Though there are a few ticking economic time-bombs that could threaten the recovery, most industry reports forecast a strong year for business travel in 2014. Employment is up, debt is falling, profits are strong and consumer confidence is growing. After years of hardships and cuts, companies are hiring again, adjusting their business plans and expanding their horizons. With that comes the need for meetings and travel. Happy days are here again...at least for some of us.
PKF Hospitality Research LLC is forecasting very strong revenue gains and profits for the US lodging industry both 2014 and 2015. According to the December 2013 issue of Hotel Horizons, revenue per available room (REVPAR) is expected to grow 6.6 percent nationally in 2014 and another 7.5 percent in 2015.
TravelCLICK, another major provider of hotel information, supports those strong predictions. “For the next 12 months (November 2013 – October 2014) overall committed occupancy is up 8.4 percent compared to the same time last year,” according to TravelCLICK’s latest 12-month outlook. “And average daily rate, ADR, is up 3.5 percent.” TravelCLICK statistics are based on actual GDS transactions.
To break this data down even further, TravelCLICK data shows transient bookings up 6.9 percent with an ADR increase of 4.3 percent. The group segment is also ahead by 8.9 percent with a slight increase in ADR year over year. Hotel rooms are selling out and hotel meeting space looks to be at a premium in the coming year.
“We are very encouraged by the numbers we are seeing so far for Quarter 1, 2014,” concludes Tim Hart, executive vice president for business intelligence for TravelCLICK. “Both group and transient bookings are coming in significantly stronger than the same time last year. The forward momentum in room occupancy growth should provide support for continued strong ADR growing in the first quarter as well.”
What does all this good economic news mean to the corporate travel program? One veteran travel manager who currently manages government travel looked into his crystal ball and saw both positives and negatives for procurement in the coming year.
“On the positive side, travel booking, expense and trip management tools are gaining wider acceptance,” this industry insider said. “Cost data from the booking tool (estimated air, car, hotel and per diem costs based on trip duration) will be used to load a corporate payment system so travelers will have approved funding based on the booked data.” This is a major enhancement, particularly for government travelers, many of whom travel on their own dime and wait for reimbursement after the trip.
Travel managers are seeing corporate payment platforms that are evolving to offer greater control, increased flexibility and on-demand spend management. More up front reporting means less back-end hassle for both the traveler and procurement. In addition to new payment and reporting technology, travelers will continue to utilize an ever growing array of mobile applications to enrich their overall travel experience, making it more personal. Some of these applications are helpful and some not so helpful in a managed travel environment.
The top three line items in a corporate travel program—air, hotel and car—are all predicted to increase, but not all with the same vigor.
A Deal in the Air
The American Airlines - US Airways merger is viewed by most as positive for procurement. Low cost carriers are expanding their networks, meaning lower cost options on air are becoming available in some regions. And, as the economy improves, the airline industry will respond with increased frequency, fare stabilization and better service.
In their 2014 Americas Predictions and Dynamics, American Express anticipates a possible decline in airfares in 2014 as a result of the heightened competition, changing employment levels and corporate travel policies becoming more stringent in regard to business class travel.
According to Carlson Wagonlit Travel’s 2014 Travel Price Forecast, other factors that may help keep North American airfare increases at bay include stabilization of oil prices and cuts in US government travel. Overall, at least on the domestic side, air fares should fall in line with corporate travel budgeting.
Ticket price isn’t the only variable in play in the coming year, however. Carlson’s report points out that, “ancillary fees and fuel surcharges now account for a significant percentage of the total cost of flying, making it critical that travel buyers understand these costs and continue their attempts to negotiate based on their total spend with an airline.”
However, these extra fees and ancillary charges bring higher service expectations from airline passengers. And carriers are preparing. “Business travelers will continue to be a main focus point for the airline industry,” explains Dan Landson, communication specialist with Southwest Airlines. “Southwest Airlines is constantly trying new things to bring more business traffic to our airline.”
Like other carriers in a competitive environment, Southwest is investing in technology to meet their traveler’s needs. “We’ve seen in 2013 the addition of more WiFi equipped aircraft in our fleet which helps move the airline further into the 21st century.” Landson says, “With WiFi equipped aircraft, customers can connect to the Internet once onboard and remain connected until their flight parks at the gate at their destination. Through our WiFi system, we’re also able to provide free TV compliments of DISH TV.” Landson says he expects that more Southwest aircraft will become WiFi equipped in 2014.
Stay Focused
Whether corporate or government, the basic challenges of maintaining a managed hotel program are the same; how do you get the most out of your negotiated hotel program in a seller’s market?
