2012 Advito Industry Forecast

8/4/2019 2012 Advito Industry Forecast

1/57

Click here to continue >

INDUSTRY FORECAST


2/57

2 | 2012 Industry Forecast 2011 by Advito. Al l rights reserved.

INDUSTRY FORECASTIND EX

EXECUTIVE SUMMARY 3

INTRODUCTION 8

CATEGORY-SPECIF IC TRENDS AND 2012 FORECAST 11

Air 11

Hotel 23

Meetings 28

Car Rental 30

Rail 32

2012 TECHNOLOGY TRENDS powered by 34

APPENDIX 42

2011 Hotel ADR by Key Market Update 43

Regional Cost per Mile YOY 44

Historical ADR Development YOY 20102011 (Key Markets) 49

Historical ADR Development Quarterly 20102011 (Major Cities) 53

METHODOLOGY 56

IND EX


3/57



The setting

Risk outlook

EconomyThe underlying economic assumptions or this rst edition o theAdvito 2012 Industry Forecast are based on the June 2011 WorldEconomic Outlook Update published by the International MonetaryFund. It projected that growth or the worlds advanced economies(principally North America, Western Europe and Japan) would be2.2 percent in 2011 and 2.6 percent in 2012. For the rest o the world,growth was orecast to be 6.6 percent in 2011 and 6.4 percent in 2012.

Since the June IMF update was published, economic condence hasdeclined signicantly owing to debt crises in several eurozone countriesand poor indicators in the United States, not to mention concerns

over its AAA credit rating. With the Federal Reserve announcingthat no rise in interest rates is likely until 2013, sharp stock marketalls have refected ears o stalled growth or even a double-diprecession. It is thereore highly plausible that the next update romthe IMF on September 20 will revise growth orecasts downwards.

Oil priceUntil economic worries intensied in summer 2011, the major riskthreatening business travel growth was the price o oil, whichreached US$120 per barrel in April. Loss o economic condencesince then has defated oil price to around US$105 at time owriting, roughly the same price that the IMF June 2011 updatepredicted will prove to be the average or both 2011 and 2012.

According to Advito analysis, every US$10 rise in barrel pricepushes up total air ticket price by around 3 percent. I oil goesno higher than it is now, then there should be no additionaluel surcharges to the end o 2012. A sustained rise in averageprice to US$105-$110 would create modest increases in thesurcharges. Beyond US$110 there would be signicant surcharges,possibly sucient to inhibit demand or corporate travel.

Security/saetyTravel to Japan remains depressed ollowing the earthquake andtsunami in March 2011. The Arab Spring and a handul o naturalevents (signicant snowall, volcanic eruptions) have complicatedtravel in countries directly aected. However, there are at timeo writing no known security, saety or health risks are expectedto have a ar-reaching eect on corporate travel demand.

General travel outlookDemand and price2011 has been a year o steady growth or business travel, with bothdemand and prices up. Demand is now close to 2008 pre-recession

levels, as is the cost o air travel, but hotel rates still have some wayto go. Based on a provisional assumption that economic growth willcontinue in 2012, Advito expects business travel demand to continueto grow too, perhaps by low single-digit percentages in North Americaand Europe, and medium to high single-digit percentages elsewhere.Across all regions, the price o travel will typically grow by 4 percent to6 percent, but a little lower in areas o high capacity and considerablyhigherespecially or hotels and meetingsin certain boom markets.

However, an important caveat is required. Demand or businesstravel correlates directly with gross domestic product growth. I thegures to be released by the IMF on September 20 are substantiallylower than they were in June, then price predictions may well have

to be revised in the next update to the2012 Industry Forecast in late2011. There will be urther quarterly updates throughout 2012.

EX ECUTIVE SUMMARY


4/57



Air

Pricing

Rising demand will continue to push up ares worldwide by 3 percentto 5 percent. Generally, airlines have not been over-hasty in restoringcapacity since the depths o the last recession, but there are somepockets o over-supply, most notably in transatlantic markets. Whetherthat leads to slightly soter pricing will depend on how much airlinestrim their capacity plans or winter 2011 and summer 2012 schedules.

Airline consolidationAirlines have continued to coalesce around the three global

alliances in the orm o mergers and intercontinental joint ventures.The main consequences or corporate clients have been:

Pricerisesmainlyintheformofreducedcorporatediscountswhere airline groups or joint ventures have route monopolies.

Trimmedcapacityonsomeroutes. Awayfrommonopolyroutes,corporatediscountswerenot

as badly hit by joint-venture negotiations as originally earedor 2011. However, joint ventures can be expected to turn thescrew harder in 2012. Negotiations at joint-venture level insteado with individual airlines are now almost unavoidable.

Ancillary ees and Direct ConnectExpect still more experimentation with whatairlines will unbundle, and what they willcharge or it. Some carriers will also look topush their merchandising model throughDirect Connect, regardless o whetherglobal distribution systems succeed inwidespread introduction o technology orbooking ancillary ees. Although airlinesare likely to agree new but shorter-termdeals with global distribution systems(GDS), it looks increasingly likely thatdistribution costs will be passed on in part

to TMCs and their corporate clients.

Additional new costs in EuropeCard payment eesBoth British Airways and Luthansa Groupairlines have introduced, or announced plansto introduce, ees or payment by card during

Regional Intercontinental

North America $ Business +3.0% +5.0%

Economy +5.0% +5.0%

Latin America $ Business +5.0% +4.0%

Economy +5.0% +4.0%

Europe Business +3.0% +5.0%

Economy +5.0% +5.0%

Middle East Business +3.0% +5.0%

Economy +5.0% +4.0%

Asia-Pacic$ Business +4.0% +4.0%

Economy +5.0% +4.0%

Table 1 Airare Predictions or 2012Rising demand will result in YOY increases in airares in 2012.

Forecast o average development o air ares used by corporate clients 2012 against 2011

(in $ USD or EUR) 2011, Advito.2012 Industry Forecast

EX ECUTIVE SUMMARY


5/57



2011. Expect more carriers to ollow suit, and those which have alreadyintroduced ees to extend them to more countries. The good news isthat corporate clients may escape the ull impact: In some cases the

ees are not applied to premium cabin bookings and in others there aresigns that airlines will be prepared to negotiate with corporate clients.

Emissions Trading SystemThe European Union will include al l airlines in the Emission TradingSystem (ETS) rom Jan. 1, 2012, orcing them to buy permits orcarbon-dioxide emissions above allocated caps. Not enoughinormation is available at this point to judge how much the ETSwill cost airlines, but it is very likely they will pass some o theadditional cost on to passengers. Several non-EU airline groupingsand governments are ghting the inclusion o their carriers inthe ETS. Some countries outside the EU may introduce penalty

surcharges or EU-originating passengers in retaliation.

EX ECUTIVE SUMMARY

Our recommendations or travel buyers and managers

Bewary o over-commitment during airline negotiations, assuming share expectationsare achievable. Airlines have generally aligned capacity neatly to demand and will reactunavorably.

Negotiate hard in markets where there is over-capacity in order to compensate or limitedopportunities elsewhere.

Encouragetravelerstobook urther ahead. Continuetopressforairline-by-airline negotiations, while understanding that carriers will

include their joint-venture partners in the bid responses.

Fuelsurchargesarenotexpectedtoincreasefurther,butbudgetaheadforadditional costs inthe orm o distribution ees, card payment ees and Emissions Trading System premiums.


6/57



Hotel

Pricing

Continuing demand recovery has made hotels bullish about theircorporate rate negotiation prospects. They are likely to opentheir 2012 request or proposal bidding by quoting signicantlyhigher rates. However they are likely to make some adjustments inresponse to rm negotiating by travel managers with well-managed,compliant travel programs. Finalized rate increases are likely to bein the region o 2 percent to 6 percent, depending on the location.

The signicant exception to the above generalization is thetop rung o international gateway cities such as New York.

Fig 1 2012 Hotel Average Daily Rate (ADR) Predictions by RegionIn 2012, ADR will grow gently in all major regions.Figures represent YOY changes based on booked ADR

2011, Advito. 2012 Industry Forecast

Our recommendations or travel buyers andmanagers Bepreparedtodemonstrate volume in each location/city. Dontaccepttherstpricehotelsoffer.Negotiationswillbetough,

but a rm stance will achieve reduced rate rises. Inhigh-demandmarkets,expandthenumberofhotelsinyourRFP

process, but consolidate your nal choice to as ew properties aspossible.

InsistonLast Room Availability, and dene the term in the contract. Continuetoresist the dynamic pricing model (xed reduction o the

best available rate).

Considerintroducingintopolicycity caps based on total cost o stay(e.g., room, breakast and transer). It encourages travelers to booka cheaper hotel i a preerred property is unavailable, not a moreexpensive one.

