How Are Business Travel Costs Likely to Change in the Next 12 Months?

How Are Business Travel Costs Likely to Change in the Next 12 Months?

by Patrick Post July 03, 2017

According to a study by AirPlus International, 50% of UK travel managers anticipate a rise in the number of business trips during 2017.

This should come as no surprise, with almost a third of buyers expected to have more money to spend on business trips than last year and a third of travellers saying they expect to pack their bags more often.

But what might reality look like for the cost of Business Travel in 2017?

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Higher spend doesn’t necessarily mean higher costs

AirPlus’ research suggests that travel planners have positive expectations for the next twelve months. Opinion varies from country to country, but it’s clear that the lion’s share of the increased travel will come from larger firms with big budgets.

However, despite the fact that half the companies with large travel budgets are anticipating an increased spend, just 41% believe it to be as a result of higher costs. The majority put the projected increase in overheads down to more travel, rather than higher prices.

Hotels: a push towards the independents?

With the newly combined Marriott-Starwood controlling as much as half of room inventory in many top markets, business travel buyers are likely to face a tough environment for negotiating discounts.

This might explain why the use of budget and mid-range independent hotels among business travellers has risen sharply, with up to 87% of buyers choosing such properties.

Despite an anticipated rise in room rates over the next twelve months, business travel buyers should start to benefit from a far more competitive market – providing they’re willing to dispense with chain-led accommodation contracts and explore the exciting independent hotel market for the best rates.

Accommodation: a push towards alternatives?

Business travel buyers are likely to face a tough environment for negotiating discounts in the next 12 months. This might explain why the use of budget and mid-range hotels among business travellers has risen sharply, with up to 87% of buyers choosing such properties to manage costs.

However, providing buyers are prepared to explore the independent hotels and regional chains for the best rates, they could benefit from a more competitive market and beat anticipated increases in room rates.

At the same time, for some organisations, the benefits offered by established hotel brands will see them remain the best option for their needs.

 The biggest cost driver: airfares

While airfares are expected to remain stable over the next twelve months, the actual prices paid by business travellers might be on the rise (Rocketrip).

Airfare inflation of late has been minimal, due to slow economic growth in Asia and Europe. But while these factors are expected to continue over the next twelve months, few projections suggest that airfares are likely to decrease.

This is largely due to mergers reducing competitive pressure on certain routes and airlines failing to expand capacity, despite passenger volumes recovering from their 2008 low.

There are three factors that will continue to put upward pressure on the cost of airfares for business travellers:

  1. Ancillary fees. Airlines have been steadily earning more from ancillary fees every year since 2010 – probably because business travellers are more inclined to accept add-on fees compared to leisure guests.
  2. Dynamic pricing. Airlines now benefit from far more sophisticated inventory management, which enables them to raise fares during peak periods of demand – particularly for last-minute bookings.
  3. Additional seating classes. From budget to business class, there’s an increasing number of seating options available to business travellers, as airlines look to increase their revenue-per-passenger-mile.

The advice for travel buyers is clear when it comes to airfares; with prices likely to rise and competition between airlines increasing, shopping around for the best deals has never been more important.

Business travellers can be empowered to help the company save money by finding cheaper fares via open booking policies; they’ll use their consumer instinct to avoid being stung by costly add-ons and penalty charges, therefore tempering market price rises for the business.

And finally… Will Brexit affect business travel costs?

Opinions differ on whether or not the UK’s impending exit from the European Union will have a significant effect on the cost of business travel.

The AirPlus survey suggests that half of British travel planners expect a positive effect driven by an increase in travel frequency, but 59% also think travel costs will rise as a result of Brexit.

One thing is clear: business travel costs will remain volatile for the next twelve months, but with an optimistic mood prevalent among travel buyers and an increasingly competitive market in which to find the best deals, budgets are unlikely to take too much of a hit.

Key takeaways:

  1. Look beyond the chains and long-standing corporate contracts when booking hotels for staff; delve into the independent hotel market instead.
  2. Shop around for the best airfares, review seating classes and steer clear of needless add-on fees.
  3. Empower business travellers to make their own travel arrangements with an open booking policy and by engaging their consumer mindset.

 

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