T&E Budgeter’s Lament: Spending Shocks Ahead

An overall 6-percent rise in U.S.-based travel costs, including air fare, car rental, and hotel, is projected by American Express. Last year's rise...
Roy HarrisOctober 23, 2007

Travel and entertainment spending is due for another jolt next year — with a 6-percent rise in the average U.S.-based trip that involves air fare, rental car, and hotel — according to this year’s American Express Global Business Travel Forecast, out just in time for the corporate budgeting cycle.

The same survey last year showed an average rise of only 4.5 percent, although a spokeswoman wasn’t able to tell how close the projection was to the actual increase for the year. American Express has been providing such forecasts to clients for two decades, she said.

That 6-percent projected rise next year equates to a $63 increase in the average domestic travel expense, compared to a $46 average hike last year.

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By segment, the forecasting for the U.S. in 2008 envisions short-haul air fares rising 1 to 5 percent, with long-haul or international business fares rising 5 to 10 percent. Hotel rates are due for increases of 4 to 6 percent in the middle range and of 5 to 7 percent in the upper range, while car rental costs will climb 2 to 4 percent.

Last year, short-haul cost projections were for slightly higher increases than that, while long-haul flying was predicted to rise less severely.

In segmenting the projected 2008 travel-expense rises globally, the Amex survey sees mid-range and upper-range hotel rates in the Asia-Pacific, European, and Latin-American regions, respectively, taking the sharpest jumps, with air-fare rises generally following the U.S. trends. Hotel rates in both high-end and mid-range are due for increases of 18 to 22 percent in Asia-Pacific and 12 to 14 percent in Europe, while hotel rates in Latin America will climb 8 to 12 percent at mid-range and 7 to 10 percent at the at upper-range.

The forecast’s methodology involves statistical projections and research of supplier markets and analysis of regional economic trends, along with interviews with American Express industry analysts and analyst reports outside American Express Co. The company doesn’t describe its approach beyond that, although a spokeswoman told that its work “is not a survey of business travel customers.”

Domestically, Amex researchers list upward pressures on spending that include “sophisticated airline pricing technology and premium prices for certain seats such as flat beds, seats with more legroom and seat location within a cabin.” Hotel demand is continuing to outpace supply in many markets, with hotels displaying “improved yield management practices to maximize profits.” Taxes and fees add to the overall cost of car rentals, meanwhile. Helping mitigate those domestic costs: competition from low-fare airlines, more lower-cost web-based tools, and flatter hotel occupancy as room supply increases.

For European travelers, strong transatlantic, Far East, and South Asia travel demand with Europe are pressuring air fares up, while hotel occupancy elsewhere often exceeds London’s 80 percent. However, competition in air, high-speed rail, and rental-car travel could help temper the increases. In Asia, the Beijing Olympics in the summer is expected to drive up prices, as will economic growth and the increasingly mobile population, and aircraft upgrades and airline consolidation. Hotel construction costs are slowing capacity additions, meanwhile, while competition is heating up between leisure and business travelers. Mediating the cost rises: a growth in low-fair airlines.

The American Express Business Travel division of American Express, of course, is deeply engaged in travel cost-control programs, so it is not surprising that recommendations stemming from the forecast focus on suggestions on ways to optimize spending. American Express also operates travel agencies with more than 2,200 locations around the world, and process $21.8 billion in 2006 travel sales.

American Express suggests a “change management” approach that focuses on lowering use of refundable air fares, using more advance-pruchase fares, “defining more narrowly” when premium-class air travel is usable, booking reservations online, and using more preferred suppliers. More broadly, companies should install monitoring tools for “out of policy” behavior.

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