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Hotel And Dining Price Hikes Drive Mild Daily U.S. Travel Cost Increases

By Jay Boehmer

Led by hotel and dining price increases, the average daily on-the-ground business trip cost in the United States inched upward by nearly 2 percent from last year in BTN‘s 2014 Corporate Travel Index, which measures daily hotel, rental car and dining expenses in 100 U.S. markets.

[Please click here to view the digital edition of the 2014 Corporate Travel Index, featuring all per diem listings, downloadable as a pdf.]

Although modest, average year-over-year per-diem growth rates still surpassed those in recent years, as suppliers contend with cost increases of their own and translate increasing corporate travel demand into higher pricing.

Well, most suppliers, that is. Rental car companies have struggled to parlay a favorable supply-and-demand environment into higher commercial pricing.

With a daily per-diem rate of $444.66, San Francisco edged out New York as the most expensive U.S. market in which to conduct a business trip. That compares with an aggregate average per diem of $292.80 in all U.S. markets studied.

Hotel Pricing Leads The Way

Daily hotel expenses across 100 major U.S. markets in the index increased about 3 percent year over year. San Francisco came in as the most expensive city, ousting New York from its long-held position.

Rounding out the top five by daily hotel costs are Boston, Washington, D.C., Los Angeles and, falling to fifth, New York, on what the index showed to be year-over-year rate declines.

In that market, Carlson Wagonlit Travel in its 2014 annual forecast suggested “a return to small increases in new hotel construction” has peeled away rate-growth levels in the Big Apple.

Not so in San Francisco, which has converted high hotel occupancy levels into strong year-over-year rate increases. For example, STR Global reported that San Francisco/San Mateo in January 2014 had the largest rise in average daily rate in the entire Americas region, up nearly 12 percent year over year.

Examining the U.S. market as a whole, travel management companies last year anticipated hotel rates paid by corporate clients to rise in 2014 by low-to-mid-single-digit percentages from 2013. According to hotel chain executives, such increases have largely materialized in rate negotiations for 2014.

A TCG Consulting forecast released in February, which projected that published hotel rates this year in the United States would rise 4 percent, called the lodging sector a “continued sellers’ market,” marked by growing corporate demand and “stagnant” hotel development.

As demonstrated in CTI data, however, rate fluctuations vary widely by market. Advito, for example, highlighted the “division” between “major cities, where rates have risen very steeply, and smaller cities, where rates have risen more slowly.”

American Express, meanwhile, suggested “that secondary locations have become saturated with supply and are expected to be more competitive,” according to its forecast.

Marriott International CFO Carl Berquist during a conference call with analysts in February said corporate rates among comparable accounts were up an average of 5 percent year over year in North America.

Riding a wave of strong demand, Marriott this year plans to “further reduce discounting and drive rates higher,” Berquist said.

Similarly eyeing a strong demand environment, Starwood Hotels & Resorts Worldwide also reported success in nudging negotiated rates this year upward by mid-single-digit percentages from last year.

Car Rental Rates Fall

The average daily cost to rent a car in 100 major U.S. markets studied in the 2014 Corporate Travel Index once again declined year over year. As hotel and dining pricing increased, rental car expenses have fallen as a percentage of the overall per-diem travel dollar to represent just 16 percent of daily on-the-ground costs.

Consolidation among rental suppliers, conservative fleeting, falling vehicle resale values and growing demand seemingly position suppliers with greater leverage, but broad rate increases have yet to surface in commercial rental data captured in BTN‘s index and other sources. Unlike for pricing in the commercial segment, which is subject to intense negotiations, rental car suppliers have managed to extract increases in public rates.

Still, rental car executives, analysts and travel management companies anticipate a modest rise in commercial rental car pricing this year.

Carlson Wagonlit Travel, for instance, forecast commercial rates to rise by about 1 percent from last year, and while such an increase doesn’t represent “major gains,” according to CWT, “the small increases expected are in fact big news, as it marks the first time in years that U.S. suppliers have been able to increase rates, even slightly.” Advito, meanwhile, projected no more than 4 percent increases in negotiated rates, which—thanks to intense competition among major suppliers—”may also stay flat for many customers” this year. “Negotiated rates have barely changed since 2008, with suppliers prepared to use consumer rental rates to subsidize corporate deals,” according to Advito.

Avis Budget Group has emerged as a vocal champion of commercial rate increases, and has pointed to some success, if not in increasing overall rates, then at least in stemming the rate of year-over-year declines.

As of press time, only Avis Budget had reported pricing information for the fourth quarter of 2013. For that quarter, rental pricing in North America was “unchanged” from the prior-year period, with U.S. leisure pricing up by roughly 1 percent year over year and commercial pricing down by 1 percent. Fourth-quarter commercial rental volumes, however, rose 1 percent.

Avis Budget CEO Ronald Nelson pointed to some success in bumping commercial rates higher. “Over the course of the year, we renewed almost 1,400 commercial contracts and were able to hold or increase rates roughly 60 percent of the time,” said Nelson.

Yet, he pointed to an “average decline on renewals in the second half of the year.” Efforts to secure rate increases from corporate clients could take years to play out, as “not all contracts renew over the course of a year” and some extend for as many as four years, he said.

It would appear that Avis Budget faces other headwinds in regaining pricing power, “as neither National nor Hertz,” which represent the firm’s largest competitors for corporate business, “has shown any desire to follow suit,” according to Advito. CWT similarly noted that, even if the rental car market is “highly consolidated,” corporate travel buyers will continue to see “strong competition among suppliers in 2014.”

Dining Costs Get A Lift

The average cost to eat three meals a day in the 100 U.S. cities represented in BTN‘s index rose 2.7 percent to $87.72 from the prior year. With a total daily dining cost of $128.84, Honolulu was the costliest business travel market in which to dine, followed by perennially pricy New York and San Francisco.

Honolulu’s position on top did not come as a surprise to Vic Macchio, founder and CEO of Dinova, which provides dining rebate programs for corporations. It is, after all, a “high-rent district” on a “remote island, and a lot of food needs to be imported,” he said.

Dinova also has witnessed increases in dining costs. Last year, per-check dining spending among its clients rose roughly 6 percent year over year to $53.88. Macchio attributed half of that increase “to pure price increases in the restaurant space,” with the remainder a reflection of spending increases. Dinova previously reported that 2012 spending per check declined to $50.78 from $52.03 in 2011.

While many of the costs that put pressure on restaurants impact other businesses—Macchio pointed to healthcare expenses and wages as key items—he also singled out food-commodity costs as an input that has pushed menu pricing upward.

He expected 2014 per-check spending to increase by up to 5 percent from 2013 levels.

While the other per-diem categories—rental car and hotel—are more heavily managed within mature travel programs, dining remains an emerging category. Yet, Macchio sees growing interest in containing dining expenses through management, citing client growth.

Macchio said very few companies deploy a true per-diem strategy in which the company provides travelers with a fixed daily amount for dining expenses. Instead, he said, most organizations set guidelines that encourage travelers to spend reasonable amounts on dining.

“Most expenses have to pass the reasonable-expense test,” Macchio said. Some other companies, he noted, may set a daily maximum on dining expenses.

Despite often taking a back seat to other travel spend categories, dining costs comprise 29 percent of the per-diem travel dollar—less than hotel but greater than rental car expenses.

This report originally appeared in the March 17, 2014, issue of Business Travel News.

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