CWT Perspectives: 2012 Travel Price Forecast

October 2011

Acknowledgements
This global forecast of 2012 prices for airlines, hotels, ground transportation suppliers, and meetings and events providers, has been produced by CWT Solutions Group consultants worldwide. It was conducted in partnership with the CWT Travel Management Institute and with the assistance of Professor Connan Snider of the University of California at Los Angeles Department of Economics.

The authors greatly acknowledge the contributions of the following CWT teams worldwide: CWT Solutions group CWT Meeting and Events CWT Corporate Marketing and Business Intelligence

Please consider the environment before you print this publication in part or in full. All monetary references in this publication denote U.S. dollars. Copyright 2011 CWT

Welcome
to Carlson Wagonlit Travels rst global forecast, where we project 2012 supplier prices for airlines, hotels, ground transportation providers, and meetings and events suppliers. While CWT has produced a North American forecast for the past several years, the piece youre about to read provides projections for every region of the world, as well as country-level expectations for those markets to which CWT clients most frequently travel. This information is intended to inform your negotiations with travel suppliers, and serve as a supplement to your organizations eorts to manage travel spend more eectively. To help us deliver against that goal, weve once again enlisted the assistance of a standing contributor to CWTs North American forecast, Professor Connan Snider of the University of California at Los Angeles Department of Economics, to supplement our teams corporate travel knowledge with his expertise on macroeconomics, statistical modeling, forecasting, and price indexing. Following our analysis, and perhaps not surprisingly given year-over-year increases in business travel demand worldwide, CWT conrms that prices in most geographic areas and for most categories of spend are expected to rise in 2012, with the most substantial increases to occur in the booming Latin America region. Even so, economic uncertainty continues in some parts of the world and has resurfaced in others, prompting increasing questions on exactly what 2012 holds in store for organizations and, by extension, for business travel. Therein lies the challenge in forecasting as far as 14 months out only time can truly reveal what the future will bring. That is why CWT commits to continue monitoring the many developments that impact travel from the performance of local economies to the uctuating price of oil and everything in between and update our forecast projections as necessary in the coming months to ensure you have access to the most updated information possible. Speaking of updates, hopefully youre well aware of the many channels by which CWT provides ongoing information and advice to help you anticipate and respond to developments in our industry, including CWT Vision, CWT ViewPoints, CWT Industry Watch, research conducted by the CWT Travel Management Institute, and much more. In fact, this forecast is just the rst in a 3-part CWT Perspectives series that focuses on 2012 and examines what managing travel will involve in the coming year. Keep an eye out for the second CWT Perspectives piece on key industry trends in November, and for the third component, CWTs annual Travel Management Priorities study, which will be released in January 2012 by the CWT Travel Management Institute. Please contact your CWT representative with questions or comments about any of these publications, or to be subscribed to those you may not yet receive. We hope you enjoy reading CWTs global forecast for 2012, and wish you continued success as you wrap up your 2011 travel program and nalize plans for next year.

Nick Vournakis

Christophe Renard

Nick Vournakis Vice President, CWT Solutions Group

Christophe Renard Vice President, Corporate Marketing & Business Intelligence

CWT Perspectives: 2012 Travel Price Forecast | 3

CWT's global forecast for 2012

North America
+3.5

Asia Pacic
+3.1%

to +4.1% to +3.1% to +3.4%

H1 2012 H2 2012

to +3.8%

H1 2012 H2 2012

+2.4 +2.6

-1.9% to +2.1% -0.9% to +0.0% -1.7% to +3.9%

-1.0 to +2.5%
Group +1.0 Size Cost per attendee +5.5 per day

to +4.0% to +6.5%

Europe, the Middle East, and Africa Latin America

+5.7% +2.1%

to +3.7% to +0.9% to +0.8%

to +5.9%

H1 + 2012 0.2% H2 + 2012 0.1%

H1 + 2012 9.0% H2 + 2012 10.1%

to +11.8% to +12.2%

-1.9% to +2.9%
+3.6%

-2.2% to +5.6%
Group Size

to +4.2%

-3.0 to +0.0% -5.0 to -6.0%

Cost per attendee per day

All projections reect anticipated price changes measured against prices for the same time period in the previous year.