EX ECUTIVE SUMMARY


7/57



Meetings

Pricing

Demand returned strongly in 2011 and is provisionally expected to bestrong again in 2012. Consequently, rates will rise aster in 2012 andaccelerate in 2013 due to strong orward bookings. As with transienttravel, rate rises will be strongest in primary gateway cities.

Ground transportationCar rentalIn spite o recovering demand and tightly managed capacity, negotiatedrates in the U.S.by ar the largest car rental market worldwidehave notmoved upwards or two years owing to intensive competition. Somethingwill have to give, so expect rates to rise by 4 percent to 6 percent in2012. Companies which have not reviewed their rental programs or aew years should do so as soon as possible beore rates start to go up.

Short-term rental, or car-sharing, is starting to become

a viable option or corporate clients. Companies with carrequirements in major cities should start to analyze theirdemand patterns and reach out to potential niche suppliers.

RailFare increases o around 5 percent can be expected in Europe,similar to 2011. Deregulation o the cross-border market will seesome new services introduced rom 2013 with two DeutscheBahn routes to London, but pricing is unlikely to be aected.

EX ECUTIVE SUMMARY

In China, relentless expansion o high-speed rail included the opening oa Beijing-Shanghai line in July 2011, but a atal crash in the same monthunderlined major ears which have emerged about saety o the network.

Travel technologyThis year, or the rst time, Advito has partnered with Tnooz, the leadingglobal news service covering travel technology, digital distribution,online marketing and social media, to analyze trending areas o

technology innovationand disruption. The section explores:

Developmentsinsearch Evolvingdistributionmodels Proliferationofhand-heldsmartdevices Emergenceofsocialcommerce


Lead-timesarestillveryshort.Itwillbecomenecessarytobook urther ahead, especially or high-demand cities.

Donotexpectupscale hotels to discount heavily as they did during the recession. Considermulti-year deals as a negotiating option. Beware o reduced fexibility in supplier terms and conditions.


8/57



United States2010: +2.9%2011: +2.5%2012: +2.7%

Euro Area2010: +1.8%2011: +2.0%2012: +1.7%

World2010: +5.1%2011: +4.3%2012: +4.5%

China2010: +10.3%2011: +9.6%2012: +9.5%

indicates revisionto previous forecast

GDP

| 2011 by Advito. All rights reserved

2011 so ara good startAt time o publication (early Sept.), 2011 has been a year o healthyrecovery or corporate travel. Booking numbers have returned to

close to 2008 levels. Companies are displaying renewed enthusiasmor travel, especially to and rom the BRIC (Brazil, Russia, India andChina) and other developing markets driving global growth. Worldwide,revenue passenger kilometers fown by International Air TransportAssociation airlines grew 8 percent in the rst six months o 2011.

For travel managers, the good news has been that prices have not alwaysrecovered as ast as demand. Total air ticket costs are generally back towhere they were, but hotel rate reductions were so severe in 2008-09that pricing does not look likely to exceed its 2007-08 high watermarkuntil 2012 or even 2013assuming there is not another worldwidedownturn (see below). Recent price increases have not rightened odemand, although some companies will reach the end o their annualtravel budgets by the beginning o Q4. However, budget overspendswill result more rom an increase in trip numbers than in trip price.

Travel suppliers have generally had a good 2011 too. Most airlineshave made a prot, albeit a reduced one in some cases owing to oiltrading above US$100 a barrel. Yet to have gone into the black atall with oil at such a high price is a considerable achievement. Fiveyears ago, beore airlines restructured and took a more measuredapproach to capacity, that would have been considered impossible.

Risk outlook or 2012storm clouds gather once moreUntil summer 2011, the expectation was that demand or business travel

would continue to grow into 2012, with prices rising steadily ratherthan abruptly. The major risk to business travel was perceived to beupward price pressure on oil. Since then, however, nagging concernsabout the strength o economic recovery in the developed economieso North America, Western Europe and Japan have moved to theoreground, culminating in spectacular alls in global stock markets.

At time o publication there has been no discernible all or evenfattening in demand or business travel, but will that change over

the rest o the year and going into 2012? The answer will likely bedetermined by three principal risk actors governing the healtho business travel: economics, oil price and security/saety.

Economicsconfdence dropsThere is a very strong and simple correlation between economic growthandbusinesstravel.Whengrossdomesticproduct(GDP)rises,sodoesdemandfortravel.AndwhenGDPfalls,sotoodoestravel.TheWorldEconomic Outlook Update, published by the International MonetaryFund in June 2011, projected that global growth or 2011 will nish 4.3percent higher than 2010 (0.1 percent lower than the rate it orecastin April 2011), while growth in 2012 will be 4.5 percent (unchanged).

The headline gure masks a continuing sharp contrast betweenadvanced economies and the rest o the world, particularly the up-

and-coming BRIC countries. The advanced economies were projectedto nish 2011 up 2.2 percent (April 2011 orecast: 2.4 percent), and or2012 growth to be 2.6 percent (April 2011: also 2.6 percent). The rest o

Fig 2 Global Economic OutlookThe recovery is expected to slow down in 2012 in most regions, includingAsia-Pacic.

Source: IMF, World Economic Outlook, June 2011

INTROD UCTION

8


9/57



the world was orecast to climb 6.6 percent (April 2011: 6.5 percent) in2011 and 6.4 percent (April 2011: 6.5 percent) in 2012. Growth orecastsor China are 9.6 percent or 2011 and 9.5 percent or 2012, or India 8.2

percent or 2011 and 7.8 percent or 2012 (all unchanged rom April 2011).

Poor perormance may revise growth estimatesThe gures rom the June 2011 update have been used as the basisor pricing predictions in Advitos2012 Industry Forecast, but thereisadistinctprobabilitythattheIMFwillreviseitsGDPestimatesdownward in the next update on Sept. 20. The June 2011 update itselwarned that downside risks have increased again and the mildslowdown noted in the second quarter o 2011 is not reassuring.

Even beore the June 2011 update, Marchs earthquake and tsunamihad disrupted Japans supply chain and dented economic condence.

Since the update, concerns have intensied about both the eurozoneand U.S. In the ormer, continuing problems in Greece have beenjoined by worries about debt levels in Spain, Italy and other member

states. In the latter, weak economic indicators were compounded byconcerns over the countrys AAA credit status with ratings agencyStandardandPoors.AdeclarationbytheU.S.FederalReserveonAug. 9 that it expects to keep interest rates at their current ultra-low levels until at least 2013 signaled little prospect o an economicimprovement over the next two years. The Fed acknowledged in thesame statement that economic growth in 2011 has been considerablyslower than expected. On the ollowing day, the U.K.s Bank oEngland cut its 2011 growth orecast rom 1.8 percent to 1.5 percent.

Concerns about lower growth have been heightened by the lack o scallevers remaining or the governments o advanced nations, given thatthey have already reduced interest rates to historic lows. With someeconomists tipping a return to recession or the U.S., and thereoremost likely to many other countries, stock markets have allen sharply.

Upward trend provisionally assumedHow all these worries will translate to the corporate environmentremain to be seen. To date, companies have been cautious abouthiring sta or making major capital investments, but they haveinvested in more travel. The2012 Industry Forecast assumes ornow that the global economy and travel levels will continue togrow, and thereore prices will climb again next year, but thegures will have to be changed i there is a new downturn.

Oil pricesurge arrestedParadoxically,onerarepositiveconsequenceofthepresenteconomicconcerns is that they have doused oil price rises, the risk which untilthat point was presenting the severest threat to travel growth. Oiljumped above US$120 per barrel in April as short-term concernsabout how unrest in the Arab world might impact supply added tothe longer-term rise in demand rom developing countries. Since

INTROD UCTION


10/57



Conclusion: expect demand and price growthor nowBased on all the above assumptions, the provisional expectationis that corporate travel demand will surpass 2008 levels in 2012

and pricing will return to close to 2008 levels too. However,with economic events moving so rapidly, Advito will monitorthe situation careully, and issue revisions to the orecast asappropriate. The2012 Industry Forecast will next be updated inQ4 o 2011, with quarterly updates to ollow throughout 2012.

INTROD UCTION

then, however, the price has allen to around US$105 as growing earso an economic slowdown revise expectations or oil demand.

Fluctuations in oil price are very signicant or business travel. EveryUS$10 rise in barrel price pushes up total ticket price by approximately3 percent through higher ares and uel surcharges. They hit the costo long-haul fying especially hard, which has compounded the impacton corporate clients in North America and Europe, because they arebooking a higher proportion o long-haul fights as they increasetheir business in emerging markets such as Asia and South America.

The IMF June 2011 update orecast that the average barrel price or2011 will be US$106, and or 2012 it will be US$105. Airline pricingtoday is dictated primarily by oil price, not capacity, and carriersappear to regard US$100 per barrel as the new, economically viable,norm. I the average price climbs to US$105-US$110 in 2012, expecta small increase in total ticket costs. I it climbs above US$110,expect much more substantial airline price increases, possiblysucient to prompt a all in corporate demand or air tickets.

