After a year characterized by evolving business traveler preferences and generally limited price increases, 2017 will bring stability and uncertainty in equal measure. Here are some predictions for what companies with traveling employees will face in the year ahead.
Average ticket prices will be stable but actual prices paid by business travelers could be on the rise.
Airfare inflation has been minimal because of low fuel prices and slow economic growth in Europe and Asia. These factors are projected to continue into 2017. However, most projections have airfares as unlikely decrease. Airlines have not expanded capacity as passenger volume recovered from its low in 2008, and mergers have reduced competitive pressure on many routes.
Higher Costs for Business Travelers
But that doesn’t mean there won’t be market changes. Several factors will continue to put upward pressure on the actual cost of airfare for business travelers. Essentially, airlines are getting better at (perfectly legally) price discriminating against business travelers. Factors driving this trend include:
- Dynamic pricing - More sophisticated inventory management means airlines are increasingly able to raise fares at periods of peak demand. This has the greatest effect on last minute bookers, a group in which business travelers are disproportionately represented.
- Ancillary fees - The percent of revenue airlines earn from ancillary fees has increased every year since 2010. Unlike vacationers, who might change their booking to avoid a $25 or $50 charge, business travelers have demonstrated a high willingness to bear add-on fees (which most companies reimburse).
- Premium cabin merchandising - Airlines are also looking to increase the amount of revenue per passenger mile by differentiating their seating options: on the budget end, there’s been a proliferation of basic economy fares, and on the high end, there are new premium economy and business class options for price-insensitive business travelers.
Corporate hotel rates are projected to increase in 2017, driven by tight supply in several key North American markets. Airbnb, which has seen impressive adoption from corporate travelers, should continue its growth, but may face regulatory headwinds.
Higher Hotel Rates
2015 was a record year for average U.S. hotel occupancy. Despite some signs that occupancy levels had peaked, several top markets continued to see all-time highs for room rates in 2016. New hotel construction still lags behind demand in several major markets for business travel - most notably, San Francisco. Specific to corporate travelers, businesses will face a tougher environment for negotiating supplier discounts now that the combined Marriott-Starwood controls a third, and in some cases half, of room inventory in many top markets.
Airbnb Establishes Itself for Corporate Travelers
Use of short-term apartment rentals as a hotel alternative will increase among business travelers in 2017. In the past six months, Airbnb has announced partnerships with the major corporate travel management companies and booking tools; it’s also begun to tackle possible safety and reliability concerns by certifying listings as “Business Travel Ready.” Rocketrip data indicates that in 2016, business travelers saved over $100 a night on hotel costs by staying at an Airbnb. These factors together show that Airbnb is maturing into a viable, cost-effective alternative to hotels. Though Airbnb is facing new legal restrictions in New York, the company’s regulatory experience in other major markets suggest its operations will not be unduly affected.
Business Traveler Spending Habits
In 2016, several airlines and hotels announced changes to their loyalty programs which tilted the table toward the highest spending travelers. Under these revenue-based rewards programs, travelers earn frequent flyer miles and hotel points based on how much they spend (as opposed to how frequently they fly or stay). For business travelers, that creates a stronger disincentive to comparison shop, or to choose low-cost options. 2017 will be the first full year of operation for several restructured loyalty programs: expect business traveler spending to increase accordingly.