Forecast methodology
The projections in CWTs 2012 Travel Price Forecast were formed from the combination of a.) a statistical model that evaluates historical price behavior and forecasts future price references; and b.) the market-specic expertise of CWT personnel worldwide. Macro-economic information and forecasts used were sourced from IHS Global Insight, the International Monetary Fund Research Department, and the United Nations. All monetary references are in U.S. dollars. Projections were calculated based on the transaction data of CWTs global client portfolio, including their travel footprints and patterns, as indicated below: Air transactions: Q1 2006 Q2 2011 Car rental transactions: Q1 2007 Q2 2011 Hotel transactions: Q1 2006 Q2 2011 Rail transactions: Q1 2008 Q1 2011 Likewise, key macroeconomic and per-country indicators, such as current and expected gross domestic product (GDP) growth, unemployment rates, and crude oil prices, were used in CWTs statistical model, which together with CWT clients average price index were used as the foundation for the quantitative research conducted for this report. CWTs analysis conrms that cyclicality in the travel industry plays a signicant role in pricing and therefore, our 2012 estimates have been broken down by the rst and second halves of the year where possible to produce the most accurate and applicable information for travel buyers. Additionally, macroeconomic variables have proven to be of statistical signicance in determining prices in the industry; therefore, the following observations are also reected in CWTs forecast projections: In the United States, on average an approximately 1% increase in GDP over its value in Q12007 results in a 1.3 point increase in the price index On average, a 1% decline in unemployment leads to a 1.04 point increase in the price index On average, a $10 increase in the price of a barrel of oil leads to a 0.7 point increase in the price index For U.S. markets, a 1% increase in airline capacity (i.e. available seat miles) leads to a 0.6 point decline in the price index

Cushing per barrel oil price worldwide

$120 110 100 90 80 70 60 50 40 30
Jan Feb Ma r Ap r Ma y Ju n l Ju Aug Sep Oc t No v De c Jan Feb Ma r Ap r Ma y Ju n Ju l Au g Se p Oc t No v De c Jan Feb Ma r Ap r Ma y Ju n Ju l Au g Se p

2009

2010

2011

Cushing oil prices originate from Cushing, Oklahoma, in the United States, a major oil supply and price settlement hub.

CWT Perspectives: 2012 Travel Price Forecast | 5

Global economic outlook

Economic performance and expectations vary greatly worldwide and are further detailed in the following pages. In general, global economic growth has been slowing down, with weakness from the most developed nations having signicant impacts everywhere despite strong performance from developing nations and their emerging economies. In fact, according to the United Nations, of 35 developed economies in the world, ve are expected to show decline in GDP per capita in 2011. Of 107 developing countries, 50 are expected to show growth of 3% or more in GDP per capita. A weaker than anticipated recovery of the world economy, specically for developed countries, is unfortunately far from being out of question, as continued high unemployment rates, sovereign debt distress, fragility of nancial markets and inadequate economic policy responses can potentially hurt already weak business and consumer condence even more. High global unemployment rates continue and are contributing to the ongoing economic uncertainty: more than 30 million jobs were eliminated during the economic crisis, and according to the United Nations 22 million jobs still must be added to return to at levels, which could take up to ve years. Youth and young adults currently are particularly impacted by lengthy periods of unemployment. Public debt of developed countries is expected to rise to more than 100% of GDP in the next few years; in fact, scal austerity is considered to be one of the greatest threats for the emergence of public debt distress. Overall economic ination doesnt seem to pose a general concern around the world. In fact, ination is expected to remain relatively low worldwide during 2011-2012, except for a number of developing economies in Asia. Overall, global gross domestic product (GDP) is estimated to have grown just over 3% in 2011, with another 3.5% expected for 2012.