Security/saetyno visible threat o major disruptionIncidents o dierent kinds this year in Japan, Bahrain, Norway andthe United Kingdom have all illustrated vividly that saety and securityconcerns can arise in what are usually considered sae businessdestinations. However, there have been no security-related incidentsto date in 2011 that have caused anything more than localized businesstravel disruption. Even in the case o the Arab Spring, business travelersare not avoiding the entire region. Thereore, at time o writing, there

are no oreseeable security, saety or health issues that would beexpected to have a ar-reaching eect on corporate travel demand.


11/57



Current market conditions

Demand

Demand has grown healthily in 2011, although trac to Asia was disruptedby the Japanese earthquake and tsunami, and remains depressed by adouble-digit gure within the Japanese market itsel. Destinations aecteddirectly by the Arab Spring unrest are also experiencing lower demand.

At time o writing, growing economic concerns have not led to any lesseningin business trac. However, a combination o higher ares andmoreimportantlyincreased travel activity means some companies are likelyto exhaust their 2011 travel budgets by the end o Q3. With corporateprotability having been strong in most sectors, the question is whethercompanies running over budget will allocate extra nances to the end othe year or impose a travel ban? A plausible compromise in such cases is

that a resh budget will be ound or travel, but only or sales trips and otherexternal meetings, while internal meetings will be suspended until thebeginning o 2012.

10%

51% 54%

87%

51%

89%87%

0%

2009 2010 2011 YTD

20%

30%

40%

50%60%

70%

80%

90%

Regional

Economysegmentsa

s

shareoftotal

Intercontinental

Fig 3 Economy Class RatioThe use o economy class has increased on regional fights in North America and Europe

North America

Europe

2011, Advito.2012 Industry Forecast

CATEGORY-SPECIFIC TREND S AND 2012 FORECASTAI R


12/57



SupplyThe worlds airlines have generally resisted the temptation to respondto the upward economic cycle since early 2010 with over-enthusiastic

capacity expansion. This was not the case in previous cycles, whencarriers would all too oten ocus on market-share gains. In 2011, yieldmanagement and protability have ormed their core strategies, and bykeeping expansion within sensible limits, they have usually succeeded.

That said, supply has moved unequivocally upwards, spurred onin part by the relentless expansion o Middle Eastern carriers andthe accelerated production o Airbus A380s, the worlds largestpassenger aircrat. In consequence, available seat kilometergrowth worldwide (9.7 percent) in the rst six months o 2011exceeded revenue passenger kilometer growth (8.0 percent).Transatlantic routes, in particular, have over-capacity at present.

Given their new-ound commitment to protability, airlines havestarted to respond with announcements o reduced capacity increases,

and in some case outright cuts. A 5 percent to 6 percent reductionon some routes is not out o the question.For example, transatlantic joint-venturepartners Air France-KLM, Alitalia and DeltaAir Lines announced a 7 percent to 9 percentcapacity cut on North Atlantic routes.

PriceAir ares have risen aster in 2011 than Advitopredicted in its initial2011 Industry Forecast,published in early all 2010. In part thiswas because o reasonably well-matchedsupply and demand, but the overwhelminginfationary actor was the steep climb inoil price in the six months to April 2011.This led to Advito revising its are orecastupwards in both its February and May2011 updates. The original orecast o a 6percent rise or North American regional economy-class ares in2011, or example, was eventually upgraded in May to 12 percent.

Since then, oil prices have stopped rising and consequently theare orecasts have not been revised since May. Advito expects theMay orecasts to hold good to the end o 2011. Due to transatlanticover-capacity, are increases on these routes will be below the

intercontinental average, while transpacic are increases willbe above them. In terms o average ticket price paid by corporatecustomers, an additional infationary actor or some has been increaseduse o business class. For July 2011, or example, British Airways andIberia parent International Airlines Group reported a 2 percent increasein non-premium trac but a 14 percent rise in premium trac.


BRIC countries surgeAccording to Q1 2011 gures published byAmadeusTotal Demand by Airconomy, demand or fightsbetween the BRIC (Brazil, Russia, India and China)countries and other emerging markets expandedat prodigious rates. Brazil-Middle East was up 77percent, while Brazil-Russia was up 63 percent andBrazil-India 34 percent. Meanwhile, Russia-Aricagrew31percentandRussia-Asia-Pacic27percent.Domestic demand also surged: Brazil jumped 28percent, Russia 27 percent and China and India both14 percent.

Revenue passengerkilometer growth(trac)

Available seatkilometer growth(capacity)

Arica -1.2% 4.2%

Asia/Pacic 3.7% 6.3%

Europe 11.4% 12.3%

Latin America 17.6% 13.9%Middle East 8.7% 10.1%

North America 6.3% 9.3%

Worldwide 8.0% 9.7%

Table 2 Global passenger trafcJan.June 2011 versus Jan.-June 2010

Source: International Air Transport Association


13/57




Outlook or 2012

Demand

At time o writing, assumptions that economic recovery and thereoretravel demand would continue into 2012 are under review owing to theEuropean debt crisis and weak perormance and political stalematein the U.S. However, so long as economic growth continues, so toowill travel demand, though most likely at a lower rate o increasethan in 2011. Another period o oil price infation could also suppressdemand, although no such spike is anticipated at present.

In the short term, any temporary blocks imposed on travelin Q4 to balance 2011 corporate budgets would storeup a short-term surge in demand in Q1 o 2012.

SupplyCapacity cuts anticipated or Q4 2011 are likely to be sustained into nextyear and the launch o the summer timetables in late March. In spite o thecapacity corrections, there may remain an over-supply in some regions. NewaircraftordersmeanmajorgrowthisexpectedinAsia-Pacic,althoughthe largest feet expansions look likely among low-cost carriers and arethereore o only partial interest to corporate customers in the region.

PriceAdvito orecasts are rises in all regions in 2012 within a tight band o 3percent to 5 percent. The prediction is based on an expected continuationin demand growth being tempered by overcapacity in some markets

(mostly long-haul), the approach o pricing points that are potentialdeterrents to customers and a weakening in economic condence. Thelower orecast than or 2011 also signals that airlines have successullyrestructured their businesses to make themselves protable at US$100per barrel o oil and thereore eel less pressure to raise ares.


14/57



The orecast assumes a barrel price o US$100 or the year ahead. Ioil rises and stays above US$110, airlines will eel compelled to raisetheir total ticket prices substantially and demand will be aected.

There are additional actors threatening to push up total ticketprice beyond the 3 percent to 5 percent orecast, includingthe growing power o consolidated airline entities, higherdistribution ees and (in Europe) card payment ees and theimminent Emissions Trading System. All are discussed below.


Assuming continued economic growth, 2012 is going to be a tough year or customers

with mature travel programs to nd resh strategies or reducing airline costs. Whereairlineshavealignedtheircapacityneatlywithdemand,theyarelikely

to be tough on corporate customers who ail to meet volume or market-sharetargets. Be wary o signicant over-commitment during negotiations.

Understandwheretherearepockets o over-capacity in the market. Negotiating hardon these will be your best chance to compensate or price increases elsewhere.

Joint ventures and other airline consolidations will pose an increasingthreat to managed air programs. Be aware o the problem, but also that theprospect o avoiding them is diminishing. See page 16 or more details.

Lookagainatmovingyourtravelerstoearlier booking. Avoiding last-minute purchasesis a reliable way to reduce average ticket price when there are ew other levers to pull.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009-05

2009-06

2008-07

2009-06

2009-07

2009-08

2009-09

2009-10

2009-11

2009-12

2010-01

2010-02

2010-03

2010-04

2010-05

2010-06

2010-07

2010-08

2010-09

2010-10

2010-11

2010-12

2011-01

2011-02

2011-03

2011-04

2011-05

2011-06

Same Day

> 0 and 3 and 7 and 14 and 21 Days

Fig 4 Advance purchase behaviorBookings made more than 14 days in advance remainat about 50% share.

North America



15/57



Forecast o average development o airares usedby corporate clients 2012 against 2011 (in $ USD or EUR)

Source: Advito



Fig 5 2012 Airare Forecasts by RegionIn 2012, increasing demand, tempered by over-capacity in somemarkets and shaky economic condence, will result in YOY are

increases that are less drastic than 2011s YOY jumps.


16/57



The impact o airlineconsolidationThe major players in the three mainalliancesOneworld, Skyteam and StarAlliancecontinue to coalesce into morecohesive units owing to mergers andjoint ventures. Since all 2010, there havebeen the ollowing major developments:

Oneworld October2010AmericanAirlines,

British Airways and Iberia launchtransatlantic joint venture, with

services on jointly operatedroutes merging rom April 2011. January2011BAandIberia

merge under new parentInternational Airlines Group.

April2011AAandJapanAirlineslaunch transpacic joint venture.

June2011MalaysiaAirlinesannouncedas a member-elect o Oneworld.

