Sector analysis
Air | Hotel | Ground | Meetings & Events
Pricing snapshotNavigating a supply constrained market
Airfares rose dramatically in 2022 experiencing a record price increase, much more than expected. The average ticket price (ATP) rose by 72.2%. This was significantly greater than the astronomical prediction from last year’s forecast (+ 48%). Looking forward, price growth is likely to be more modest at 2.3% in 2023, albeit from an already high base. The same is true for 2024, when 1.8% growth in prices is expected.
Demand for flights has recovered strongly. Passenger numbers are quickly approaching pre-pandemic levels, according to IATA, with airlines expecting to carry 4.35 billion passengers worldwide this year – not far from the 4.54 billion passengers in 2019. However, airline capacity continues to be constrained by industry-wide supply-side challenges, elevating costs.
Pent-up demand from leisure travel means airlines can sell flights at higher prices. At the same time, many corporate buyers now have less leverage to negotiate with airlines, as their travel volumes remain below pre-pandemic levels. Prices are currently moderating in terms of growth, but they still remain high.
Europe, Middle East & Africa (EMEA)
With an average price of $855, EMEA had the highest average ticket price for 2022, compared to other regions. The regional price rose by 32% compared to 2021 levels, much higher than expected in last year's forecasted in last year’s forecast. Fares for premium cabins rose by an astounding 63% in 2022. With very moderate increases expected in GDP and inflation growth, the market will stabilize with dampened price increases. In 2023, ATPs are expected to rise 2.9% to an average of $880, and then a further 2.2% in 2024.
North America
ATPs in 2022 reached $758 in 2022 – a whopping $100 more than predicted in last year’s forecast – representing a 49% rise from 2021. The region exhibited the highest average price for premium tickets at $5,833 when compared to other regions. Price growth is expected to moderate in 2023 and 2024, with ATPs expected to rise by 3.8% this year and 1.8% in 2024. Post-pandemic pent up demand also appears to be softening.
Asia-Pacific (APAC)Asia Pacific ATPs climbed a staggering 148% year-over-year in 2022 to $567 – the biggest increase seen in any region. Several key business travel markets opened their borders to international travelers. Australia fully reopened its borders to vaccinated travelers and Japan resumed visa exemption arrangements. Average airfares rose 75% for Australia and nearly 80% for Japan with a sharp rise in the share of long-haul tickets.
In 2023 the average ticket price will rise by 2.3% to $389 and an additional 1.4% to $416 in 2024. As airlines in the region – particularly the major carriers from China – continue to add more capacity on international routes, the increased supply should help put downward pressure on prices.
Latin America (LATAM)As in other regions, strong demand pushed prices up more than predicted last year and the average ticket price reached $749 in 2022, a 55% increase from 2021. Premium air tickets showed a 48% rise to $4,848. Price growth in LATAM will likely slow going forwards but will remain higher than other regions as countries in this part of the world continue to grapple with high inflation while airline capacity remains constrained.
Pricing plagued by low capacityGlobal airline capacity has not kept pace with the recovery in demand, partly due to labor shortages impacting many parts of the aviation value chain, as well as supply chain issues affecting the aircraft manufacturing and maintenance, repair and overhaul (MRO) sectors.
Many aircraft were retired during the pandemic, and it has not been as economical to bring them back due to high operating and fuel costs. Older aircraft are also less viable due to higher emissions. Airlines cannot get hold of new, more efficient aircraft as fast as they would like to, with Airbus and Boeing delaying delivery. There is also a global shortage in the number of pilots available, with the shortfall expected to grow to 34,000 pilots by 2025.The strong appreciation in the U.S. dollar since 2022 has also hit pricing. Many expenses, including aircraft leases and fuel, are paid in dollars curtailing investments. This is compounded by higher interest rates.The fact that Russian airspace remains closed also adds fuel costs on flights to many Asian destinations from Europe.
On the flipside, the cost of jet fuel has continued to decline after recording a 14-year high in the second quarter of 2022, which could help ease pricing pressures. Even so, IATA expects that fuel costs will account for 28% of airlines’ average cost structure in 2023, which is still above 2019’s average of 24%.
Pricing snapshotMoving beyond demand for rooms
The global average daily room rate defied predictions and rose to $161 in 2022, more than $14 higher than predicted last year, representing a rise of 29.8% year-over-year. In fact, there have been steep climbs in pricing for all hotel categories. These extraordinary rises are mirrored by similar reports from hotel brands, particularly upscale properties. Several cities across the globe have reported their highest average daily rates on record such as Miami, London and Singapore.