Growth of the world economy, 2004-2012

5 4 Percentage change 3 2 1 0 -1 -2 -3 2004 2005 2006 2007 2008 -2.0 2009 2010 2011 2012 +4.0 +3.6 +1.6 +4.1 +4.0 +3.6 +3.1 +3.5

Optim

istic

Pessim

istic

Source: United Nations World Economic Situation and Prospects 2011: Global outlook report

Asia Pacic
AIR

Its no surprise that the Asia Pacic (APAC) market is thriving, leading the way in many economic indicators and correspondingly, in business travel volumes. The region did not feel the eects of the recent economic downturn for as long as other parts of the world. In fact, according to the United Nations, by the end of Q1 2010 East Asia had already returned to unemployment levels in line with what had been normal before the economic downturn. GDP in the region is expected to grow 0.5-1.5% quarter-over-quarter in the next year, with the exception of China and India, whose exports now exceed pre-recession levels, and where expected 2012 GDP growth is 9.6% and 9.1%, respectively. China is in a particularly strong economic position given its more than $2.5 trillion in foreign exchange reserves. Unemployment will steadily decrease for most APAC countries in 2012, hovering in the 3-6% range with the exception of New Zealand, which will top out at 7.5% unemployment in mid-2012 before it begins to decrease. The only APAC country expected to experience declining performance overall is Japan, which will continue to be challenged into the rst part of 2012 by the severe natural disasters it suered in mid-2011, as well as by ongoing deation and increasing debt, ultimately resulting in GDP growth of 2.3%. The airline landscape throughout APAC is populated with a dynamic mix of legacy carriers, and a growing group of low-cost carriers that have been applying pricing pressure that aects overall fares in the region, whether for business or leisure travel. Competition is erce, made even more so by Middle Eastern carriers who are increasingly providing service to the APAC market. These wealthy airlines are able to invest heavily in their business- and rst-class products, and are therefore attractive to APAC-based travelers in need of service to the Middle East, or to other parts of Europe with the Middle East as the gateway.

+3.5% Australia

to +6.8%
Japan

+0.1%

to +2.7%

+4.7% China

to +6.9%
New Zealand

+3.4%

to +4.5%

+1.2% Hong Kong

to +1.4%
Singpore

+3.2%

to +3.9%

HOTEL H1 2012
+4.1% Australia

H2 2012
+4.4%

to +4.9%

to +5.1%

-4.2% to -2.9%
China

-3.9% to -3.2%

+5.1% Hong Kong

to +9.2%

+0.6%

to +1.3%

+3.8% Japan

to +4.8%

+0.5%

to +1.0%

-3.0% to +0.7%
New Zealand

-0.4% to +5.8%

+4.5% Singpore

to +4.7%

+2.0%

to +3.3%

CAR RENTAL H1 2012 H2 2012

-0.5% to +0.4% -1.7% to +2.0% Australia APACs business hubs boast the highest hotel occupancy rates in the world, presenting serious challenges for managed hotel programs to +0.2% to +1.5% +1.5% to +3.3% secure available rooms on peak nights of the week, much less obtain New Zealand negotiated corporate rates. For example, according to Smith Travel All projections reect anticipated price changes measured against Research data, Hong Kong leads the region and the globe at prices for the same time period in the previous year. 82.3% average occupancy, with Sydney closely following at 82.2%. Given that, Hong Kong will experience some of the regions highest average daily rate (ADR) increases in the rst part of 2012, reaching more than 9% in the rst part of 2012 before leveling o for the remainder of the year. Even so, strong supply growth across APAC will keep overall ADR growth in the region more modest than one might expect.

Car rental rates in APAC for 2012 will be nearly at in Australia, with small increases in New Zealand as well. Rental volumes across Australia have shown growth, with a clear dierence between more standard, city-based rentals, and more custom, longer-term rentals used by travelers in the mining and resources industries to travel to more remote areas of the country.
Additional country-level projections across travel segments for Asia Pacic. Hotel ADR projections by crown category for Asia Pacic.