August2011QantasandBAfurtherconsolidate and co-ordinate servicesbetween U.K. and Australia. Qantas

also announces plans to launch adomestic and regional low-cost carrierin Japan in cooperation with JAL.

Skyteam June2011DeltaAirLinestells

Business Travel News all Delta and AirFrance-KLM transatlantic corporate

contracts have been transitionedto joint-venture agreements.

July2011-Alitaliaannouncesplanto strengthen Rome Fiumicinoas a southern European hub orSkyteam and expand transatlanticjoint venture with Air France-KLMand Delta to other markets.

August2011FellowSkyteammembersDelta and Aeromexico announce atentative agreement or a long-term, exclusive commercial alliance,including a US$65 million investmentby Delta in the Mexican carrier.

Star Alliance Throughout2011Merger

o Continental Airlines andUnited Airlines progresses.

Throughout2011LufthansaGroupaccelerates integration o managementand sales teams at country level osubsidiaries Austrian Airlines, bmiBritish Midland International, BrusselsAirlines, Luthansa and SWISS.

April2011Transpacicjointventure

between All Nippon Airways andUnited Continental starts.

April2011BMIjoinsAtlanticPlus-PlusjointventurewithAirCanada,Luthansa and United Continental.

June2011ANAandLufthansareceive anti-trust immunityor rst Asian-European joint

venture, to launch winter 2011. July2011AustrianandSWISSjoinAtlanticPlus-Plus.

2011 has also seen an importantconsolidation in the U.S. budgetairline industry, with SouthwestAirlines announcing completion o itsacquisition o AirTran. In Latin America,a proposed merger between LAN oChile and TAM o Brazil is still awaitingregulatory clearance. Gol, Brazilssecond-largest airline, announced mergernegotiations with Webjet, the countrys

ourth-largest airline, in July 2011.

Impact o consolidationon corporate clientsMonopoly routes and higher aresThere are increasing examples ocorporate customers paying morewhere competition has diminished: LufthansaGroupairlineshaveavirtual

monopoly on routes rom Belgiumto Austria, Germany and Switzerland,with rare exceptions such as easyJet

on Brussels-Geneva. Fares haverisen signicantly on these routes.

Similarly,averageticketpriceshaverisen sharply or corporate clientson select transatlantic routes withjoint-venturemonopolies.Publishedares have not risen notably, butcorporate discounts that were

previously middle double-digitpercentages are now typically singleor low double-digit percentages.

Sister airlines BA and Iberia have nocompetition rom traditional carrierson London-Madrid. Negotiatedcorporate discounts have dropped romaround 20 percent to almost zero.

Reduced capacityAA/BA have pulled two fights a dayon the worlds busiest long-haulroute, Heathrow-New York JFK, and

one fight rom Heathrow to Chicago.The merged United Continentalhas started to withdraw rom somedomestic markets and AirTran is alsowithdrawing rom some minor routes.In total, however, consolidation cannotbe said to have led directly to massreduction in capacity. Instead, it appearsto be allowing airlines to grow theirnetworks while keeping capacity tight.

Impact on corporate deals

Other than on monopoly routes, suchas those noted above, the impact oncorporate discounts was perhaps lessthan originally eared in 2011. However,with all three major transatlantic joint-ventures having a years experienceunder their belts, they are expected tobecome ar tougher negotiators in 2012.



17/57




What has already become clear is thatit is now extremely dicult to insist onnegotiating individually with memberairlines in a joint venture. All or noneis the norm, with only a handul o themost powerul corporate clients ableto resist. Buyers have to change theirmodus operandi to deal with airlinegroupings, but with one grouping notenough and two oten too many, this iscausing acute management dilemmaswhen trying to choose a well-suitedcombination o airlines. In consequence,

buyers are sometimes over-committingthemselves in some areas to dierentgroupings so they can retain a mixedbalance that truly meets their needs.

Outlook or 2012Expect the improved streamliningo joint ventures to apply greaterpressure on corporate discountsrom the second hal o 2012.

Long-term, consolidation is onlygoing one way, and long-standing

predictions that three airlines basedaround the three global alliances willeventually dominate the global marketlook increasingly plausiblealthoughthe Middle Eastern carriers may staystrong, independent competitors.China and India are likely to join thetrend next, with a series o alliancememberships and then joint ventures.

Our recommendations or travel buyers and managersLikeitornot,consolidationisheretostayandwillchangeyourmanagedair

program. Understand your air travel patterns, the likely impact consolidation

will have on them and then map out the options or re-designing your program.Trytocontinuenegotiatingairlinebyairlineifyoucan,ifonlytoprovideabargaining chip or later negotiations. However, recognize that you will nowhave to talk to joint ventures as single entities. Ignoring them is likely toprove unproductive as they increase their negotiating cohesiveness in 2012.

Dont spread your spend among all three transatlantic jointventures. You will have to make choices. Two may be possible, buteven two will create overlaps that require careul management.

Workwith independent airlines. However, these are diminishing innumber. For example, Virgin Atlantic has warned it is likely to relinquishits independent status and seek alliance membership. In some cases,the three leading Middle Eastern airlines (Emirates, Etihad and QatarAirways) are proving to be robust alternatives, or example rom Europeto Arica and Asia (especially India), or rom the U.S. to India.


18/57




Ancillary eesAncillary ees are now ubiquitous and multiplying among low-cost

carriers and U.S. airlines, but the last year has not seen a majorspread o the concept among other carriers. It is possible that manymore airlines will start to unbundle ares once they are satisedthey can do so eectively through the global distribution systems,but progress in switching on this technology has been slow.

Among those airlines which have already introduced unbundling, theycan be expected to accelerate their experimentation with what theycan and cannot charge or, and how much they can charge or it. Inparticular, there may well be increased dierentiation o ees amongdierent passenger types, not only to drive up revenue but also toincrease customer loyalty. For example, a US$15 bag ee may be reduced

to US$5 or silver-level requent fyers and zero or gold-level fyers.

There is also likely to be more rebundling o ees into packages,e.g., an all-inclusive price covering lounge access, a reerst bag and priority seating. Such packages could becomethe subject o negotiations with corporate clients.

Direct ConnectThere has been a much-publicized stando over the past couple o yearsbetween certain carriersmost notably American Airlinesand globaldistribution systems. AA in particular has stated its wish to bypass the GDSsand distribute directly to travel management companies or two reasons: ToreduceitsGDScosts Toimproveitsabilitytosupportitsmerchandisingstrategy

The GDSs and some

commentators have statedthat the second o thesereasons is a smoke screen toapply more pressure to GDSee negotiations. However,there is probably more toDirect Connect than meresaber-rattling, althoughmost parties also agreethat signicant development costs and lost eciencies will almost certainly driveup costs while dramatically ragmenting the shopping experience or travelers.

In the short term, all airlinesincluding AAare likely to conclude a newround o agreements with GDSs, as there is too much or both sides to losethrough a ailure to continue working together. However, the deals maybe or shorter periods than in the past, and the ee structure may change.The consequence may be higher distribution costs to travel managementcompanies (TMC) and thereore, in turn, or the corporate customer.

Our recommendations or travel buyersand managers Reviewwhichunbundleditemsyourcompany

will and will not reimburse, and lay thesedetails out clearly in your travel policy. Starttopushairlineshardertoinclude ancillary ees

in corporate negotiations, especially bundled packages.

Our recommendations or travel buyersand managers KeepmonitoringthenegotiationsbetweenairlinesandGDSs.Prepareforthelikelihoodofchangestoairdistribution channels, and or some distribution coststo be passed on to corporate clients.


19/57




Spotlight on Europe

Card payment eesBoth British Airways and the Luthansa Group have introduced,or announced their intention to introduce, ees or payment bycard during 2011. They ollow similar moves a couple o yearsago by a small number o other airlines, including KLM. Theees introduced by BA and Luthansa are as ollows:

SinceApr.1,2011,BAhassurcharged4.50onallnon-premiumticketsbought by credit card through U.K. travel agents. Visa or MasterCarddebit cards are exempt, although ew corporate clients use them.

OnAug.3,2011,theLufthansaGroupannounceditwillintroduceanOptionalPaymentCharge(OPC)forcreditcardbookingsfor

all its airlines: Austrian, bmi British Midland International, BrusselsAirlines,LufthansaandSWISS.TheOPCwillbeintroducedinFinland, the Netherlands and the U.K. on Sept. 5, 2011. In each othesecountriestheOPCwillmatchsimilarfeesalreadyintroducedbyothercarriers.OnNov.2,2011,theOPCwillbeextendedtoGermany, Switzerland and Belgium. The ee will vary in each o them.

What does it mean or corporate clients? Prepareformorepaymentfees

Now that some o Europes largest airlines have introducedpayment ees, expect more to ollow suit. Expect also thoseairlines which have already introduced ees to extend them

to more markets, although they will not become consistent orubiquitous because dierent European Union members haveimplementedtheEUPaymentServicesDirectiveindifferentways.

