Survey Says: Corporate Travel Spending Projected Flat For 2017

One major travel agency group is calling 2017 the year of uncertainty, at least where corporate travel is concerned. In a new outlook survey released last week at the Travel Leaders Associates annual conference in New Orleans, Travel Leaders said ongoing uncertainty and macro-economic projections lead it to believe that 2017 global travel transactions will show modest growth. Overall travel spend will be flat, with U.S. business travel spending projected at $293.1 billion.

“Pricing pressure is mounting in many major markets given an excess of supply and reduction in demand,” Travel Leaders said. “As a result, while business travel activities will continue to expand, prices will remain largely stagnant across air, hotel and car categories. [Still, though], as long as energy prices remain low, modest demand continues and terrorism incidents are low, suppliers will continue to record robust profits from their activities.” 

On the other hand, the survey was completed before the Donald Trump was elected as U.S. president, so things could change. “The outcome of the U.S. election could play a significant role in the direction of the global economy,” Travel Leaders said. “Major infrastructure investments are planned by both candidates and travel will likely see strong ongoing benefits from planned activities with long overdue improvements at airports, air traffic control systems and highways. We may also experience a hyper polarized political period and a reduction in business confidence. This may dampen 2017 business travel demand.”

Markets have not yet seen any major fallout from Brexit, the survey found. The British pound continues to decline against most major currencies, which will affect the level of outbound business travel from the U.K. A number of airlines have already signaled their intent to reduce services to and from the U.K for 2017. 

The survey notes that oil prices experienced a significant drop in 2016. Major producers continue to resist production limits and energy prices should continue to remain at historically low levels through 2017. “While this has been wonderfully positive for global airlines and customer airfares, ongoing low energy prices continue to impact travel demand originating from Western Canada, Western Africa, Russia, Middle East, Venezuela and numerous U.S. regions,” the survey said. 

In North America, airline supply is outpacing demand. Lower fuel costs have enabled airlines to post healthy profits and removed pressure to boost yields. Airlines experienced a 7% reduction on in airfares in 2016 vs. 2015, with the average domestic ticket price set to drop to $405 in 2017 from $410 this year.

Airfares will remain largely flat in 2017 as carriers work to reduce capacity, and low- cost carriers “will continue to thrive and their collective impact will restrict the large network carriers from meaningful price increases.”

On the hotel front, hotel companies have been reaping the benefits of low supply and high demand for the past six to seven years. Major cities like Chicago, San Francisco, Minneapolis, New York City, Philadelphia, Miami and Boston have added new room capacity over the Past two years and it will take time for the market to digest and adjust. The survey projects a slight rate increase of 1-2% for 2017, for an average domestic daily rate of $154.69.

Expect rate increases in Orlando, Seattle, Dallas, Atlanta, and Denver, and potential rate reductions in Houston, Washington D.C., Charlotte and Los Angeles. “The impact of AirBNB is yet to be fully analyzed, but clearly the addition of millions of alternative accommodations will have an impact on traditional hotel providers.”

Car rental companies, experiencing pressure from new ride sharing alternatives like Uber and Lyft, will see modest declines in days rented, and the average daily rate will fall in 2017 to $37 from $38 this year. 

Car rental companies are being squeezed by flat demand and lower margins from reselling their fleets. They likely will explore alternative sources of revenue by increasing fuel surcharges and one-way fees, and introducing new fees.