CWT Perspectives: 2012 Travel Price Forecast | 7

Europe, the Middle East, and Africa

AIR
+2.1% Belgium

to

+3.4% Germany

+2.4%

to

+4.6%

+3.1% Denmark

to +4.3%
Spain

+1.1%

to +3.2%

+1.0% Finland

to +3.2%
Sweden

+1.5%

to +3.2%

+2.1% France

to +3.3%
UK

+2.2%

to +4.1%

HOTEL H1 2012 -1.9% to +1.3%

Belgium

H2 2012 -0.5% to +0.6%

-1.4% to +0.8%
Denmark

-2.4% to +0.4%

-7.0% to -2.3%
Finland

-2.1% to -0.7%

+3.9% France

to +7.2%

+4.3%

to +4.8%

Economic uncertainty is apparent throughout much of Europe, the Middle East, and Africa (EMEA), which is creating an expectation for much atter overall pricing across the main areas of travel spend for 2012 in this region versus any other. Overall ination in Eurozone countries and the United Kingdom will be low in 2012, with close to at GDP growth. This can be contrasted with the signicant inationary increases Russia is experiencing, which are expected to reach 15% year-over-year growth in early 2012 before beginning to decline. Unemployment will range from 6-10% across EMEA in 2012, with the exception of South Africa and of Spain, where unemployment is expected to reach 30% in mid-2012 before the trend begins to reverse. Eorts to improve the economic challenges in Greece, Portugal, Spain, and Italy are not expected to produce improvements next year, meaning these countries will remain in recession or further decline; for example, Spains current unemployment sits at more than 20%. Germany, often considered the economic engine of the region, is showing some vulnerability as well with GDP growth of just 1.7% anticipated in 2012, though according to the United Nations it is one of the few countries in the world experiencing observable labor market improvements. Finally, the United Kingdom will of course host the 2012 Summer Olympic Games, which should yield signicant benets for the countrys local economies. This is also reected in CWTs projections that the UK will see some of EMEAs high price increases in hotel and car rental. Given all of this, perhaps not surprisingly airlines throughout EMEA are expecting only modest, low single digit gains in ticket prices for 2012. This despite the fact that the regions airlines have been disciplined about managing capacity, removing it during the economic downturn and withholding it in many markets even as demand has returned. Further, while fuel surcharges have emerged around the world in the face of oil price volatility in recent months, they are particularly prevalent on airfares oered by EMEA-based carriers, and can often rival the price of the fare itself, substantially increasing the overall cost to y for travelers. Depending on the country, 2012 ADRs for EMEA hotels will range from dropping slightly below previous quarter levels, to increasing in the mid- to high-single digits. Hotel rates vary drastically by market depending on local demand, and therefore travel buyers can expect particularly high ADRs in EMEAs highest occupancy cities. In fact, Smith Travel Research indicates London and Edinburgh have experienced some of the highest occupancy rates in the world to date in 2011, topped only by Hong Kong and Sydney. While space to conduct new construction is limited throughout much of EMEA, continued supplier consolidation is expected, whereby national or global hotel brands bring independently owned properties into their portfolios. Even so, EMEA in particular has been and will continue to be home to many independent hoteliers. It is important to note that,

-3.9% to +0.7%
Germany

-4.1% to -1.8%

-0.8% to +4.6%
Spain

+0.0%

to +3.7%

-2.3% to +2.0%
Sweden

-0.8% to +0.9%

+1.2% UK

to +4.3%

+2.1%

to +4.9%

CAR RENTAL H1 2012 -1.6% to +2.1%

France

H2 2012 -3.4% to +0.4%

-1.6% to +1.2%
Germany

-1.0% to +0.2%

-2.3% to +3.0%
Spain

+1.6%

to +2.0%

-0.4% to +4.6%
UK

-2.5% to +5.9%

All projections reect anticipated price changes measured against prices for the same time period in the previous year.

