Travel costs to rise at a slower pace in 2009
By Susan Avery -- Purchasing, 10/22/2008 4:04:00 PM
Travel costs will not change significantly next year.
That’s the word from American Express Business Travel which released its 2009 Global Business Travel Forecast and Trends Report in October.
The travel management company typically issues its annual forecast in September for the following year. This year, it delayed the release to give its Advisory Services team opportunity to re-assess the impact of recent activities in the financial markets on the economy in general and business travel in particular.
“So, what we see based on our forecast is the halt of a steady upward climb of costs in recent years.” says Hervé Sedky, vice president and general manager of Global Advisory Services and Meetings Solutions at American Express Business Travel in New York. “This presents a good opportunity for travel buyers to realize savings.”
American Express expects average cost of a domestic trip to rise 2.8%, or $30, to $1,030, and average cost of an international trip to increase 4.3%, or $147, to $3,056. This metric, average trip cost, consists of air, hotel and car rental costs.
New this year, the company has revised its metric. Total cost of a trip takes into account additional travel costs such as fees now charged by airlines (for baggage, meals, etc.), cab fare, meals, shipping (of packages) and web conferencing. These fees can add another $400 or more to the average cost of a trip.
“Successful travel and entertainment management practices and strategies is really about managing the total cost of the trip so looking at these other incremental fees as well as other spend categories is critical,” says Sedky.
The travel forecast for North America shows moderate changes in airfares. “And, there is good likelihood that we’ll see reduction in domestic economy fares,” says Frank Schnur, vice president, Global Advisory Services for North America. The forecast: A decrease of 5% to an increase of 5% in domestic fares and an increase of 1% to 6% in international fares.
On the hotel side, “we expect hotels to feel the impact of a struggling economy including the reduction of airline,” he says. The forecast: For mid-range properties, a 1% decrease to a 5% increase. For upper-range properties, a 2% decrease to a 4.5% increase.
“We expect to see fairly moderate increases and potentially some decreases in car rental costs,” says Schnur. “The industry remains extremely competitive in going after corporate business and that continues to hold price increases in check even as fleet costs are rising.”
Travel buyers need to be aware as well that car rental companies are adding new contract terms and conditions in their favor, such as reducing the grace period to return a car. “They need to be on top of these contract changes to impact behavior and educate travelers on what they need to do to avoid additional costs,” says Schnur. “We also expect to see increases in taxes.” The forecast: A 2% decrease to 3% increase.
In his work with clients, Sedky sees senior management increasingly scrutinizing the travel spend category, looking for increased levels of savings. “They see travel as an investment and are looking to increase the revenue-generating portion of business travel and decrease or eliminate the non revenue-generating portion.”
Schnur adds that “senior executives are looking for procurement and travel to put in place methodologies to quantify the return on business trips.”
Senior executives also now see meetings and events as a spend category that is worth scrutinizing. “We see more focus and attention by CFOs and procurement executives at companies we work with to effectively manage this area,” says Sedky. “These companies are best equipped to save on the category, control spending and help senior management understand when face-to-face meetings are good to have versus ones that can be replaced with technology.”
According to American Express, 70% of meetings are small; it is not forecasting any changes to this category which consists of staff and sales meetings as well as gathering for training and staff retention. However, it expects companies to scale down larger meetings trade down in terms of types of hotel and production work. As such, Sedky says, “we are starting to see hotels be receptive in negotiations to concessions for meetings especially in cities where demand is significantly lower than it has been in the past. “
Adds Schnur: “They’ve also expanded the definition of travel to include meetings and have put managed meetings programs in place. Involving procurement professionals in sourcing meetings and signing contracts can help drive savings of up to 20%.”
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