With a surge in demand, hotels have been making up for revenues lost during the pandemic. Occupancy rates have been high, as have costs, whether it’s rising labor costs or higher energy bills. Then there’s also higher food and beverage costs. Meanwhile, hotel construction remains down from its peak, creating supply constraints.
With fewer properties to compete with, existing hotels can sustain their pricing power for longer, even though average daily rate (ADR) gains are slowing. This means hotels may not feel obliged to extend generous corporate discounts in 2024. Right now, the story is very much focused on average daily rates than occupancies. Leisure demand is also dictating pricing strategy.
A better understanding of inventory levels as well as the number (and types) of properties coming online in key markets is essential for buyers.
Europe, Middle East and Africa (EMEA)
The ADR for the EMEA region rose to $164 in 2022, representing a rise of 28.1% from 2021. Rate increases exceeded last year’s predictions. Growth in room rates are expected to stabilize in 2023 and 2024, rising by 3% to $169 and then an additional 3% to $174, due to economic concerns and inflationary pressures. Aside from North America, EMEA has some of the highest ADR figures.
This region stands out in terms of meteoric growth in ADRs for 2022, with rates greater than any other region, rising by an eye-watering 33.8% to $174. Occupancy will likely grow at a slower rate in the second half of 2023 and 2024 due to economic concerns. ADRs will rise to $181 in 2023 and to $187 in 2024, representing growth rates of 4% and 3.3% respectively. Hotels continue to outperform rate expectations due to strong demand, and limited new supply.
Asia-Pacific (APAC)APAC’s average daily room rates rose by 28.4% in 2022 rising to $131, the price of upscale rooms rose to $153, rising by 31.9%, while midscale rooms also went up by 20.8% to $87. As international travel from China continues to rebound, this will have a knock-on effect on price growth for the rest of the region in 2023. Rates for APAC are expected to grow by 9.9% on average to $144, and rise an additional 3.5% in 2024.
Latin America (LATAM)This region saw significant growth rates in ADR for 2022. Room rates averaged $99, representing a rise of 26.9% over 2021. The forecast for late 2023 – 2024 expects ADR growth to be elevated, similar to rate increases in APAC and even higher than those of North America and EMEA. Inflation, which impacts rates, has been higher in LATAM than in the North America and Europe. The average daily rate is expected to grow by 9.1% in 2023 and reduce in pace to 5.6% in 2024 when room rates will reach an average of $114. Mexico, South America and Central America have all surpassed pre-pandemic levels in terms of revenue per available room (RevPAR).
Pricing power now uncoupled from demandAcross the globe, hotels have increased rates (and in some cases considerably) since last year. Yet, these elevated rates are largely offset by higher costs and inflation. Demand for rooms is only likely to surpass pre-pandemic levels later this year. In the past, pricing power has followed demand, where those rooms with the strongest occupancy growth also posted the highest ADR gains. This trend has not happened post-pandemic. It is likely that non-demand related costs - including inflation, labor shortages, and energy costs - have been the primary force behind this pricing peak.
Rates are influenced by increased employee wages, staff shortages and, in some cases, a cap on hotel occupancy. Coupled with high leisure demand, it is understandable that pricing power rose sharply in 2022. Upscale hotels may also be struggling from growth in supply as well, resulting in elevated prices.
Some hotel chains are starting to use attribute-based booking, which allows guests to pick and choose the individual components of their room. This emerging trend could impact hotel pricing going forwards.
Pricing snapshotLimited supply pushes high prices
Global car rental prices rose in 2022 by a record 9.8% to an average of $45 per day. In 2023 prices will again be elevated with a forecasted growth rate of 6.7%, driving prices up to an average of $48. In 2024 the expected rate of growth will diminish to 2.1%, providing an average daily rate of $49. Margins remain lean for car rental companies and prices will have to be maintained to offset higher costs.
The rental car market remains strong. This sector is heavily dependent on pricing in the buoyant leisure market, which has benefited from solid demand reaching pre-Covid levels.
Rental prices soared in 2022. Companies were constricted having sold off vehicles during the pandemic when demand collapsed. When business returned, companies did not replace vehicles at pace, largely due to availability. There’s been a worldwide shortage of semiconductors now heavily present in today’s vehicles. Rental car companies also purchased vehicles at inflated prices because of post-pandemic inventory shortages. If demand outstrips supply again, prices could rocket once more, especially where leisure competes with corporate rentals in popular cities. The supply of vehicles has improved, but prices are still elevated.
Car rental companies in countries where travel was permitted during the pandemic or those regions that opened-up more quickly such as the U.S are in the best position to weather the storm as they are less likely to have limited inventory and therefore do not have to charge higher rates. A number of car rental companies left the sector during the pandemic leading to a higher market concentration which, in turn, affects pricing.
