Travel buyers face rising airfares

8 October 2012

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8 October 2012 | Anna Reynolds & Lorna Blackwood

Buyers should consider contracts with low cost airlines and ensure they can provide volumes they commit to in deals, as global airfare prices are set to rise in 2013.

The 2013 Global Corporate Travel Forecast, published by Egencia, revealed average ticket prices in Europe will rise by 3 per cent, and by 5 per cent in both North America and Asia-Pacific. In Europe, the main reasons behind this increase are rising fuel prices and increased airport charges and taxes.

In North America, prices are expected to rise following mergers between airlines, which has helped carriers by ensuring fuller planes, but has meant less choice for buyers. In Asia-Pacific, increased demand will keep prices high, but growth in new low-cost carriers (LCCs) will increase competition.

The report recommended travel buyers ensure they can meet targets on anticipated volume before committing to them and to consider contracts with low-cost carriers, which are more open to negotiation. But the study warned that having too many negotiated rates can be a lengthy administrative task and travel buyers should instead analyse travel patterns and focus on obtaining higher discounts on popular routes, where significant traffic can yield bigger savings for the company.

Average hotel rates are also forecast to rise by 2 per cent in Europe and 3 per cent in North America, whereas Asia-Pacific rates are expected to remain flat. Europe and North America has seen little new supply, which has contributed to rising occupancy and higher daily rates. In Asia-Pacific, however, new hotel construction has balanced the strong demand seen over the past few years, leading to reduced prices.

The report highlighted a large amount of supply in London that will need to be filled following the Olympics. This should be an advantage for buyers who will be able to negotiate better rates.

Purchasers were also warned that negotiations with hotel owners in North America will be tougher in 2013 as supply is fairly low. In Asia-Pacific, hotel outlook varies by country, with China experiencing declining hotel rates as supply outstrips demand. Hong Kong and Singapore have seen strong demand, with rates forecast to rise by 2013, making negotiations for buyers increasingly difficult.

The study recommended that when negotiating contracts, buyers should include amenities such as airport shuttle services and free internet as part of a package, which can result in large cost savings. Furthermore, contracting with mid-range, three-star hotels within the same chain rather than upper-star hotels will save companies money.

* At the CIPS Annual Conference last week, Hugh Sanderson, associate director, EMEA procurement at property management business Jones Lang LaSalle, urged delegates to increase online travel booking to drive savings.

He said using an online tool for both bookings and reports could cut costs by 20 per cent. He also said purchasers should install a rigorous travel policy, so individuals can’t book their own travel and it has to go through the system.

When choosing a new travel provider, he said it was important to understand its fee structure and recommended checking with existing customers to find out how efficient and effective it is.

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