UnderstandwhetheryouwillbeaffectedIt is early days but larger corporate customers look like escapingthe ull impact o payment ees. BA does not apply its ee topremium economy, business class or rst class tickets; whiletheLufthansaGroupwillnotapplytheOPCtocorporatecontracts or German and SWISS clients until Mar. 31, 2012. Thatis the date its current corporate contracts expire. The choiceo date suggests corporate clients may be able to negotiatea reduction or elimination o the ee or their next deal.

Consideryourpaymentoptions

Corporate customers may wish to assess whether they shouldchange their payment method. On the same day that LuthansaannouncedtheOPC,itssubsidiarypaymentservicescompanyAirPlusInternationalannouncedanewdebitaccountthatwillnotbe subject to the ee. The implicit advantage o the debit accountwill need to be weighed against considerable disadvantages thatinclude the administrative ineciencies o operating more thanone payment process and impact to cash fow, as well as a reductionin rebate rom existing credit card suppliers. Invoicing is anotheroption, but it too introduces administrative ineciencies andcompromises the comprehensiveness o data oered by paymentcards. Furthermore, some TMCs have introduced ees or payment

by invoice. All options will thereore need to be weighed careully.


20/57




Spotlight on Europe

Emissions Trading SystemThe European Union will include all airlines in its ETS rom Jan. 1, 2012.The ETS sets a cap on the carbon-dioxide emissions that a business isallowed to make. I the business produces emissions above that cap, it isobliged to buy permits or each additional metric ton o carbon dioxide.

Although the ETS has broadly been accepted by Europeancompanies as a cost they must pay or the pollution they cause,non-European airlines are ghting hard against being includedin the scheme. Various legal challenges have been mounted, andChina has threatened a trade war, the rst shot in which mayhave been delaying an order or Airbus A380s in July 2011.

What does it mean or corporate clients?At time o writing, it is unclear how much the ETS will costairlines, how much o that cost they will pass on to passengers,or how they will pass it on (or example, by increasing ares orintroducing a new surcharge). Airlines will be inormed romSeptember 2011 o the number o ree permit allowances to whichthey are entitled, and that may start to provide some answers.

For now, it is worth assuming the ETS will lead to higher ticketprices even i it is impossible to allocate a gure. There is apossibility that retaliatory measures by non-EU governments

will cause even more problems, ranging rom the impositiono special taxes on EU airlines to banning o fights.


21/57




SpotlightonAsia-PacicDemand

With the exception o Japan, where the travel market continues tobe aected negatively by the earthquake and tsunami in March(seebox),demandhasbeenstronginAsia-Pacicin2011.Growthwas 10 percent to 20 percent in Q1, although it weakened slightlyin Q2 owing to concerns about economic problems in the U.S. andEurope. The Chinese and Indian domestic markets are booming.

SupplyTherearemoreandlargeraircraftthisyearinAsia-Pacic.SingaporeAirlines, Qantas and Korean Air have all introduced Airbus A380s intotheir feets, with China Southern, Thai Airways and Malaysia Airlines allscheduled to do likewise over the next 18 months. Asia also dominates

the list o destinations served by non-European carriers with A380s.

Price

In common with the rest o the world, Asia has experiencedsti are increases in 2011, up an estimated 9 percent(10.5 percent or regional economy ares).

Outlook or 2012

SupplywillcontinuetogrowquicklyinAsia-Pacicin2012,but demand will grow even aster, especially in India andChina. Thereore, ares will continue to climb, albeitas is thecase or every regionat a s lower rate. Advito anticipatesa 4 percent increase (5 percent or regional economy).

However, as was the case in 2011, the major issue or travel managersinAsia-Pacicwillbedemandmanagement,notsupplymanagement.Growing travel volumes and costs are moving travel up the corporateagenda or Asian companies, so an attempt to tighten policies can beexpected, but pitted against this is a strong resistance to change. Farewer Asian business travelers book their own trips than in the West, and

their administrative sta are oten the most committed to the status quo.

There is also much ercer loyalty to home market carriers, reinorcedby an even greater enthusiasm or requent-fyer schemes than inNorth America or Europe. Foreign carriers such as the Middle Easternbig three, Finnair and Turkish Airlines are all promoting themselvesaggressively to compensate, including making some attractive are oers.

It is dicult to predict theoutcome o the battle tocontrol costs in a region

which sometimes seems 15to 20 years behind the Westin its travel managementevolution. However, there aresigns that companies will takea rmer stand in imposingcontrols than in the past.

Our recommendations or travel buyers and managersMore communication will help travelers and other key stakeholders understand the importance o

ollowing travel policy to achieve strategic corporate goals such as savings and employee duty o care.Work hard especially to steer travelers to non-home carriers, or example by presenting summaries olost savings opportunities.

Attemptstostiffenpolicymustbedeliveredwithacute cultural sensitivity in a region where status otenmatters more than in the West. Senior management are oten the biggest transgressors.

Encourageadvance booking.


22/57




Low-costcarriersinAsia-PacicLow-costcarriersarebecomingmuchmoreprominentinAsia-Pacic.At

theParisAirShowinJune,AirAsiaofMalaysiaplacedanorderfor200A320s and IndiGo o India ordered 180 A320s. Meanwhile, ANA, JAL andSIA have all revealed plans to launch their own budget subsidiaries.

Businesses with unmanaged travel programs will explore theadvantages and disadvantages o low-cost carriers in Asia, but itwill remain dicult to align LCCs with mature travel programsincluding most large multinational corporationswhich havea need or reporting, analysis and travel policy. Unmanagedprogramswhich tend to all in the national, mid-market and small-to-medium enterprise bucketsocus more narrowly upon cost.

That said, LCCs in Asia are likely eventually to ollow the patterno predecessors in other more mature markets, such as TAM inLatin America, eventually pursuing long-haul service that will orcechanges in distribution and cost strategies. That evolution, along withthe tight labor market, including pilot shortages, will push up LCCcostsinAsia-Pacic,whichwilleventuallyleveltheplayingeld.

Japanese disasterlower demand, higher awarenessThe earthquake and tsunami o March 2011 have had two major implicationsor Asian business travellower demand in Japan itsel and greaterawareness o duty o care responsibilities towards travelers.

The emergency initially led to a furry o additional travel arrangements, bothto evacuate oreign visitors rom Japan and repatriate Japanese expatriatesanxious to return to their amilies. Aside rom these specic activities, however,demand has slumped. JAL reported in Aug. 2011 that international passengertrac plummeted 42 percent in Q2 and domestic passenger trac ell 28percent, although domestic demand has subsequently stabilized. Hotels are

also sueringoccupancy in Tokyo in May was only 59 percent, or example.Rates are much lower as a result and are expected to remain low in 2012.

CompaniesinAsia-Pacichavealsoshownmuchmoreinterestintravelriskmanagement, having previously lagged the West in this respect. In particular,they are subscribing in greater numbers to traveler tracking systems.


23/57




Supply and demand

OccupancyOccupancy has generally grown globally in 2011, but there have beensome exceptions. Some are unsurprising, such as Egypt, but othersaremoreunexpected,especiallyAsia-Pacic,wheredemandgrew2percent in the rst hal o 2011 but supply grew 3 percent, accordingto STR Global. There have been specic actors aecting perormancein the region, such as the Japanese earthquake and the boost givento Shanghai by the World Expo in 2010, but there are signs that theconsiderable expansion in supply in recent years is nally catching upwith demand in the region.

In contrast, hotel construction has been sluggish in the U.S. and Europesince beore the recession, and as a result o supply remaining constant

but demand pushing up, occupancy levels have increased aster.Occupancy rose 3.9 percent in Europe in the rst six months o 2011.

In general, success or hotels in 2011 has not been determined by regionbut by size o destination and supply. International gateway citieshave been the biggest winners around the globe in terms o improveddemand, including New York, London, Singapore and Hong Kong.

Accommodation standardsThere has been no noticeable upgrading or downgrading by corporatetravelers so ar in 2011, but it is certainly noticeable that the averagestandard o hotel chosen by business travelers has not returned to pre-

recession levels. Tolerance o midscale or economy has endured, perhapsrefecting a similar acceptance a ew years earlier o low-cost carriers.

There is a growing appetite among business travelers, especiallyyounger ones, or boutique hotels and other properties that portray amore independent or non-chain image, even i they are part o a brandowned by a large hotel company. The same travelers are more likely tomix business with leisure.

Price

2011 has seen accommodation shit rom a buyers market towards asellers market. Regardless o occupancy levels, average daily rate isup in almost every market other than those hit by major incidents (e.g.Japan and Egypt) or which hosted major events last year (e.g. Shanghaiand South Arica). In exceptional cases, such as London and Singapore,the rate rise has been 18-20 percent, while New York is up 13 percent.

