Airfare and Hotel Prices Will Stabilize in 2020, Study Says

After a year of rising airfares and hotel rates, travel industry pricing will level off next year, according to a report conducted by CWT (formerly Carlson Wagonlit Travel) and the Global Business Travel Association.

“We believe that prices are set to slow down in 2020,” Christophe Renard, vice president of CWT Solutions, said at a press briefing in advance of the study’s release.

While a damper on price hikes should be good news for travel advisors and their clients, the factors behind it are less positive, he noted. Risks and uncertainties, including escalating trade wars, the impending Brexit deadline, and possible disruptions to the oil supply, are adding to general fears of an economic slowdown in some parts of the world, even though, overall, the global economy is expected to grow a solid 3.6% next year.

The outlook varies according to region. Airfares and hotel rates in Western Europe will barely budge in 2020 from this year’s levels, with increases of .5% and .7%, respectively, the study predicted. In North America, the prices of both air and lodging are expected to rise 2.3%; car rental rates will remain flat at 1% above 2019 levels. 

In Asia, where rapid expansion has slowed recently, hotel and air rates should only rise about 1.3%, in part due to a sharp increase in supply, notably in places like Japan where hotels are opening in advance of the Olympic Games next year. Latin America may actually see slight declines in air and lodging prices.

In any event, much of what happens in the pricing arena will be driven by business travel demand, Renard said.  And that will be affected by some of the other trends on the horizon, such as the following.

Overheated markets will cool
Business travel markets that saw dramatic price hikes, such the San Francisco area, are coming back to earth. “Where we saw really big rate increases, in technology centers like Silicon Valley,  some business travelers couldn’t even afford to stay there,” Renard said. Typically, what follows is that rates decrease or plateau, as sticker shock forces travelers to seek more affordable properties further afield, he added.

U.S. travelers may pay more overseas
The dollar is projected to weaken against currencies of other developed nations, due to expected interest rate cuts and U.S. efforts to boost exports. And demand for premium air travel could slow in this environment.

The sharing economy will continue to grow
The lines between traditional lodging accommodations and newer alternatives will continue to blur. “Midscale hotels are looking to hostels, luxury hotels to boutique accommodation,” the report noted. Airbnb for Work has already said it is expanding to Asia; and Marriott, for one, is offering a home rental product. Not coincidentally, Millennials are projected to make up fully 50% of the workforce by 2020.

Airlines will rely on ancillary fees and NDC to increase revenue
NDC will help increase airline revenue streams and rebalance squeezed margins, by facilitating customized pricing. And most airlines will look to ancillary fees to keep profits flowing, the study said.