RAIL

while ADRs are projected to mostly decrease in Germany in 2012, this is due to the signicant reduction of value added taxes (VAT) that took eect in early 2010 to sustain tourism and enable hoteliers to reinvest in their properties. This has caused the overall cost of stay to go down, even as hoteliers have been increasing rates. Both car rental and rail are viable ground transportation options for corporate travelers in EMEA, depending on the country. For point-to-point service between key business hubs like London and Paris or Madrid and Barcelona, today high-speed rail often commands more market share than airlines. However, despite rail deregulation in 2010, ecient transborder train travel across much of Europe remains a challenge, given inconsistent tracks across most countries. Corporate car rental use in the region is most often with onairport providers, many of which are large, North America-based suppliers, or European-based organizations that have alliance agreements with those North American providers. Given this, there is a high level of competition for corporate business, which creates downward pressure on pricing that will ultimately result in 2012 rates that will slightly decline for some and slightly increase for others.

H1 2012
+4.5% Belgium +3.4% Finland

H2 2012
+4.6%

to +4.7%

to +4.7%

to +3.7%

+2.2%

to +2.5%

+4.0% France

to +6.0%

+4.2%

to +4.5%

-1.8% to -0.7%
Germany

-1.7% to -1.5%

-0.7% to -0.6%
Norway +7.9% Spain

-0.5% to -0.4%

to +9.0%

+8.8%

to +8.9%

+1.0% Sweden

to +2.5%

+2.2%

to +2.4%

Suppliers throughout the EMEA region will focus on meetings and events +2.5% to +2.6% +3.0% to +3.3% (M&E) in 2012, as many global hotels are increasingly interested in UK group business and are investing in their oerings accordingly, including All projections reect anticipated price changes measured against prices for the same time period in the previous year. becoming more exible on oering regional contracts rather than requiring separate agreements per property or city. Even so, the cost per attendee per day for EMEA meetings in 2012 is expected to decrease by 5-6%, as it is expected that more meetings will be held domestically rather than in other countries, reducing overall travel costs for many attendees. Additionally, average group sizes are expected to be at to down as much as 3% for the region.

Top 10 European rail routes for CWT clients in 2010

Additional country-level projections across travel segments for Europe, the Middle East, and Africa. Hotel ADR projections by crown category for Europe, the Middle East, and Africa.
London

Car rental rate projections by car type for Europe, the Middle East, and Africa.
Strasbourg

Rennes Nantes

Grenoble

Source: CWT client data

R Read the recently released Q Q3 issue of CWT Vision for a additional perspective and a advice on the upcoming 2 2012 Summer Olympic G Games in London

CWT Perspectives: 2012 Travel Price Forecast | 9

Latin America
AIR

Based on the economic growth it is currently experiencing, Latin America (LATAM) is projected to experience some of the most substantial price increases of any region across the main areas of travel spend. However, even as the region overall is expected to perform strongly as a result of strong demand and export activity along with stronger relationships with Asia, a closer look reveals disparate conditions by country. Some local economies are experiencing solid prosperity, as others seriously suer in the face of political uncertainty, economic instability, and even governmental corruption. The unemployment rates of Brazil, Chile, Mexico, Argentina, and Colombia are all back to pre-recession levels. Colombia is expected to continue to grow consistently, with quarter-over-quarter GDP growth of 4.4% expected throughout 2012. Steady and successful moves to eliminate government corruption and domestic subversive organizations have resulted in a return of foreign investment and low unemployment rates.
Argentina

+3.4% Argentina +3.8% Brazil

to +7.8%

to +6.9%

+7.9% Colombia

to +11.4%

+2.8% Mexico

to +6.2%

HOTEL H1 2012
+5.4%

H2 2012
+8.0%

to +10.1%

to +9.1%

Another success story is Brazil, which benets from the presence of strong local industries such as oil, forestry, mining, and overall manufacturing, and continues to be an engine of regional growth. The countrys strong domestic demand creates conditions that boost export growth from neighboring countries; in fact, the countrys export volume is back to pre-recession levels, and it and Colombia have increased oil production throughout 2011. Given this, the strong demand for many travel services often outpaces supply in Brazil, which will produce signicant 2012 rate increases next year. Conversely, countries like Argentina are struggling despite its low unemployment rates, challenged by high ination rates of 10% or more, amidst declining GDP.