The upward momentum has aected both best available rates andcorporate rates. However, some context is required. Although priceshave returned to 2009 levels, they are still some way short o the recordhighs o 2007-08.

CATEGORY-SPECIFIC TREND S AND 2012 FORECASTHOTEL

Unexpected movers in 2011Most o the rate rises outlined above were anticipated in the2011 Industry Forecast,but some destinations have seen aster increases than expected, owing to higherdemand, oten because o improved economic perormance. Examples includeKorea, Russia, Saudi Arabia and Turkey. Two South American countries also meritparticular attention. In Argentina, hotel rates have risen 10 percent, instead o 4percent as originally anticipated, because a combination o double-digit infation,devaluation o the peso against the U.S. dollar and hosting the soccer Copa Americain July 2011. Brazil meanwhile saw a rate rise o 6 percent as its economy booms.The jump would almost certainly have been even higher were it not or demandbeing matched by expansion in supply. Brazil will account or 62 percent o new

hotel openings in 2012, ahead o the FIFA World Cup in 2014 and Olympics in 2016.

In a refection o these developments, Advito has revised its previous 2011 ADRorecast or these markets. See the appendix, Figure 8 (page 43) or details.


24/57




Outlook or 2012

Demand

Demand will continue to rise (once again assuming continuingglobal economic growth), but at a lower rate than in 2011.

SupplyThe trend will be broadly the same, with limited newsupply in North America and Europe, but signicantbuildingelsewhere,especiallyAsia-Pacic.


Fig 6 2012 Hotel Average Daily Rate (ADR) Predictions by RegionIn 2012, ADR will grow gently in all major regions.Figures represent YOY changes based on booked ADR


25/57



PriceLike 2011, corporate travel buyers will struggle to hold downrate increases in 2012. Expect rates to rise 2 percent to 6 percent

in general, but be prepared or another double-digit jump in ahandul o the most thriving markets, such as New York.

Some chains made aggressive attempts to raise corporate ratessubstantially or their 2011 corporate negotiations. They were largelyunsuccessul, either because clients moved to other suppliers orindividual properties within their portolios broke rank and oeredsmaller increases to secure the business. However, with an extrayear o good gures behind them, more chains are likely to demandheavy rate increases as their opening bid or this years negotiations.

Last Room AvailabilityLast Room Availability (LRA) will also be a major topic in 2012

negotiations. LRA meansor should meanthe hotel selling aroom to a corporate client at the agreed corporate rate so longas a standard room is available on the night the traveler wants tostay. Some hotels are likely to oer a non-LRA rate option as wellor 2012, but a non-LRA rate is likely only to be available on o-peakdays and close in price to the Best Available Rate (BAR), and withno greater availability. It will thereore be little short o useless.

Wi-f chargesOne potential saving worth investigating will be ree wi- access. Withseveral chains oering ree wi- as standard, their competitors areunder increasing pressure to agree to the same or their corporate

clients. However, some hotels are not in a position to negotiatebecause they are tied into multi-year contracts to outsource theirwi- arrangements to third parties, including the pricing. It is adecision, oten made several years ago, which is in some casesdoing damage to their sales and marketing propositions.



Dont be intimidated by the rst rate hotels oer you or your 2012 program. Negotiations willbe tough this year, but in many cases hotels will blink i you have substantial, reliable volumeand a proven ability to move it to other suppliers.

Larger,high-demandmarketswillproveespeciallychallenging.Thebestapproachistoexpandthe number o hotels in your request or proposal process but concentrate your buying poweron ewer properties in your decision making.

Inadditiontodealswithindividualproperties,considernegotiatingchain-wide discounts,which can provide secondary availability when preerred hotels have sold out.

Insistonyournegotiated rate being an LRA rate; otherwise your travelers will nd too oten

that they have to pay a much higher price at your preerred properties. Be very clear in thecontract about denitions. For example, the hotel may oer an LRA on a standard room.Clariy what a standard room is.

Forseveralyears,somehotelchainshavepromotedaswitchtodynamic pricing, which is axed discount o the Best Available Rate. They are likely to propose this option again or 2012,but clients which have resisted the idea so ar should not change their stance now. BARs aremuch higher in a suppliers market than a buyers market. Agreeing to a BAR instead o a xedrate means losing a ceiling rate and it will work in the buyers avor in very ew destinationsover the next couple o years. Having said all o that, BARs do eliminate time-consumingcontracting work, and thereore they are worth considering strictly or secondary destinationswhere your organization has limited room nights. I you do decide to switch to dynamic pricing,be sure to negotiate more than 10 percent o the BAR. BAR rates are commissionable, thusany discount lower than 10 percent would not amount to a saving.

Considerimposing caps in your travel policy on how much travelers are allowed to spend pernight. It sends the message that they must choose a hotel with a lower rate, not a higher one,i the preerred hotel is not available at the corporate rate.

Somecompaniesaremergingtheirtransienttravelandmeetingsprograms.Evenifyourorganization has not taken this step, negotiate your hotel contracts or transient travelers tocover small meetings (up to 50 room nights) too.


26/57





Fig 7 2012 Hotel Average Daily Rate (ADR) Predictions by Key MarketCorporate travel buyers will struggle to hold down rate increases in 2012,with 2 percent to 6 percent increases in most markets.


27/57




London OlympicsAdvitos advice or London during the 2012 Olympics (July 27-Aug. 12) can

be summarized in one word: avoid. The same goes or at least a monthprior to the event as the city starts to ll with ocials, journalists andnumerous other business travelers with a direct interest. Even withoutthe Olympics, London is both ull andexpensive during summer, and it hasbeen one o the worlds strongestperormers in 2011. Room rates in

June, or example, shot up 14 percentto151,andoccupancyhit90percent.

Next summer will only get worseor the corporate buyer. Two-thirds

o the citys room stock during theOlympics has been allocated to theorganizing committee or the gamesand hotels are taking ull advantagewith their yield management o whatremains. Newspapers are reportinghotels oering rates ten times higherthan they quoted or the same datesin summer 2011; BCD Travel in the U.K.has seen examples o hotelsdemanding ve timestheir normal rate.

The good news is that high summer, with all U.K. schools on holiday, is

one o the quietest periods in the corporate calendar or visiting London,but or those businesses which cannot avoid sending employees to theU.K. capital during the Olympics, there are several steps worth taking:

Our recommendations or travel buyers and managersNowTake action now. The longer you delay, the ewer the options available to you. Start with an internal

review o likely demand among your travelers or visiting London during July and August 2012.Communicate with your preerred hotels in London. Some chains have vowed to make rooms available

to clients at normal corporate rates. Others have imposed blackout dates and raised their prices.

IfyourcompanyhasagoodrelationshipwithaLondonhotel,itmaybepossibletoblock spacein advance. The rates will still be very high, but at least it guarantees availability. Lookatextended-stay properties as an alternative. Although the extended-stay market in London aces the

same peak in demand as conventional hotels, corporate clients will have good leverage with extended-staysuppliers anxious to convert business won during the Games into long-term commercial relationships.

Considerlocationsoutside London, up to an hour away by train, such as Reading, Oxord or Cambridge, or even Birmingham.BeawareoftheimpactthattheOlympicswillalsohaveonair supply to and rom London. Airlines have already started

to make enquiries about corporate customers demand during this period. It is a strong indicator that availability willbe very tight. The case or negotiated deals on routes to and rom London rather than spot-buying will become strongerbecause corporate clients with negotiated discounts on J and Y classes should be able to secure last seat availability.

2012Asthedemandpicturebecomesclearer,asecondary market might open up with corporate clients and

other hotel customers with blocked space oering to sell on some o their allocation to third parties. Itispossiblethestoriesaboutsky-highrateswilldetersomanyvisitorsthathotelswillnotsell

out and will be orced to lower their rates. It is also possible that the widespread riots o Aug. 2011will also aect bookings. However, it would be risky to plan ahead on this assumption.

Review the situation at the beginning o 2012, when the Games organizingcommittee returns its unwanted room allocations to hotels.


28/57



CATEGORY-SPECIFIC TREND S AND 2012 FORECASTMEETINGS


Supply and demand

There has been much greater demand or meetings in 2011 than in 2010,itsel a year o recovery. Improved business results have given somecompanies the condence to increase their overall meeting spend,although others have remained cautious.

Supply is consequently beginning to tighten, particularly in maturemarkets with traditionally high demand such as London and New York,owing to sustained increases in occupancy levels. As a result, meetingplanners are beginning to encounter availability challenges withincreasing requency, particularly heading into 2012.

As demand continues to impact availability, particularly in primarymarkets, meeting organizers are increasingly considering secondary

or even tertiary destinations. Another distinct trend has been risingdemand or meetings in emerging markets, such as China and India. Asthese countries economies expand, Western companies are holdingmore meetings in them to support their growing local businesses.

Lead-timesIn spite o increased demand, there has so ar been little change todate in the trend o the past ew years or shortened lead-times whenbooking meetings, i.e., the amount o time between when an event isbooked and when it takes place.

