Financial turmoil that has already started to weigh on corporate balance sheets may start to seep into the wallets of business travelers, according to an industry survey set to be released later on Wednesday by American Express (NYSE:AXP).
Travel costs for businesses will continue to increase in 2012 as airlines and hotels squeezed by rising expenses push their fees higher, according to the credit card company’s Global Business Travel Forecast.
Calling business travel essential to global economic performance and an “enabler of business growth,” Christa Degnan Manning, director of Expert Insights research at American Express Global Business Travel, predicts the combination of demand and the pricing pressure on travel suppliers will push rates up in 2012.
“As more and more companies understand the importance of putting people on the road and its criticality to converting prospects, retaining clients, and ultimately driving growth, particularly in emerging nations, we expect to see travel prices go up,” Manning said.
Airfare has already been rising as airlines increase fares to offset sharply higher jet fuel costs and ailing demand. As major U.S. carriers such as AMR’s American Airlines (NYSE:AMR) and Delta Air Lines (NYSE:DAL) reduce capacity heading into next year, reduced supply will likely lift fares higher, even in the face of a potential economic slowdown, according to the AMEX forecast.
North America short-haul economy fares could be up 3% to 5%, with North America long-haul prices for economy passenger climbing 0.5% to 3.5%, AMEX said. For business class, short-haul prices are slated to rise 5% to 7%, while long-haul could be up 3% to 5%.
Hotel prices are also slated to increase, albeit slightly, the survey notes, building on gains that began this year as those suppliers aimed to reach pre-recession room-rate levels.
“Hoteliers increasingly seek to remove these from contracted rates to drive their own revenue-generated opportunities next year,” Manning said.
AMEX warned that price increases will vary depending on location and suggested companies looking to keep costs in check calculate the value of services offered by hotels that help improve employee productivity, such as Internet connectivity and business center usage.
In Europe, the Middle East and Africa, hotel rates are expected to increase conservatively, however there will likely be declines in Spain and Greece that are facing particularly tough financial turmoil.
In Latin America, airfare is expected to increase by as much as 6% to 9% for business short-haul fliers and 5% to 8% for long-haul fliers. The hotel market down there is also projected to have moderate increases, particularly in the business hubs of Buenos Aires, Mexico City, Santiago and Rio De Janerio.
As companies continue to look toward Asia’s emerging markets for new business, the region is once again expected to lead business travel demand. Pricing for business-class short-haul fliers is slated to rise 2% to 6%, while those for long-haul passengers could be up as much as 6% to 10%.
In Asia, the uptick in business travel will inevitably weigh on hotel prices, AMEX said, however prices will likely fall in certain cities such as Shanghai, which has an excess of capacity after building more than enough hotels after its Expo 2010.
Why Companies Keep Traveling
Even with the higher price, though, companies are expected to continue traveling.
“There’s a link between travel and a company’s top-line growth,” said Alicia Tillman, vice president of global communications marketing services for American Express’ global business travel.
In an earlier AMEX survey, the company found that companies that utilize business travel estimate that they won over roughly 50% of their perspective customers through face-to-face contact, compared with just 31% without in person meetings.
“Despite emerging technologies that can serve as alternatives to travel, nothing really replaces what you gain with those in person interactions,” Tillman said, noting that travel is seen as a competitive advantage and helps build client relationships.
At the height of the nation’s latest economic recession, many companies started to slash travel budgets, which are typically one of the top two or three expenses after human capital and technology. However, AMEX noted that those companies that held onto the person-to-person client relationships realized stronger and more profitable growth than those that cut the budget out completely.
Of course, there are alternatives to travel such as telepresence and virtual meetings. And while AMEX says companies should avoid those less personal meetings with clients, it encourages cost-efficient technology-enabled meetings for inter-office affairs.
One of the best ways to tackle immense travel costs is to “managing spending more strategically,” Tillman said.
She suggested companies invest in sophisticated reporting tools so that they can keep tabs on employees spending habits while traveling on the job to ensure the money being spent is not on non-critical things outside of policy.