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The Honolulu Advertiser
Posted on: Monday, December 18, 2006

Business-travel costs likely to rise

By ROGER YU and DAN REED
USA Today

A United Airlines passenger waits to board a flight. Business travel costs are likely to rise next year in all areas, including airfares and hotel costs, according to travel industry experts.

ADVERTISER LIBRARY PHOTO | 2003

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Since business travel began to emerge in 2004 from its post-Sept. 11 slump, the cost of keeping road warriors on the move has been going up sharply. That trend is likely to continue in 2007.

According to the recently issued annual American Express Global Business Travel Forecast, the cost of the average domestic business trip is expected to rise 4.5 percent, or $46, in 2007. And the total cost of the average international business trip is expected to rise 4.6 percent, or $180, says the report, which looks at the three big spending categories: planes, cars and hotels.

"Keeping executives on the road while holding budgets in check will be a challenge for organizations in 2007," says American Express Vice President Mike Streit.

For the fifth consecutive year, strong business travel demand will drive hotel prices higher in 2007. Average daily rates in the USA could rise by as much as 8 percent over this year in upscale and luxury hotels, American Express predicts.

Increases at midprice hotels are expected to be more moderate, ranging from 3 percent to 6 percent.

What other forecasters see for next year:

  • Atlanta-based PKF Hospitality Research also sees a rate increase for 2007, up 4.9 percent from this year. But that growth rate would be lower than the 8.3 percent increase in 2006 and the 8 percent increase in 2005.

    Demand isn't suddenly drying up, PKF's Mark Woodworth says. "But customers are saying, 'I just can't afford to keep paying that much.' "

  • Smith Travel Research in Henderson, Tenn., estimates average room rates will be $103 in 2007, up from $97 in 2006 and $91 in 2005.

    Business travelers are coping in various ways.

    In a recent survey of corporate travel managers who belong to the National Business Travel Association trade group, 77 percent said they plan to book fewer luxury hotels in favor of midtier properties.

    The NBTA's survey revealed that about 30 percent of respondents are contracting with fewer hotels.

    With fewer hotel options for their traveling employees, companies can increase volume and demand better rates.

    Jim Shriner, a pharmaceutical sales executive in Tampa, says he's staying more at "(Marriott) Courtyard-type hotels now instead of full-service hotels."

    When traveling to Chicago, Brad Vallem, a sales executive for Siemens Building Technologies in Florham Park, N.J., no longer stays at a hotel near Chicago O'Hare, like he used to.

    "I now book my hotel way off-site and save 50 percent on the hotel bill. Sure, it means getting up earlier or going to bed a bit later, but it is a savings that is hard to turn down."

    CAR RENTALS GOING UP

    Business travelers will have to shell out more to drive next year, the result of higher car rental rates and gasoline prices.

    American Express estimates rental rates will rise as much as 6 percent in 2007 in North America. Gas prices are again edging upward and by March could exceed $3 a gallon, where they're likely to stay for much of the year, estimates Ben Brockwell of Oil Price Information Service. "It will be another year of pain at the pump," he says.

    Rental car industry consultant Neil Abrams agrees that prices will continue to rise.

    Abrams says the average daily rate for a midsize car at an airport was $60.41 last week, up 13 percent from a year ago.

    AUTO INDUSTRY WOES

    Part of the upward pressure on prices stems from the financial downturn among domestic auto manufacturers. Faced with financial troubles, car manufacturers are charging rental companies more for cars, Abrams says. In addition, the manufacturers are not buying back cars from rental companies a common industry practice as readily as they did in the past.

    Car rental companies are managing their fleet sizes to avoid excess capacity. That helps sustain prices. Despite strong demand, they will likely buy fewer cars in 2007 than in 2006, says Chris Brown, editor of Auto Rental News.

    Deborah Ryan-Pelletier, a travel manager at Roseland, N.J.-based Automatic Data Processing, says the company may move to a single vendor next year to lock in a better price. ADP now rents from National and Avis.

    Scott Zebedis knows that he'll likely be paying more for airline tickets in 2007, but he also knows he can't afford to stop flying.

    "I guess I will just pay what I have to pay," says the 49-year-old executive of a child welfare foundation in Denver.

    American Express, in its annual forecast of travel prices, predicts that fares for flights in North America in 2007 will increase over this year by as much as 6 percent.

    A recent survey of 189 corporate travel managers who are members of the National Business Travel Association shows that nearly all of them expect to spend more for air travel in 2007.

    Not only will fares go up, but so will the number of business travelers and the amount of travel each will undertake, the travel managers say.

    Business travel remains resilient despite higher fares because the need for "face time" never goes away, says John Tice, a network engineer from Little Rock. "You've got to be there in person, especially if the customer is having a problem," Tice says.

    Meanwhile, U.S. airlines are continuing to restructure their operations to make the most of travel consumers' apparent numbness to higher prices.

    Average fares have risen by 18 percent or more over the past two years for two main reasons: strong travel demand driven by a good economy and airlines' discipline in limiting flying capacity.

    For the first time since the landmark Airline Deregulation Act passed 28 years ago, air travel has become a seller's market.

    "It's all supply and demand," says Mitch Cwanger, who heads American Express Advisory Services' air travel practice. "Even if demand stays the same, if supply goes down, prices are going up."