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Cheap Airfare Will Power Corporate Travel Growth in 2017 Says Report

Skift Take

Global conditions remain solid for global business travel next year. Hotels are cheap, and airfares are slated for a minor increase. Increased air travel options in China are making it easier for business travelers in North America to visit Asia’s strongest economic power.

— Andrew Sheivachman

So far, 2016 has been a mixed bag for corporate travel.

The strength of the U.S. dollar, along with terror fears and a stagnant global economy, led many international companies to reduce their travel spend. Mediocre economic growth in Europe and South America also contributed to the malaise.

Yet, emerging markets are expected to continue their business travel growth as business travel remains cheap, according to Advito’s 2017 industry forecast report.

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“Emerging markets are set for a stronger economic performance in 2017,” the report states. “At 4.2 percent, growth will surpass the 3.5 percent forecast for 2016. This improvement is largely driven by Latin America, primarily due to Brazil, which is expected to emerge from a prolonged recession, but also because of stronger growth from Argentina and Colombia.

“Asia remains the main source of emerging market activity. It will expand, on aggregate, by 5.6 percent in 2017. The Indian economy continues to expand at more than 7 percent, even as China’s GDP growth rates slow down.”

The report indicates that global hotel rates should see a modest increase over the next year, between 1 to and 3 percent, while airfares are expected to stay flat globally.

North America, the Middle East, and the Southwest Pacific are most likely to see hotel rates increase.

Overall, the outlook is strong for North American business travel, barring the uncertainty of a potential Trump presidency or interest rate hike. South America is also primed for increased business travel as its biggest economies rebound from an unusually weak year.

Here’s a breakdown of Advito’s forecast by region.

North America

U.S. hotels are about to get more expensive for travel buyers.

“Assuming the U.S. economy does not deteriorate, expect hotel chains to further reduce the number of rooms they make available at a negotiated discount,” the report states. “They will instead push harder for corporate clients to switch to dynamic pricing. With negotiating options narrowing for corporate clients, we expect rates to rise in 2017 by three percent to five percent in the U.S., with smaller increases for hotels in Canada and Mexico.”

Meanwhile, the specter of the Marriott-Starwood merger lurks, and that will likely decrease the negotiating power of travel buyers in secondary cities.

The good news for buyers is that airfares are forecasted to stay low due to increased competition between the big three carriers and their expanding low-cost rivals.

South America

Advito predicts that the chaotic state of many South American countries like Brazil and Argentina will lead to cheaper flights, and therefore increased business travel.

“It’s difficult to imagine further deterioration in political and economic conditions in Latin America,” the report reads. “The situation in Argentina has become more stable, and there are hopeful signs in Brazil, which is expected to exit recession in 2017… While we expect business fares to remain flat, these aggregated figures disguise variation by destination. Fares will fall by two percent to Europe and Africa, stay flat to the Middle East and rise by one percent to all other regions.”

Hotels, as well, will likely slash rates next year to increase demand.

Europe

Business travel will likely remain cheap across Europe next year due to a combination of factors. Ongoing Brexit concerns will lead companies to be conservative about business travel spending, but growth by budget carriers and a lack of new hotel supply will keep business travel relatively cheap.

International airfares are expected to increase by 1 percent in the region, while domestic airfares will decrease by 1 percent.

“Increasing uncertainty about the implications of Brexit, potential political leadership changes and security issues will soften what might otherwise have been a strong seller’s market in 2017,” the report predicts. “Even so, demand will stay ahead of low capacity growth, and that means rates will range from staying flat to a two percent increase on average.”

Asia

Key gateway cities across Asia such Hong Kong, Shanghai, and Tokyo will likely see higher hotel rates next year as meetings business increases.

“Demand across Asia is decelerating, as the region’s economic growth slows, most notably in China. However, Asia’s fast-expanding middle classes have acquired an insatiable appetite for leisure travel, and this is driving a rapid increase in new direct routes, which are stimulating more demand.”

Meanwhile, air capacity between the U.S. and China has increased 38 percent over the last year, spurring cheaper access to secondary cities in each country.

The big growth story of Asia’s business travel boom, however, is India. Increased air capacity will likely drive down the cost of fares to and from India; smaller airlines with less than 20 aircraft can now operate international routes.

For more detailed information on the business travel outlook across the world, you can read the full report below:

Download (PDF, 6.07MB)

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