The car rental market in EMEA saw a significant upswing in 2022 with an average price increase of 10.9% to $61. However, this growth rate is not expected to persist in 2023 when it will be considerably dampened. Prices are only forecasted to rise 3.3% in 2023 to $63 and 1.6% in 2024 to $64.
As predicted last year, the rental car market in North America rose by 11.4% to $39 in 2022. Expect muted increases in 2023, with prices flat at $39, followed in 2024 by decreases in price of -2.6% to $38. Longer length of rentals are helping drive down the daily rate. Strong demand is also expected to continue along with ongoing supply challenges.
Asia-Pacific (APAC)Car rental prices decreased 5.5% in 2022 to $52 in the Asia-Pacific region. The decrease was less than predicted last year. Prices are forecast to remain flat in 2023 at $52 and again by a lesser amount, -1.9% in 2024 to $51.
Latin America (LATAM)This region saw the steepest price rises compared to other regions, climbing 23.3% in 2022 to $37. Expect significant rises again in 2023, rising 10.8% to $41 in 2023, but a less steep trajectory in 2024, when prices are forecasted to climb by 7.3% to $44. Price hikes aligns with greater inflation in the region’s countries.
Low availability of vehicles hits marketThe global shortage of vehicles continues to plague the industry and elevate prices. Parts and repairs are also more expensive. But as car rental companies post significant earnings, they are now investing in new fleets which should help to ease prices.
However, given constrained new car availability, used car prices have also elevated, which is reflected in a slower depreciation rate of their vehicle asset base. This also affects pricing, along with inflation.
The growing popularity of electric vehicles (EV), particularly with the specter of high oil costs influence what rental companies charge, and as technology improves the price of EV's should eventually stabilize.
Also expect more automation to dampen price hikes due to lower labor costs measures, including online and mobile check-in, keyless entry and touch screen kiosks.
The benefits of booking early in order to achieve better pricing are well known. Travel buyers should expand the number of suppliers to try and mitigate rising costs and availability challenges.
Demand from groups, meetings, and events have rebounded sharply with the majority of travel buyers also now responsible for meetings & events. There is still pent-up demand post-Covid, as well as growth in incentive travel as companies seek to motivate and reward employees. As a result, these trips have become longer, more frequent, and now often have more participants.
Many corporates have not fully adjusted their mindset, budget-wise as many buyers still anticipate a return to 2019 pricing. The whole travel supply chain, which feeds into meetings and events, has raised prices significantly. Availability is also constricted, which affects pricing. Right now, buyers cannot have preconceived ideas about how far their budget will go. A perfect storm of constricted availability, higher prices and important considerations around ESG, and DE&I make a centralized strategy the most effective way to plan and manage meetings activity.
Lead times for events remain short, post-pandemic. However, organizers should now look at 2024 with a 12-month planning cycle if they want to keep prices at a reasonable level. It helps that more meetings and events (M&E) teams now consolidate their spend with the primary travel buyer. Historically, they have had their own budget, often housed within marketing. As travel buyers find themselves with less volume to offer for negotiating power they are repeatedly seeking to weave in M&E volume as compensation. Consolidating transient travel and M&E spend thus gives buyers more leverage when it comes to price negotiations.
Inclusion is an important priority for businesses, catering not just for a wide diversity of choice – vegetarians, vegans, dairy-free, pescatarians and more - but also access for all employees. These are costs corporations are increasingly willing to absorb.
Scaling back on off-site meals saves money when prices are high. The sustainability of events is now under scrutiny. Many businesses opt for fresh food stands rather than buffet meals to reduce food waste and save money.
Events that are focused on experiences are also increasingly important. Again, these have cost implications. Businesses are getting creative with the experiences they offer balancing authenticity, costs and Environment, Social and Government (ESG) factors. For instance, deploying a local chef at an event where guests are encouraged to use and prepare unused food for their own evening menu, whilst networking.
It is increasingly harder for dispersed workforces to engage with clients, collaborate, become immersed in company culture and be motivated unless they meet face-to-face. In fact, 90% of businesses strongly agree that in-person meetings build bonds with stakeholders, including clients, quicker and stronger than virtually, according to research from the Business Travel Association and CBI Economics. Events that bring people together are now more popular with travel buyers investing in so-called energizing events that build relationships and drive networking. Budgets for these crucial get-togethers are being protected.
There is a reduced demand for internal travel. The work from home remit and video-conferencing have defined this trend. At the same time, there is demand for face-to-face meetings that focus on nurturing talent and employee productivity.
Elements of onboarding and training are still done in person to recruit and retain employees, to show they are valued as the challenge for talent continues.
