rates for both mid-range and upper-range properties will increase by one per cent to three per cent.
“Economic recovery is fuelling business travel demand around the world, with particularly strong demand between Europe and North America, South America, and across the Pacific,” said Matthew Davis, director of global consulting services for American Express. “An industry-wide rebound has been dampened only by slim margins for the major North American airline carriers.”
Davis continued, “While rising passenger traffic and hotel occupancies help contribute to a healthier travel industry, forecasted price increases mean that travel managers must vigilantly maintain an effective travel management program. The careful application of technology tools and expense management solutions are critical in allowing corporations to maximize their travel investment, even in a rising fare environment.”
Low cost carriers will continue to affect the airline industry in 2005. For example, in the U.S., typical business fares are expected to rise between one per cent and three per cent for the year, propelled by economic recovery, supplier pressure to recoup economic loss, and an increase in passenger traffic. However, price increases are likely to be tempered by intense competition, particularly from low-cost airlines as they challenge the major hub-and-spoke airlines. While U.S. increases are expected to be modest or in line with inflation, international business class fares should rise by two per cent to five per cent. Canadian domestic economy class fares will stay flat or drop, from minus two per cent to zero, while international fares for Canadians will mirror the U.S., growing two per cent to five per cent. In general, increases in trans-Atlantic traffic and an improved global business environment will generate higher airline prices internationally.
Tempering this trend is increased competition and economic liberalization in the trans-Pacific marketplace.
Standard corporate rates for hotels are expected to increase by zero to three per cent in the United States in 2005. This will continue the upward trend in rates the industry has been experiencing for about the last 18 months, says the report.
In fact, domestic booked rates rose by seven per cent year-over-year at the end of June 2004, while corporate rates rose three per cent during the first six months of the year. In Canada, rates will also rise from zero to three per cent.
