CWT Solutions Group Sees No Big Price Hikes in 2013

It is starting to sound familiar: Economic growth will continue, but not by much. Air, hotel and car supply will increase, but not by much. And travel suppliers will raise prices, but not by much.

“If you do nothing, your travel spend will go up,” said Nick Vourmakis, senior vice president for Global Product Marketing & CWT Solutions Group. “But if you work the right levers, most travel managers will be able to mitigate the situation.”

Acceptance of travel value
The good news is that reducing travel is not one of the levers travel managers are expected to pull in 2013. Most companies have accepted the concept that travel is an investment with a measurable return on investment.

“Business owners and managers believe there is a benefit to travel,” Vourmakis told Travel Market Report. “Business happens face to face. They don’t want to travel less, they just want to travel smarter.”

Cost-cutting measures
Most travel managers will be pushing supplier negotiations to hold down rates and pushing travelers to adopt more cost effective travel behaviors to help stretch budget dollars. There won’t be much change when it comes to client-related travel, Vourmakis said.

Internal travel for training and other purposes could see limits. Substituting conference calls, online meetings, or video-based events could help travel managers contain the total travel spend without hobbling client-focused travel that can directly boost revenue.

Air demand up, capacity limited
Expect air increases of 1.8% to 3.9% for North America. Demand will continue to grow as economic growth continues. At the same time, airlines show no signs of abandoning the focus on profits over market share that emerged from the last recession.

That change in supplier focus will mean continuing limits on capacity in order to support price increases. And airlines show no signs of slowing their pursuit of ancillary fee revenues.

Wide variation in hotel rates
North American hotel prices should rise between 2.4% and 3.9% for 2013, but expect wide variation. Demand and rate increases for major business centers will be significantly above average.

It’s a matter of supply and demand, said Joel Wartgow, senior director for Carlson Wagonlit Solutions Group, Americas. Economic improvement may be slow, but it is enough to boost both leisure and corporate demand.

At the same time, the hotel development pipeline is more a trickle than a predictable stream of new development. New investment is starting to move into the market, but projects that are funded today are still several years away from producing any significant increase in room supply.

Last room availability (LRA) remains a key issue for both suppliers and travel managers. With a tight demand situation, hoteliers would like to rid themselves of LRA.

At the same time, LRA remains as important as ever for travel managers. The alternative to LRA, travelers being forced to make last-minute bookings at nonpreferred properties, can be even more expensive. Companies that insist on LRA can expect to pay a premium.

Car costs remains competitive
Rental car costs in North America could drop as much as 1.2% in 2013.  Consolidation in the car market is reducing the number of competitors, but competitive pressures continue to build for the survivors.

“We are seeing a hypercompetitive car marketplace,” Wartgow said. “Companies have to remain competitive in order to protect their market share, particularly at airport locations. Not only are they locked into airport contracts, but they need that airport visibility to capture leisure travelers.”

Corporate buyers should pay close attention to ancillary fees and charges on car rentals as well as hotel and air purchases, he added.

Both car and hotel vendors have taken advantage of the airline model to unbundle fees and add costs whenever possible. Hotels have the pricing power to resist some calls for the inclusion of Internet connections and other services business travelers need, but there is still some flexibility.

Car pricing offers significant opportunities for savings next year. With all suppliers facing continuing downward pressure on pricing, travel managers are in a strong position to demand—and get—concessions such as inclusion of collision damage waiver, GPS navigation and other ancillary services.

Push hard on contracts
The most important point may be to push hard now for contract benefits during the second half of 2013.

“We think consumer confidence will build later in 2013,” Wartgow said. “That implies a hardening of supplier positions later in the year. The bottom line is that travel managers are going to have to get more comfortable with growing levels of uncertainty into 2013.”