Business Travel Price Forecast
This article originally appeared on Inc.com, where Rocketrip’s CEO, Dan Ruch, has a regular column on travel, technology, and entrepreneurship. If you want to learn more about how to manage your company’s travel costs in the year ahead, be sure to check out our latest e-book, What to Expect for Business Travel in 2017.
Two of the most common New Year’s resolutions are to save money and to travel. The problem is that doing the former often precludes doing the latter. Hitchhiking aside, traveling requires spending money.
That’s true whether you’re paying for a vacation, or a business trip. My company, Rocketrip, helps businesses manage this tradeoff, reducing their travel costs by rewarding employees for utilizing affordable options. At the beginning of a new year, we talk to our clients about what they can expect for flight and hotel costs in the year ahead. Here are some of those predictions.
Airfares Will Stabilize Near a Low
Most projections have airfares changing little in the next twelve months.
Ticket prices actually fell in 2016, and are now significantly cheaper than only a few years before. In Q2 of 2016, the most recent quarter for which the Department of Transportation has made figures available, the national average for inflation-adjusted domestic fares was $352. That’s the lowest it’s been since 2009.
More recent changes to the Consumer Price Index show that airfares have subsequently fallen even further. November 2016 was the fifth consecutive month in which ticket prices underwent negative inflation.
Several factors make gradual stabilization the most likely outcome for airfares in 2017.
Plunging oil prices have been the primary reason that airfares have fallen. West Texas Intermediate crude oil was 44% lower at the beginning of January than it was three years previous.
Oil prices did increase throughout most of 2016, but keep in mind that this was only after they reached a 13 year low in February. Even the production cuts that OPEC announced in December have not yet resulted in price spikes. For 2017, the most probable scenario is that oil prices settle in at levels that are higher than the previous year, but still cheap by historical standards.
That’s important for airlines because fuel cost account for roughly a fifth of operating expenses, according to the International Air Transport Association (IATA). In anticipated of slightly more expensive fuel costs, IATA projects carriers’ profits to fall to $29.8 billion in 2017 from $35.6 billion in 2016.
The airline industry has enjoyed record profits in recent years even as revenue has decreased. Fares have fallen, but not as dramatically as have fuel costs. The major carriers have been cautious about expanding capacity, and passenger load factor in 2016 was only .17% off its all time peak. High load factors exert an upward pressure on fares, and will persist in the 2017. Forbes reports that “the Big Three U.S. carriers – American, Delta and United – have slammed the brakes on their previously aggressive capacity growth plans by slowing down, cancelling or deferring deliveries of new planes they previously ordered.”
Despite tight supply from carriers, in the absence of robust growth in demand, airfares in 2017 will look similar to those in 2016. Advito, a subsidiary of BCD Travel, predicts that economy fares will be “largely unchanged, with business class airfares likely to see a negligible rise of 1%.” The Travel Leaders forecast group echoes that prediction, saying that the average domestic air ticket will cost $410.21 – virtually unchanged from 2016, but more than $30 cheaper than in 2014.
But Hotel Rates Stabilize Near a High
Two years ago, the U.S. saw a record high for overall hotel occupancy, according to STR, Inc., a hotel industry benchmarking firm. Recent analysis for 2016 show that occupancy levels have remained near that peak, and that the average daily roommates (ADR) will finish the just completed year 3.1% higher than the one before.
That’s slightly below projections from the beginning of 2016, suggesting that hotel market’s post-recession boom could finally be slowing.
Still, that doesn’t mean travelers can expect lower room rate yet. CBRE, a commercial real estate advisory firm, predicts that occupancy rates will fall just 1.% in 2017. Supply remains tight in several key markets including San Francisco and Washington D.C., where ADRs are expected to increase more than 6%.
But the overall domestic increase in ADR will be more modest at 3.3%. (STR and CBRE have different methodologies for calculating ADR, which accounts for the slight gap in projections). If that turns out to be the case, it will mark the third consecutive year that the growth rate in the ADR has been lower than the year before.
As with airfare, hotel rates can be unpredictable. Another 2017 forecast, from Advito, sets the expected growth in North American hotel rates to be slightly higher – anywhere from 3% to 5%. Essentially though, all these projections point to the same trend: after years of price increases for hotels, relief may be near.
Overall, a Mixed Bag for Travelers
These and other projections lead to the same fundamental conclusions. Hotel rooms will be pricey in 2017 (but all things considered, they could be worse). Airfares will be cheap (but that is slightly disappointing for customers who have grown accustomed to them getting cheaper).
There will, however, be significant variations in prices based on itinerary and providers used. Airlines have grown more sophisticated in selling their seating inventory, which presents a challenge for bargain hounds. The hotel industry is simultaneously dealing with consolidation between major brands, and competition from Airbnb. Mega mergers and changes to rewards programs will shake up travelers’ existing brand loyalties. Despite the uncertainty, as ever as always, good deals will be available to savvy customers.
