Anticipate a volatile market

The basic principle of offer and demand remains the same but the pandemic has brought a massive disruption and both have collapsed.

The global offering from airlines is around 50% of what it was last year and the vast majority of this is on domestic networks, driven by China and other parts of Asia.

Pricing is going to remain volatile. We are advising clients to identify what their travel is likely to be in the next 3-6 months, and to which destinations, and then chose airlines which are a good match and provide them with an estimate. We advise not to run an RFP. It will be a waste of time. Instead embark on very specific renegotiations on the terms agreed in 2020, based on market share and revenue goals.

At the same time, anticipate market volatility and consolidation in the aviation sector. Some airlines are partially grounded and could go bankrupt, leading to less competition on specific routes and pushing up prices. Finally, and importantly, consider biosafety. Ask, is this airline safe, is it following the right protocols?

Olivier Benoit
Principal and Vice President Air I&A Advito

Look at the wider picture

Previously, forecasting air, hotel and ground transportation pricing was based on five years of GBT data, macroeconomic data and industry metrics specific to cities and routes.

This is not currently possible without clarity on supply and demand trends. Now, more than ever, it’s time to think about the wider impact of the travel programme: what are its objectives and how can it support successful outcomes?

Often known as a commodity strategy, this has elevated sourcing discussions beyond narrow focus on savings on routes or properties and requires consideration of six foundational tenets: stay proactively and regularly engaged with your supplier partners; make sure stakeholders (HR, legal, security and so on) understand the reasons for your sourcing strategies and you understand their objectives; communicate and measure the value of your sourcing options; establish a framework to capture and process traveller feedback (how they feel, what they need, how willing they are to travel); monitor the supply landscape which will be volatile for some time; and finally, make sure your sourcing plan is flexible – your strategy may be right for now, but things may look very different in six months’ time.

Jim Ranney
Director of Global Business Consulting American Express GBT

Expect creative value-adds

We saw a year-on-year increase of 12% in air fares immediately after the air bridge announcement but traveller confidence was knocked due to the speed at which Spain was removed from the ‘safe’ list and with rising cases across Asia, and now Europe.

As a result, we estimate fares are to fall by an average of 15% globally for the remainder of 2020 and early 2021. By the summer of 2021 we expect them to rise to between minus 10% and plus 10%, depending on the availability of a vaccine, as demand grows with pent-up demand for holidays, plus events and conferences.

For hotels, the financial crisis in the autumn of 2008 pretty much halted the hotel real estate market. Once hotel performance bottomed out in late 2009, hotel investors jumped in and by late 2010 and 2011 prices went above pre-recession levels. So, I predict hotel rates will drop by 25% in 2020, 15% in 2021, and 5% in 2022 and then a recovery is expected in 2024 with rates up by 2%.

Some of these price drops will be masked by hotels in other ways as they try to stimulate demand by delivering value-adds. So we expect to see a mixture of Buy X nights, get Y Free, or hotels offering discounted or free food and beverage, and hotel passes where corporates could buy 30 rooms to be used over a period with a discount applied up front.

David Bishop
Commercial Director Gray Dawes Group, a member of Advantage Travel Partnership

Take it market by market

After months of on-and-off national and local lockdowns, we have seen some very strange dynamics in the airline pricing market.

For short haul trips, it seems demand is very much still there, so pricing apears to be remaining somewhere near to where it was pre-Covid, if not slightly lower.

But long-haul is a different story. Flights between the UK and China, in particular, have seen some crazy pricing, with British Airways charging upwards of £4,500 for a non-refundable return premium economy ticket from London to Shanghai, while Air China doesn’t even sell its tickets publicly anymore (although we hear stories of economy tickets to Europe on Air China and other Chinese carriers being sold on the black market for upwards of £7,000).

As choices diminish and demand remains high between Europe and China for Chinese returning home, the airlines are able to inflate prices. We see less price inflation for US flights. There seems to still be quite a large selection of flights, which are all nowhere near capacity, but the transatlantic carriers don’t seem to be changing their pricing. A discounted London-Los Angeles business class ticket is still anywhere from £2,000-£4,000, no matter how full the plane.

Looking forward, I think most markets will slowly return to some form of normal pricing structure and capacity, starting from the start of next year as travel restrictions hopefully begin to be lifted. Once we are through this crisis and the major players must begin to start repaying the debt they’ve racked up this year, prices may very well go up in several markets. However, I would assume the most important thing would be getting people back on planes in the short to medium-term before worrying about profit margins.

Noah Meyerson
Managing Director of Traveltrust, a member of Advantage Travel Partnership

Watch out for the tipping point

A perfect storm continues to ravage the travel industry and consumer confidence is at an all-time low. Airlines and airports are having to reassess the size of operations in the face of a slow and difficult recovery that could take up to two years to return to pre-Covid-19 traffic levels.

This, coupled with low demand, initially saw high fares on popular routes. Now supply is starting to open up and airlines are trying to stimulate demand, fares are stabilising on popular routes and we’re seeing extremely low fares on other routes.

I see lower airfares continuing in the short and medium term as low fuel prices, excess capacity and weak demand prevail. A tipping point will happen and we will see an upswing in traveller confidence, brought about by a reduction in travel restrictions, a vaccine or when testing is the norm. Then we might see air fares rise.

Hotel prices, meanwhile, have varied depending on location and facilities, with rates in some European cities dropping up to 35%. Hotels were swift to reduce operational costs and will further look to reduce distribution costs to negate the new expense of making the hotel experience touchless and safe. Hotels have looked to their local markets and taken advantage of the staycation trend to buffer a dramatic decline in occupancy, which is helping to stabilise prices.

Edel Doherty
CEO and Founder of Beyond Business Travel, a Focus Travel Partnership partner