+21.0% Brazil

to +24.3%

+28.1% to +34.1%

+3.8% Colombia +1.8% Mexico

to +6.6%

+2.0%

to +3.5%

to +9.9%

-0.5% to +5.0%

CAR RENTAL H1 2012 H2 2012

LATAM-based airlines will enjoy fare increases of nearly 6% overall in 2012, -1.3% to +3.9% -2.2% to +4.5% with Colombia leading the way at increases ranging from nearly 8% to 11.4%. Brazil Fare pricing in the region is partially a factor of increasing demand as the region All projections reect anticipated price changes measured against captures the attention of local and foreign investment, and the oligopolistic prices for the same time period in the previous year. nature of the competitive landscape at the domestic and intra-regional levels. These markets are controlled by a few carriers that have expanded rapidly over the last few years to dominate multiple countries within the region, consolidating assets and operations in the process to do so, such as partners LAN Airlines and TAM Airlines. Hotel ADRs will also increase in LATAM for 2012, led by Brazil, where increases will range from more than 20% at the beginning of the year to potentially 35% in the second half. Brazils hotel landscape will remain in the spotlight over the next several years, as it works to add capacity in preparation to host the 2014 World Cup and the 2016 Summer Olympic Games. New construction focused on these special events may help ease overall prices in the market after crowds have subsided and hoteliers nd themselves needing to continue lling rooms, though it remains to be seen whether continued strong demand will hold room rates high. Car rental in LATAM is most prominent in Brazil, where prices are expected to be slightly negative to increasing in the nearly 4% to 4.5% range throughout 2012.
Additional country-level projections across travel segments for Latin America. Hotel ADR projections by crown category for Latin America. Car rental rate projections by car type for Latin America.

10

North America
AIR Not unlike Europe, economic uncertainty in North America (NORAM) continues to weigh heavily on organizations in many sectors. For example, U.S. unemployment is expected to remain relatively high, at 8.5%, through 2012, with ongoing high rates potentially holding for ve more years, and limited U.S. GDP growth is also anticipated, with about 0.5% improvements quarter-over-quarter throughout the year. The U.S. housing crisis that originated during the economic downturn lingers in many markets throughout the country, and ongoing concern over the level of U.S. debt and the strength of the U.S. dollar remains a challenge in America and abroad. Conversely, Canadas economy, although aected, has been more stable throughout the past several years, thanks to tighter governmental scal policies and management. Its unemployment rate is expected to be 7.5% through 2012. In the face of continued tenuous circumstances in NORAM, airlines based in the region will remain extremely disciplined in their eorts to manage capacity, with many responding to the latest round of uncertainty by scaling back their capacity growth plans for the rest of 2011 and into 2012. The result is fuller planes and growing prices in most areas, as carriers reduce supply even in the face of demand that remains intact in both economy and premium class cabins, at least for now. ADRs for hotels in NORAM are expected to increase modestly in the United States, but be closer to at in Canada when compared with the previous four quarters. As always, specic ADRs vary widely across both countries based on the specic geographic area and type of property; for example, rates are expected to increase anywhere from 4-7% in the northeastern United States throughout 2012, while most subregions within Canada are expected to experience rate increases no greater than 2% total. Importantly, hotels are nearly powerless to quickly scale actual supply up and down in response to demand uctuations, as the construction of new properties takes years. Further, new construction will not be creating substantial additional supply anytime soon; according to PhoCusWright, the number of rooms in the U.S. hotel pipeline decreased by 12.4% in August 2011 vs. the prior year, as global hotel brands focus their development eorts in emerging markets. Domestic Business/First
+7.5% Canada