“Travel managers are still looking for discounts to show savings to travelers and taxpayers,” notes the government travel expert. “However they have to be willing to make the difficult decisions and move market share when needed.” No matter the segment, partnerships are the key to cost containment. Programs have to be managed to provide benefits and value to all parties and procurement has to determine the type of program that makes sense for their travelers and makes sense for their suppliers.
Knowledge is key; access to the right technology and support is paramount in ensuring a well laid travel plan. Janey Whiteside, senior vice president and general manager of American Express Global Business Consulting & Solutions adds, “In this environment we recommend travel managers emphasize access to relevant and reliable data and reporting in order to really understand their travel program and to help ensure their travel investments are allocated to support their overall business objectives.” In addition, she agrees, “Gaining this understanding can in turn help improve supplier relationships, illuminate compliance gaps and ultimately help enable companies to remain flexible and nimble enough to adjust to changing travel and business environments.”
No doubt about it, procurement might need some tap dancing shoes when presenting the percentage increase in T & E year over year to upper management. But, there are some major concessions on the table that are worth requesting to soften the blow. In order of popularity, they are complimentary Internet, up-to-date gym, breakfast, parking and shuttle to office. This according to one hotel sales executive who negotiates multi-million dollar accounts for a major hotel chain.
TripAdvisor‘s “TripBarometer” survey supports this finding that free in-room WiFi, parking and breakfast are the top three most important hotel amenities for US travelers respectively.
From her experience, the hotel sales exec has the low down on these concessions. “Most full-service hotels will give in on internet but not breakfast because food and beverage is a hard cost,” she says. Breakfast is not part of the service standards for full-service hotels while select service brands such as Marriott’s Fairfield Inn or Hilton’s Hampton Inn do include breakfast as part of their standards. During the recession, some full-service hotels chose to add breakfast to be more competitive in their market. As business demand increases, including breakfast may not be necessary and the choice to add breakfast to the rate goes back to the overall value of the account.
“The gym is usually included for all hotels unless it’s a resort. Shuttles may be provided if a hotel has a shuttle on property, but question the service promise,” she warns, “since the hotel’s ‘airport shuttle” is designed for airport service, not running around town.”
Shuttle service is not as simple as buying a van and handing the bellman the keys. The insurance and liabilities that go along with providing shuttle service are prohibitive for most non-airport locations. Providing consistent, on-time transportation outside the hourly airport run is extremely difficult for a hotel, so make sure the expectation is not too high going in. Shuttle service accounts for high service failures on the hotel side, affects their overall guest satisfaction scores and ultimately can be a losing proposition all around.
In this current market, parking is perhaps the most contentious concession, the exec says. “But most hotels, especially in downtown locations, will not give this one up because it’s either a hard cost or an incremental revenue generator.”
Knowledge is power. When negotiating, first ask if the hotel owns the parking or not; although it sounds pretty basic, that will make a difference in their ability to negotiate at all. Second, try asking for a percentage off instead of complimentary parking. If the business warrants, the hotel may take a little less to secure the account. Finally, if parking is an insurmountable, forego the car, there’s always public transportation, a viable option in some markets.
Driving a Bargain
With the business landscape looking more positive, expect car rentals and ground transportation providers to seize the opportunity to increase their rates and that’s a good thing. Even markets that have seen only moderate recovery have had rental car rate increases for the first time in years. Similar to the hotel industry, increases in rental car rates are invested back into their assets – meaning updated fleets, newer vehicles and more choices for the traveler.
“Consolidation continues in the North American ground industry and car manufacturers are expected to increase fleet prices,” according to American Express. “Car rental companies may pass these increases on to their customers which may result in moderate price increases in base car rental rates. Key suppliers are also exploring car sharing programs in specific regions as an alternative that can offer increased flexibility and lower costs for corporate clients compared to public transportation.”
Whether we’re in a real recovery or economic bubble that could pop at any moment, this year the US economy is strengthening, and that means service providers in all sectors of business travel are raising rates, adding new fees or resurrecting ancillary charges that didn’t fly in the depths of the recession.
From a supplier perspective, the increases mean updates and improvements to inventory, refreshes and renovations for assets and a chance to evaluate and strengthen business partnerships.
From the procurement perspective, travel costs are increasing; not just rates but the whole travel package, and procurement had better be in management mode. Find the right technology, partner with suppliers that value your business in good times and bad and finally, resolve to create a program that can shift with the changing tides. Happy days are here again for suppliers; however, the mirror on the wall says, “maybe not for long.”