PriceHotel ratesGenerally, rate increases to date have been modest in spite o increasingdemand. At the same time, however, the deep discounts available tobuyers in 2009 have largely disappeared. Rates are not yet back to therecord levels o 2008 but they are continuing to creep upwards. Themain exception to this general trend is high-demand cities like Londonand New York, where supply is beginning to tighten and rates haveaccelerated ar more quickly in 2011, oten by double-digit percentages.

AirWith uel surcharges and ares spiraling in recent months as a result ohigher crude oil prices, meetings buyers are seeing air transportationaccount or a higher percentage o their overall spend. Buyers arethereore paying close attention to destination selection and attendeedemographics to ensure air costs are kept under control.

Incentivesa slow recovery but coming backThe incentive market is also recovering, but not as ast as meetings. They

are also re-emerging in a changed orm. There is little sign o incentivesreturning to some o the extravagances that were common a ew yearsago. Instead, they are now more likely to incorporate educational elementsand a corporate social responsibility component intended to give backto the local community or a charity o choice during the event.

Cost and image are not the only motives changing the ace o incentives.Tastes are changing too, expanding beyond the traditional staple o goland spa treatments. A newer generation in the workorce is more attractedby ree time during the event, or or more adventurous activities, such asbiking and hiking. The new look o incentives even extends to menu choices,now much more likely to include healthy options than in the past.


29/57



CATEGORY-SPECIFIC TREND S AND 2012 FORECASTMEETINGS

Spend per meetingSome companies have loosened their purse-strings slightly ater theconspicuous austerity o meetings during the recession. However, spendper meeting has been relatively fat. Consequently, meeting planners arebeing challenged to deliver the same quality o program as in previousyears in spite o increasing supplier costs such as hotel rates, ood andbeverage, and airares.

Outlook or 2012

DemandDemand will continue to grow worldwide. Expect it to approach peak2008 levels by year-end 2012. Lead-times will remain short but maystart to lengthen as supply dwindles to the extent that it preventscorporations rom booking preerred hotels or their preerred dates.

SupplyThe trend will be broadly the same, with limited newsupply in North America and Europe, but s ignicantbuildingelsewhere,especiallyAsia-Pacic.

PriceRising demand and generally stable supply can only mean one thing.Hotel rates or meetings will rise aster in 2012 than in 2011 and then willaccelerate even more sharply in 2013, owing to the strength o orwardbookings giving suppliers more condence. Rates are expected to returnto 2008 levels in 2013/2014.

Our recommendations or meetings buyers and managers

Book ahead,especiallyinhigh-demandcities.Pricesareonlygoingoneway,andtheriskofnotnding availability at preerred venues and/or on preerred dates is increasing.

Upscalehotelsdiscountedparticularlyheavilyduringtherecession.Do not expect to ndthese bargains any more.

Withthenegotiatingenvironmentlikelytobeeventougherin12monthstime,considertheoption o multi-year deals with suppliers.

Watchoutforsuppliers being less fexible in negotiating terms and conditions. Bemorepreparedtoconsider second- and third-tier cities. The price dierential compared

with primary destinations is widening. Pay attention to air costs. Understand them thoroughly beore selecting a destination, and

ensure there is sucient capacity to carry all your participants.


30/57



Current market outlook

DemandDemand continues to rise steadily. In the U.S., companies areincreasingly considering car rental in preerence to allowing useo private vehicles or business trips. The reason is that mileagereimbursement rates have risen signicantly. Most U.S. companies applythe Internal Revenue Service rate, which moved up to 55.5 cents per milein 2011. As a result, car rental has become a cheaper option or journeyso, broadly speaking, more than 100 miles.

SupplyCar rental providers have been extremely successul at keeping theirinventory tightly aligned to demand. Higher vehicle costs have orcedthem to manage their feets more eciently, and the severing o allownership links with car manuacturers has also encouraged greaterdiscipline. Examples o more prudent management include selectingfeets rom a wider range o suppliers and using cars or longer beorere-selling them.

The rental market has consolidated in recent years, and is set toconsolidate urther still as Hertz and Avis Budget Group continue theiryear-long battle to buy Dollar Thrity. At time o writing, the outcomeremains ar rom clear, but either way the impact on the corporatemarket is unlikely to be ar-reaching because Dollar Thrity is moreocused on the leisure and replacement vehicle markets. The FederalTrade Commission, which is considering the Avis Budget Group bid,has indicated Avis Budget would not have to discard any o its brands isuccessul.

Another development in market consolidation has been the U.S.-based Avis Budget purchase o Avis Europe in June 2011. Once againthe implications or the corporate market are minor, perhaps the mostimportant being that co-ordination o pricing or global bids under theAvis name is likely to improve.

PriceIn spite o managing their inventories tightly and rising costs, thethree main corporate car rental brands in the U.S.Avis, Hertz andEnterprise-owned National Car Rentalhave not been able to movetheir rates up signicantly. In 2010, National kept prices down throughsynergies achieved in its merger with Enterprise. This year, Hertz hasbeen aggressive in response. It would be inaccurate to characterize

the situation as a price war, but the market remains surprisinglycompetitive. Buyers with mature rental programs have generally heldrates fat and in some cases even achieved price cuts.

CATEGORY-SPECIFIC TREND S AND 2012 FORECASTCAR RENTAL

Trend to watchmoving beyond car rentalBuyers are increasingly turning their attention to aspectso ground transportation they have not actively managed

beore, such as limousine hire and airport parking.

Car-plus-driverinAsia-PacicCarrentalhastraditionallybeenatmuchlowervolumesinAsia-PacicthanNorthAmericaor even Europe. However, demand rom both local businesses and Western visitors isstarting to grow signicantly. In most cases, low labor costs and chal lenging driving

conditions mean rentals are or car-plus-driver (accounting or 90 percent o the marketin India, or example). Management o the car-plus-driver option is becoming easier, withsuppliers oering similarly structured deals to those or sel-drive vehicles. Another recentbreakthrough is that car-plus-driver is now bookable via global distribution systems in China.

Rising uel costs mean that the total cost o rental is climbing ast. Expect, or example,to pay 10 percent more in India in 2012.


31/57



In spite o this success, total cost o rental has climbed. In part, this isbecause providers have attempted to claw back lost revenue throughhigherchargesforadditionalitems,suchasGPSnavigationsystems,tollpasses and satellite radio. However, there has been a bigger rise still initems rom which rental providers gain no revenue: taxes, insurance andthe rising cost o uel.

Outlook or 2012

PriceI, as expected, demand continues to grow, then price cannot stay fator much longer. However, intense competition in the U.S. marketby ar the worlds largest or car rentalshould deter any major rateincreases. Advito orecasts a rate rise range o 4-6 percent or 2012.

More eorts to recoup costs through extras can also be expected. Rentalproviders backed away rom the no-show charges they threatened acouple o years but these could make a comeback.

Our recommendations or travel buyersand managers

Ifyouhavenotrevisitedyourcarrentalprogramforseveralyears,now is a good time to do so beore suppliers start to push up theirrates.

Trytobook urther in advance to avoid availability problems. Watchout or when large conventions and other major events may cause aspike in demand at particular destinations.

Evaluatetherelative nancial costs o allowing private use ovehicles versus car rental. In the U.S. in particular, the pendulum isswinging towards rental.

Setapolicy on ancillary items, such as whether travelers are allowedto hire a satellite navigation system.

Negotiate harder on ancillaries and other charges, such as reuelingpremiums.

Short-term rental/car sharingThe last 12 months have seen the rst corporate pioneers joiningcar-sharing schemes in metropolitan areas and many more start toinvestigate the idea. Car-sharing clubs enable their members to rentby the hour, booking and then unlocking and starting their vehicleswith radio requency identication-enabled membership cards.

Outlook or 2012Corporate interest in car-sharing clubs is likely to grow in 2012. The economicsare looking increasingly viable or travelers who need a car or less than a whole

day, and the administrative processing is also simple, providing good managementinormation. There is anenvironmentally riendlyaspect too: as well aspromoting better vehicleutilization, car-sharing clubsare starting to introduceelectric vehicles, whichwork well in the urbanenvironments that lendthemselves to the car-sharing concept. Suppliersin the sector are alsoestablishing themselvesmore robustly. Zipcar, orexample, now operates8,000 vehicles in 28 NorthAmerican states and London.

Our recommendations or travel buyersand managersCarsharinghasmaturedtoastagewherecompanies

which need car rentals in major cities should evaluatethe market. There are even some examples o car clubsinstalling vehicles on corporate clients premises. Startto investigate potential suppliers in the urban areaswhere you have regular needs.

Analyzeyourexistingrentalprograminmoredetailto assess whether you have a demand or short-termrentals. This may involve talking to travelers. I manyo their one-day rentals are only or three to ourhours o usage, then it may well prove viable.

