September 29 2022, Kimpton Fitzroy London
Friday 30 September 2022, JW Marriott Grosvenor
21 November 2022, Hilton London Metropole
WHAT SORT OF BOSS DO YOU HAVE? If they are the type who doesn’t ask too many questions so long as travel costs aren’t rising, you can fire up a cigar (having disabled the office smoke alarm first, of course), put your feet up on the desk and take 2016 off as far as airline purchasing is concerned.
All the signs point to flat pricing, or even modest reductions, on most routes. Lower oil costs are having twin beneficial effects, according to Advito in its 2016 Industry Forecast. Airlines are making handsome profits with fares at their current levels, leaving them reluctant to frighten away demand by raising prices. Reduced costs are also making previously unviable routes profitable prospects, so supply is beginning to expand again, thus intensifying competition. And, generally speaking, competition remains fierce in the European marketplace anyway, with low-cost carriers challenging the traditional incumbents on short-haul routes, and the big three Gulf carriers, plus Turkish Airlines, depressing pricing to all points south and east of Europe.
If, however, you have the sort of boss, probably in purchasing or finance, who is never satisfied with the status quo and likes to ask awkward questions, then keep the Havana unlit and your shoes firmly on the ground. The peskiest question of all they might ask is: given how much the oil price has collapsed, why isn’t our air spend falling a lot, not just a little? “Oil prices have not played out yet,” says Carlson Wagonlit Travel (CWT) senior vice-president UK and Ireland, Chris Bowen. “Jet fuel is down by 60 per cent, and we have not seen that passed on at all.”
Bowen believes one explanation may be consolidation in certain markets. “Only 6 per cent of tickets bought on North Atlantic routes in 2014 were with airlines not part of a joint-venture agreement,” he says. “Maybe, if there had not been as much consolidation, we would have seen more fare-cutting activity.” Bowen adds that while airlines may be slow to cut public fares, the oil price gives buyers an excellent lever at the negotiating table for corporate fares.
Advito arrives at the same conclusion, although it disagrees with Bowen’s view that joint-ventures are keeping public fares high on transatlantic routes. “There are real bargains to be had on some transatlantic services, with return business class fares on New York-London sometimes as low as US$3,000,” Advito’s forecast says. “Of course, such fares come with restrictions, like 30-day advance booking. Even so, discounting at this level indicates weakness in the market, and should encourage buyers to seek better corporate deals.”
UK buyers of transatlantic fares are particularly fortunate. “The Delta Air Lines/Virgin Atlantic joint venture has made the London-US market, previously dominated by the American Airlines/British Airways joint venture, much more competitive,” Advito says. “Virgin has launched a Heathrow-Detroit service and added flights to Atlanta, Los Angeles, Miami, New York JFK and San Francisco. However, to expand its transatlantic operations the airline has withdrawn from Cape Town, Mumbai, Tokyo and Vancouver, weakening competition on all of those routes. Growing transatlantic competition means the joint ventures are offering higher negotiated discounts. But, in return, they expect corporate clients to drop rival joint ventures from their air programmes.”
HIGHS AND LOWS
While the outlook for air pricing remains benign, set to rise only 0.5 per cent globally according to the 2016 GBTA Foundation/CWT forecast, accommodation is the expense category more likely to have travel buyers burning the midnight oil. The same forecast projects hotel prices globally to rise an average of 2.5 per cent, although companies with short-haul travel only could be spared the worst. GBTA Foundation/CWT is forecasting lower rate rises for western Europe (0.7 per cent) than for any other region, although it should be noted others are more pessimistic. PWC’s hospitality and leisure business, for example, expects the average daily rate to climb 2.2 per cent in London and 3.5 per cent in the rest of the UK. Advito is forecasting average rate rises of 1-3 per cent across Europe, with the highest jump in Istanbul (4-6 per cent), followed closely by Dublin, Luxembourg, Geneva and Zurich.
The main reason hotel rates are rising globally is that supply is flat. There have been few new properties in major European and North American markets for the best part of a decade, but now even development in Asia is slowing, leaving Latin America as the focus for the large chains. With demand growing, albeit not spectacularly, suppliers hold the cards and are even finding new ways to raise revenue – including, CWT’s Bowen warns, embarking down the same path of ancillary pricing as the airlines.
With the supply/demand balance tipped against them, hotel negotiating options are limited for buyers. Bowen suggests working the data harder, using analytical intelligence to understand, for example, the best day of the week to book different hotels. “That kind of extra information is dynamite,” he says.
Advito also makes a couple of suggestions. One is to ensure the corporate rate confers the same benefits (such as free wifi) on travellers as if they had booked directly through the hotel’s website – a parity that is by no means granted automatically. Another line of attack, it says, is to “be clear on the ownership of properties you want in your hotel programme. Directly-owned properties are more open to negotiating corporate discounts. Watch out for owners with multiple properties affiliated to different chains in the same city, as this can complicate negotiations.”
However, these are relatively thin straws to clutch at in the hope of keeping hotel costs down. Accommodation looks set to be the toughest negotiating battleground for travel buyers in 2016.