BOSTON – According to the 2018 Global Travel Forecast, travel prices are expected to rise sharply in the coming year, reaching nearly 4 percent increases in some sectors. The fourth annual forecast, by the GBTA Foundation in partnership with Carlson Wagonlit Travel, and with the support of the Carlson Family Foundation, shows global airfares are expected to rise 3.5 percent in 2018; hotel prices are expected to be 3.7 percent higher; and ground transportation such as taxis, trains and buses are expected to rise only 0.6 percent – significantly less than the 3 percent inflation forecast for 2018.
“Geopolitical risks, uncertainties in emerging markets and ever-changing political environments in Europe and the United States mean today’s travel professionals have more than ever to take into account when building their travel programs,” said Jeanne Liu, GBTA Foundation vice president of research. “The most successful programs will have to keep a watchful eye on both geopolitical risks and a rapidly-changing supplier landscape as they reevaluate strategy often and adapt as necessary.”
“The higher pricing is a reflection of the stronger economy and growing demand,” said Kurt Ekert, president and CEO, Carlson Wagonlit Travel. “The global numbers from this forecast should be considered strong leading indicators of what 2018 will mean for global businesses, as we anticipate higher spending.”
2018 Air Projections
The rise in global airfares comes as crude oil prices rise, in spite of airlines adding an expected 6 percent capacity in 2018. Complicating airline pricing is increased segmentation of basic fares among large carriers, as travelers now have the option of choosing a basic economy, restricted fare versus various upgraded fares, with specific service options and pricing varying by airline.
Asia Pacific expects to see a 2.8 percent rise in 2018 pricing with domestic demand increasing, particularly in China and India. However, as many of the economies in Asia strengthen, weaknesses in infrastructure – and airports in particular – are increasingly becoming apparent.
Across EMEA, air travel is anticipated to continue growing, with prices rising a whopping 7.1 percent across Eastern Europe and 5.5 percent in Western Europe. However, Middle East and African countries only expect a 3 percent increase as they face ongoing security threats and an oil industry that is still in recovery. Currency fluctuations in Europe may further impact airfares in 2018. Given limited competition and the upcoming summer 2018 World Cup Soccer tournament in Russia, Eastern Europe may again have the most significant price increases in the region.
Across Latin America and the Caribbean, prices are expected to change little in 2018 – up only 0.3 percent. Airlines have cautiously added capacity back into the market. Broader analysis of South America shows a 20 percent increase in scheduled flights by the end of 2019. Low cost carriers are well positioned for this area given the low penetration in the region. And, new, more efficient aircraft coming into in operation will lower operating costs in 2018.
North America will see prices rise by a modest 2.3 percent, according to our projections. Citing the potential for stronger U.S. travel restrictions, flights to the United States have already been reduced accordingly. Canadian airlines are expected to aggressively compete given new market entrants and capacity growth of about 11 percent in 2017 and 12 percent in 2018. With the region’s air travel market nearly flat year-over-year in early 2017, competition is fierce between carriers who now compete on branded fares rather than on bundled fares or by carrier type.
2018 Hotel Projections
Globally, the 3.7 percent average increase in hotel prices masks what is actually happening on a regional level. Europe is expected to post strong increases, while other regions are barely keeping up with inflation. Additionally, prices are expected to fall in Latin America and the Caribbean. We expect the impact of the 2017 mergers will be felt during the 2018 RFP season.
Suppliers are progressively moving corporate buyers away from fixed, negotiated hotel rates and toward dynamic rate pricing. There is also a global trend towards “smarter” hotels, with hotels investing in beacon technologies, messaging, in-room entertainment and more. Increasingly tech-savvy guests will use apps to check in and out, unlock their hotel room door, operate the television remotely and control room temperature.
Across Asia Pacific, hotel prices are likely to rise 3.5 percent – with a large discrepancy as Japanese prices are expected to fall 4.1 percent, but New Zealand is set to rise a full 9.8 percent. Strong economies means demand is increasing in the APAC region. Buyers should anticipate a more challenging discussion with newly merged hotel groups, especially in high-volume markets such as Bangkok, Beijing, Shanghai and Singapore.
