American Express is predicting that robust demand coupled with capacity constraints will combine to see steady price increases next year.
Announcing the news in its annual Global Business Travel Forecast for 2008 in Munich today (23 October), American Express vice president advisory services, Joakim Johansson, predicted a rosy time for suppliers but that hotels, airlines and corporates were becoming ever more savvy at extracting price compromise.
”Supply has not grown at the same rate as demand, giving suppliers great control over pricing,” he said, ”while [for example] hotels are becoming more sophisticated in yield management.”
American Express - responsible for $22bn of travel spend every year - has a priceless databank of exactly how trends are progressing - and is confident that supplier margins will remain healthy - particularly in key business markets such as London.
Demand for business travel services will again outweigh supply in 2008, driving continued increases in rates across air, hotel, car rental and corporate meetings and events. While worldwide airfares are expected to continue climbing, hotel rates are projected to experience high double-digit increases in demand-heavy markets across the US, Europe and Asia.
Sky-high oil prices - one barrel hit $90 last week - will lead to airlines spending $132bn on fuel this year with a $15bn increase forecast for 2008. This, coupled with industry consolidation, such as what happens to Iberia and Alitalia for example, should keep price pressure upwards, although the advent of Open Skies next March, might give travel buyers some relief.
”Open Skies is a bit of wild card,” said Johansson, adding: ”Effectively, you could see new routes coming on to the market with British Airways for example, transferring some of its US flights to Heathrow and creating more competition.
”Stronger alliances such as Air France-KLM-Delta with its joint venture across the Atlantic, could also happen.”
Travel policy compliance will also play a greater part next year predicts American Express, particularly among smaller companies, which will become more ”aggressive” than their global counterparts.
Language around compliance is also being tightened, with Johansson noting that: ”We are being asked to do a lot more travel policy benchmarking - there is a clear trend in that direction.”
Total trip costs are expected to rise by between 4% and 6% in Europe and between 4% and 8% in the US, while global short-haul fares should increase by 1% and 4% and long-haul by 5% and 8%.
American Express says it has identified key areas where travel management could play a far more significant role in keeping a lid on costs and that these should ideally include ”greater high-level executive involvement in policy implementation and communicating policy details.”
The areas are: Lowering use of refundable airfares, optimising use of advance purchase fares; defining more narrowly when first/business class fares can be used; driving online bookings and improving use of preferred suppliers, especially hotels where compliance has historically hovered around 50%.