Business travel is expected to increase this year, as are the costs associated with it. Here we have pointed to some of the factors impacting corporate travel in 2016, like consumer travel demands and annoying add-on fees, that procurement can look out for.
1. Airfare Costs Will Continue to Rise, Despite Cheaper Fuel
The cost of an airline ticket in 2015 fell as the price of oil tumbled. According to data from the Department of Labor, airline tickets fell by at least 15% last year thanks to low oil prices. Despite oil remaining low this year, air travel prices are rising. Airfares were up 1.2% in January alone compared with December 2015.
This doesn’t seem to make much sense, since jet fuel is cheap. NPR reported Delta was paying between $1.20 and $1.25 per gallon in the first quarter of 2016, cheaper than the average $1.85 a gallon it payed in 2015, when airfares were lower. However, airlines are pointing to the rising costs of labor as reasons for ticket price hikes.
Still, the Business Travel Coalition is pushing for the U.S. government to investigate the airline industry and its fuel surcharges. In a letter to U.S. Secretary of Transportation Anthony Foxx, the BTC wrote, “[O]il prices have plummeted some 70% since June of 2014 while most U.S. airlines have left their often outsized fuel surcharges in place. We believe that the continued, widespread imposition of these substantial, add-on fuel surcharges in the face of plummeting jet fuel prices cannot be justified.”
Market research firm IBISWorld predicts the average price for a domestic airfare this year will be $393.90. It also reported airfares will rise 5% per year over the next three years as demand for air travel continues to increase. For procurement professionals in charge of corporate travel planning, IBISWorld suggests buying plane tickets 29 to 104 days before takeoff to secure the lowest fares.
2. Hotels, Other Costs Also Up
IBISWorld pointed to rising consumer travel as part of the reason for increases in various travel-associated costs, such as hotel rooms and ground transportation. Hotel room prices have increased 3.8% between 2013 and 2016, and are expected to grow at an annualized rate of 4.3% through 2019, according to IBISWorld’s analysis. Demand for hotels rooms is rising, too. The occupancy rate in U.S. hotels reached 65.6% at the end of 2015, up 1.7% from 2014. The higher demand for hotels can make securing a lower rate more difficult.
Ground transportation options are also more expensive, with car rental prices increasing 4.3% between 2013 and 2016 and cab service fees rising 3.1% during the same time period, according to IBISWorld.
3. Add-on/Ancillary Fees Remain a Pain Point
Airline-related fees remain the most popular ancillary fee business travelers experience. A new survey from the Travel Leaders Group showed 73.5% of respondents cited airline flight change fees as the top add-on fee business travelers encounter on trips. Just over 62% cited airline seat assignment fees and 58.6% pointed to airline baggage fees. These three airline-related fees also topped the list in the Travel Leaders Group 2015 and 2014 surveys, showing they remain a consistent fee for travelers.
Add-on Wi-Fi fees are becoming less common, however, as more hotels offer free Internet service. In 2016, hotel Internet fees were cited by 9.5% of survey participants as the most frequent ancillary business travel fee, down from 17.7% in 2014.
Another report from the Global Business Travel Association showed travel buyers and managers see incorporating these add-on fees into contracts as valuable, so business travelers do not have to pay them during the trip. However, such costs are not always put into the final contract. For instance, 25% of travel managers said the elimination of fees for changes or cancellations to airline itineraries are “always” or “often” negotiated into airline contracts, despite 99% of travel managers saying such a contract addition would be valuable. Also, 91% of travel managers said eliminating checked baggage fees would be valuable, but only 15% said this add-on was “always” or “often” negotiated into a contract.
4. Business Travellers Still Choose Hotels Over Airbnb
We talked about this a bit last year, but not many business travelers are staying in Airbnb rentals compared to hotel rooms. A recent Financial Post article discussed this topic, pointing out that while business travelers account for about 30% of hotel stays, they account for just 10% of Airbnb rentals.
Sure, a business traveler may be able to find a more unique place to stay with a full kitchen by securing a listing through Airbnb, but hotels still offer a level of consistency in service that perhaps make businesses turn to them more often than not. One tech reporter for Business Insider detailed just why she will choose a hotel over an Airbnb rental for her next business trip — annoying quirks like noise levels and fumbling to find a hidden key at night to enter the rental property are enough to turn her off.
Another bonus hotels have that Airbnb rentals don’t: loyalty programs. Business travelers, who often belong to such programs, take advantage of perks like free breakfast or room upgrades.
A 2015 survey by ExpertFlyer.com, an air travel information and corporate travel service company, showed other sharing economy services like Lyft and Uber are becoming more popular for business travelers. The survey found 25% of travelers say they use ridesharing services for ground transportation while on a business trip compared to the 17% who take a traditional taxi ride.
5. US Remains Major Business Travel Destination
Business travel is growing among U.K. businesses, and the top destination for these employees is the United States. New York and San Francisco are the No. 1 and No. 2 destinations outside Europe for U.K. business travelers, according to data from American Express Global Business Travel. San Francisco ranked third last year, which could signal a growing interest on Silicon Valley among U.K. companies.
European business travel overall is growing, American Express reported in its recently released 2015 EVP Barometer. European businesses increased travel spending 1.42% in 2015 and expect to increase total travel spending 1% to 3% in 2016.
Data from the Guild of Travel Management Companies (GTMC), a U.K. association, also showed U.K.-U.S. flight bookings in 2015 outnumbered travel to the world’s fastest-growing economies by more than four times.