Across EMEA, hotel prices are likely to rise – 6.6 percent in Eastern Europe, 6.3 percent in Western Europe, but only a modest 0.6 percent in the Middle East and Africa. Norway is expected to lead with increases of 14 percent expected for 2018, while Russian hotel prices will rise 11.9 percent thanks to increased demand from hosting the 2018 Summer World Cup.
Revenue per available room growth is expected for most major cities across Europe in 2018, with Porto and Budapest leading the pack. With its halt on hotel construction, Barcelona may join the top five cities for occupancy rates, while Amsterdam has implemented a “hotel stop” policy to limit new hotel development. Dublin is increasing supply through 2020. There has been a large increase in upscale hotel transactions in the United Arab Emirates as oil prices start rising again. Use of sharing economy players will remain limited as governments tighten control.
Within Latin America, hotel prices are expected to fall 1.2 percent, with steep declines in Brazil (down 8.7 percent) and Argentina (down 2.3 percent). However, Peru (7.7 percent) and Chile (5.5 percent) are expected to see increases. Buyers may see efficiencies in 2018 as bigger brands purchase independents and upgrade systems. Capacity is being added throughout the region with an estimated 449,500 new hotel rooms being constructed between late 2016 and 2025 – a huge 57 percent increase in supply. Sharing economy accommodations are still not very popular for corporate travel in Latin America, given structural security concerns.
North American hoteliers may be banking on economic growth as demand has leveled off since mid-summer 2016 – but supply is expected to continue growing steadily through 2018. With international travel projected to grow 4 percent in 2017 and 2018, U.S. hotel growth is expected to be concentrated primarily along with the West Coast and in Washington D.C. In Canada, Toronto, Vancouver and Montreal are expected to maintain good pricing power amid a weak Canadian dollar.
2018 Ground Transportation Projections
Ground transportation pricing is expected to rise only 0.6 percent in 2018 (but 5.5 percent by 2022). Industry experts predict record new car sales over the next five years, pushing up per unit fleet costs, while used car pricing is expected to fall 50 percent, hurting residual value for used rental cars and making current rental car pricing unsustainable. Market-specific regulations for curbing emissions, and rising oil prices have suppliers’ already increasing availability of “green” rental cars.
Sharing economy players such as Uber and Lyft are expected to continue double-digit growth upwards of 10 percent in 2018, before settling down into single-digit growth for 2019. Their growth is under threat by costly regulation and government bans.
Continued uncertainty in mining, and a cautious recovery in the oil and gas industry will result in flat rates for 2018 in Asia Pacific. Business continues to grow in China as most major car rental and sharing economy suppliers have a presence. Sharing economy suppliers Didi Chuxing in China, Ola in India and Grab in Southeast Asia have all achieved economies of scale that make them key competitors to more traditional car rentals firms and taxis. Meanwhile, Malaysia and Singapore are pushing ahead with a high-speed rail line from Kuala Lumpur to Singapore. Construction is not expected to be complete until 2026, but figures to strongly compete when finished.
Ground transportation remains very competitive in EMEA. Prices are expected to remain mostly flat in Europe, and up a meager 1 percent across the Middle East and Africa. Rail continues to be a viable alternative to air travel throughout Europe, especially with enhanced security at airports. The continued expansion of Enterprise, the re-emergence of Budget and the continued impact of new players like Uber and Lyft are all creating downward pricing pressure for 2018. Both Uber and Lyft have been banned in some markets and restricted from airport access in others as governments turn their attention to regulating this new industry segment.
Prices are expected to rise slightly (1.0 percent) across Latin America. Brazil and Mexico are anticipating increased demand for car rentals in 2018 as their economies rebound. However, the rental car market there is still heavily fragmented. Uber is betting big on its Latin American business (despite issues in Brazil, Peru and Argentina) – especially after its recent departure from the Chinese market. Regional and international rental companies continue to expand and pricing is expected to stabilize.
Canada is expected to see a healthy 4.6 percent increase in 2018, but the overall region will only be up 1.0 percent. Limited railways, along with improved income per capita and increased corporate travel, are expected to push up rental car rates in North America. Still a low-margin business, rental car companies have implemented operational efficiencies and made investments in technology to better manage fleets and improve utilization. Sharing economies continue to grow, but face improved competition from traditional cabs and government regulation.