CATEGORY-SPECIFIC TREND S AND 2012 FORECASTCAR RENTAL


32/57



CATEGORY-SPECIFIC TREND S AND 2012 FORECASTRAIL

Current market conditionsEurope

DemandRail is generally continuing to win market share rom air and car,even though it is oten a more expensive option, especially onhigh-speed routes. The advantages o aster door-to-door journeytimes, comort, productivity and avoiding security queues explainwhy travelers are prepared to pay a premium. One example o thesuccess o high-speed rail is Madrid-Barcelona, which launchedin 2008. The 2 hours 40 minutes journey time (previously 6hours) means that BCD Travel now sells ewer air tickets betweenSpains two largest cities other than or connecting fights.

SupplyThe EU deregulated its cross-border rail market at the beginningo 2010 but, other than a ew minor Deutsche Bahn (DB) routes to

northern Italy, it has not yet led to the creation o any new services.However, DB expects (subject to satisactory saety testing) tolaunch services rom Frankurt, Cologne and Amsterdam to Londonin 2013. Although this will oer some competition to airlines onthesameroutes,theDBservicewillnotcallateitherParisorBrussels, thus depriving the market o direct competition betweenoperators. Generally, the prospect o head-to-head competitionbetween rail operators looks as remote as ever in Europe.

Another setback has been delays to the ull opening o the high-speed Amsterdam-Brussels service, originally intended or theend o 2010. Arguments over who should pay or rolling stock

mean only two trains have been built so ar. Latest hopes are ora Q1 2012 launch. Thalys, the international joint-venture whichoperatesbetweenAmsterdamandParis,hastakenadvantage,upping its service rom six times daily to 11. A revamp o its rst-class product has also led to upgrading by business travelers.

PriceFares have increased by around 5 percent on both Eurostar and Thalysin 2011, which is certainly not enough to trigger any loss o share to air


33/57



CATEGORY-SPECIFIC TREND S AND 2012 FORECASTRAIL

or car. It has generally been a mixed year or corporate users o Eurostar.The Channel Tunnel passenger rail operator has arrested a slide tostandard class with more attractive pricing or its premium product.However, Eurostar has also reduced the number o its corporateagreements and imposed tougher volume targets on those which remain.

Outlook or 2012

Expect similar price increases in Europe to those in 2011. Frenchnational operator SNCF could lose market share in 2012 becauseit is starting a major renovation o its high-speed network. Ithas warned that passengers will need to be ready to leave 30minutes beore the scheduled departure time because it cannotguarantee the time at which trains will be able to travel.

Distribution challengesDomestic rail distribution continues to improve. Use oonline booking tools has been common in the U.K. orseveral years and now it is increasing in Germany.

Distribution o international rail remains extremely challenging,owing to the mainly state-owned national operators ailing to

agree on technology standards that would combine timetablesand ares. The European Commission has launched an initiative toachieve commonality among operators but its success in overcomingthe inertia o state-owned operators is ar rom guaranteed.

Asia-PacifcJapanJapan has the worlds oldest high-speed network. Demand andprice are provisionally orecast to be fat in 2012, although thatcould change i the introduction o several planned new low-costcarriers in the Japanese domestic air market is successul.

ChinaChina is building the worlds largest high-speed rail network, with10,500 miles completed or under construction. In July 2011, itopened a line between Beijing and Shanghai, reducing journeytimes rom 10 hours to 4 hours 48 minutes. However, the signicantachievements have been overshadowed by growing concerns aboutwhether rapid development o the network has compromisedsaety. These concerns intensied with a crash in Wenzhou, also in

July, which killed 40 people and was blamed on aulty signaling.


34/57



2012 TRAVEL TECHNOLOGY TREND S

The 2012 Travel Technology Trends content is provided by Tnooz.Any views or opinions expressed are solely those o Tnooz anddo not necessarily refect those o either Advito or BCD Travel.

The speed at which the travel industry evolves isterriying or some, exciting or others, but intriguingor those that watch every move it makes.

While developments in leisure travel are more likely todraw the attention o the mainstream media, businesstravel aces its own set o challenges and opportunities,and sees equal levels o disruption and innovation.

Puttingasideeconomicfactorsaffectingtravelbuying,thisevolutionis led almost exclusively by changes and improvements to technology,and impacts both business and leisure travel in equal measure.

In act, we are now starting to see a curious blurring o thelines between the two disciplines o managed businesstravel and so-called leisure-led trip management.

Tnooz has identied our technology pillars that ramethe areas o maximum impact and infuence:

Developmentsinsearch Evolvingdistributionmodels Proliferationofhand-heldsmartdevices Emergenceofsocialcommerce

These our pillars are inextricably connectedbut oten notdeliberately so by those that control or use each element.

Developments in searchIt is easy to be lured in by the supposed ease,sophistication and sexiness o the web.

But lets move onmomentarily rom thecommonly held ideathat search is solelyabout Google and

Tnooz, the leading global news service covering travel technology,digital distribution, online marketing and social media, has workedwith Advito or the frst t ime to outline some o the key issues aectingbusiness travelers, their agencies and the industry at large.

Here, journalists Kevin May and Linda Fox detail and analyzetrending areas o innovationand disruption; pinpoint areas towatch in 2012; and explore how the business travel sector can utilizeand embrace technology to improve service and efciency.


35/57



other web-based engines that try to give instant graticationby way o results to a set o keyword queries.

Search is discovery; search is nding a means to an end; and search ishugely complex, whether it is via a search engine web or through closedinteraces, such as those provided by agent intermediary systems.

In business travel, search is clearly about nding the bestproduct or the client, and should be seamless.

The physical process o looking or appropriate fights, accommodation,car hire and other items is arguably easier than, say, even veyears ago given that the agent-purposed tools have a betteruser experience, allow complex itineraries to be managed moreeasily, and provide access to more products than ever beore.

That supposed instant gratication is at play here as well, ocourse, whichcoupled with the non-mechanic expertise oan agentcan give a client (who, remember, hardly ever seesthe process) smoother connections, more inormation aheado the actual booking, and the opportunity to switch quicklybetween suppliers and distributors to obtain the best price.

At the GDS level, search tools are changing or thebetter, despite nostalgic ondness and ease (or some)o the so-called green screen interaces.

Sabre, Travelport and Amadeus have all introduced Windows-style

unctionality to their platorms and clearly want agents to eventuallymigrate to their respective systems, Red, Universal Desktop and One.

A prime example o a piece o clever yet simple technologycreated to improve the search process comes rom Travelport,allowing users to input using other GDS codes and automaticallyconverting the keystrokes. Both Amadeus and Sabre, o

course, have also introduced various widgets and gizmos tomake product search more akin to web search or agents.

But why would they introduce such unctionality?

Putsimply,theweb-stylelookandfeelofnewproductsearchinterfacesthrough the GDSs and other corporate travel management systemsis easier on the eye, but there are other, more undamental reasons.

Firstly, agent systems can be hosted in the cloud,giving them access to the tools they need via the webrather than on static, oce-hosted systems.

This leads to a number o interesting issues or agents, astechnology leads to a more fexible approach to working andthe ability to handle a clients needs rom mobile devices.

Indeed, there are countless business travel agents who are nowmanaging their clients on-the-go, a trend which is likely tocontinue and alter the role and processes o the agent urther.

Perhapsmostinterestingistheideaofanewbreedofagent:As experienced, older hands leave the industry throughretirement, it is natural that they will be replaced by a youngeremployee base, a generation more amiliar with web interacesand mobile-based platorms, and or whom the Internet istheir primary tool when searching or any product or pieceo inormation, not just those which are travel-related.

New breeds, o course, come in all shapes andsizes, and with dierent motivations.

Enter Google, then, into the travel sector, buying its wayinto travel search with the $700 million acquisition oairare search and shopping system ITA Sotware in July2010 (nally approved by regulators in April 2011).

2012 TRAVEL TECHNOLOGY TREND S


36/57



For the leisure travel sector, this has the potential to be the biggestthunderclap o disruption the industry has seen since the ormationo the early online travel agencies in the mid to late-1990s.

For the Western worlds biggest search engine (in theU.K., or example, Google commands around 90 percent oall searches) to position itsel as such a pivotal part o thesearch and shopping ood-chain is hugely signicant.

Googles stated intention is simply to improve travel search. Themechanics and ner details will be complex (how does it scale whatITA is able to do in North America elsewhere around the world, orexample?), no doubt controversial (the deal has already sent agenciesand one o the GDSs scurrying to lawmakers in Washington, D.C.), butwill probably be loved and hated by web users in equal measure.

The impact on the business travel sector is an intriguing one. Onthe one hand, Google will be giving web users a suite o travel toolsright in the heart o their existing search engine experience.

This will inevitably lead to increased product knowledge or the businesstraveler (H

2012 Advito Industry Forecast

Documents

Transcript of 2012 Advito Industry Forecast