Economy -2.5% to +0.6%

to +7.8%

-5.0% to -0.1%
USA

+3.6%

to +5.2%

International Business/First
+2.2% Canada

Economy
+4.2%

to +3.5%

to +4.8%

+3.6% USA

to +4.8%

+6.1%

to +7.3%

HOTEL H1 2012
+0.2% Canada

H2 2012
+0.8%

to +2.5%

to +1.8%

+3.5% USA

to +4.4%

+3.5%

to +4.6%

CAR RENTAL H1 2012

+6.7% Canada

H2 2012
+5.4%

to +9.9%

to +8.1%

-3.2% to -0.6% -3.0% to -0.7% Displays percentage ination forecast against 4 quarters prior
USA
All projections reect anticipated price changes measured against prices for the same time period in the previous year.

The North American car rental market is highly consolidated, with just a few major suppliers. The intense competition for corporate business has forced suppliers to reduce or keep prices at to retain customers for the past several years, and that will remain the case for 2012 in the United States. Similarly, rates should be mostly at in Canadas key corporate travel markets, such as Toronto and Vancouver, though overall projections for car rental in the country indicate higher price increases based on activity outside of those business hubs. M&E spend is expected to continue making a steady recovery throughout NORAM in 2012, including for internal meetings, incentive trips, and international meetings, with average group sizes expected to grow 1-4% for all meeting types vs. 2011 levels. The cost per attendee per day will also increase by 5.5-6.5% as a result of strong demand and limited supply in related travel

CWT Perspectives: 2012 Travel Price Forecast | 11

North America continued

categories like air and hotel, though market-specic increases will range as broadly as 2-9% given varying demand and pricing in local geographies. As corporate travelers and meetings and events return to hotels, property availability will become an increasing concern for meeting buyers and planners in 2012, and hotels will be less willing to provide exibility on contractual terms like attrition and cancellation clauses. Organizations are expected to maintain their increased focus on enterprise-wide meetings management in 2012 as well, in the face of continued pressure on cost and interest in safety and security for M&E as well as transient travel programs.
Hotel ADR projections by crown category for North America (also includes sub-region breakdowns). Car rental rate projections by car type for North America.

Recommendations
Given the expectations outlined here for 2012 travel prices, following are CWTs recommendations for the most impactful ways travel buyers can navigate next years suppliers market and mitigate the eects of cost increases to their organizations:

Air
Understand contractual savings. CWTs forecast shows airfares will increase worldwide in 2012, making it a challenge for travel buyers to demonstrate the value of their negotiating eorts, particularly to procurement-minded leadership. One way to still quantify the value of a preferred airline program is via a net eective savings rate (NESR), which highlights the total fare savings percentage generated by a corporate airline contract. It calculates the savings resulting from the contract, divided by what the organization would have spent with the airline using published, non-discounted fares. Even in the face of rising fares the NESR will show cost avoidance results. Segment the spend. As part of overall eorts to continually monitor market conditions, a de-linked market strategy can drive incremental airline savings despite overall price increases. With this approach, buyers isolate their most frequently traveled city pairs from the rest of their air volume, and negotiate it separately. The top markets are each reverse auctioned with the promise that the most competitive airline will become the only preferred carrier on that route, and the rest of the volume is handled with a traditional RFP. This enables clients to receive the best possible pricing on routes where they already spend the most money. More broadly, buyers must continually monitor prices throughout the life of the contract to ensure their preferred carriers are being competitive with the rest of the marketplace. Stay focused on ancillaries. Ancillary fees continue to drive billions of dollars of revenue to the worlds airlines, though buyers continue to receive little information from their carriers on how much is spent and what is purchased. Clients should continue to advocate for visibility into their ancillary fee spend, and should push for the opportunity to negotiate discounts on the ancillary fees that are most important to them. Reduce prices yourself. While rising prices may seem out of a buyers control, there are many internal measures available to reduce the organizations overall average ticket prices, including: increasing the length of advance purchase required prior to departure; requiring the purchase of nonrefundable fares vs. more expensive exible tickets; restricting premium class to use; increasing online booking tool adoption; reducing the total number of ights by consolidating trips or using travel alternatives where possible.

12

Hotel
Emphasize LRA. Last room availability (LRA), whereby hotels agree to honor the corporations negotiated rate for a particular type of room even if only one more room is available for the night, is more important than ever in the worlds many high occupancy cities where hotels are at full capacity on many weeknights. Hotels will be more selective about granting LRA in 2012 given they could get much higher premiums selling their last available rooms to any traveler willing to pay. However, buyers should insist on LRA in their top travel markets, though they will need to be willing to pay a higher overall rate to get it included in their contract. Focus on total cost of stay. In addition to the higher ADRs CWT is projecting buyers will face next year, hotels continue to drive incremental revenue through the implementation of more ancillary fees, and are currently less willing to grant traditionally complimentary amenities with the contracted rate. All of these elements contribute to the total cost of stay, so buyers must focus on all charges, not just ADR, during negotiations. More vs. fewer properties. While on opposite sides of the spectrum, each of these approaches can yield positive benets, depending on the situation. Consolidating to fewer preferred hotels in a market can eectively make a company a larger client to their preferred hotel, resulting in better pricing and contract terms. Conversely, in high occupancy markets buyers may need to add several additional properties to their program in a market for additional coverage, particularly in the absence of an LRA agreement.

Ground Transportation
Expect at rates. Given the high level of competition among few suppliers, car rental is one of the few areas where buyers will enjoy lower or at rates in 2012 compared to 2011. In this environment, any supplier bids that start by proposing an increase should be strongly questioned. In addition to this forecast data, buyers can use industry benchmarking provided by their travel management company and other suppliers to help make the case for at or lower rates. Consolidate suppliers. Given most regions are serviced by only a few car rental suppliers, buyers have signicant opportunity to consolidate their volume with one or two providers to drive deeper discounts and better products and services for travelers. Beyond rental rate alone, buyers may be able to negotiate more premium car types for their travelers, or the inclusion of amenities like a GPS device. Check the market regularly. To ensure they are receiving the best possible pricing and service, CWT recommends travel buyers conduct a full Request for Proposals (RFP) process every two years. Demand full data. Buyers should require their preferred car rental suppliers to provide them all data from their travelers bookings, so they can gain visibility into not just the actual rates being assessed, but how much the organization is paying in ancillary fees. This enables the buyer to conduct more informed negotiations on the items that represent the greatest expense.

Meetings & Events

Book early. The fact that hotels in many top business markets will be nearly sold out on peak nights in 2012 has direct implications for meetings and events. The challenges will only increase as group business continues to grow and group sizes expand moderately in North America. Corporate meeting planners will need to extend their booking windows to secure available space and to have better negotiating power with suppliers. Align contracting. Driving a group of meetings to one property, or to a group of properties within a hotel chain, throughout the year should result in better pricing and service than contracting each meeting separately across multiple suppliers. The same hotel chain may also oer consistency across locations, though meeting planners should be careful not to assume a brands oering in one region is identical in another without visiting rsthand or seeking other feedback from planners or attendees. Maintain SMM momentum. Many organizations have at least begun to explore a Strategic Meetings Management (SMM) program, and some are well underway in the process. Regardless of progress to date, the level of management an SMM provides for an organizations meetings and events can only benet the company in terms of savings, service, safety and security, and more. As supplier pricing drives the cost of meetings and events up in 2012, SMM results can help mitigate some of the increases while delivering other benets to the organization. CWT Perspectives: 2012 Travel Price Forecast | 13

CWT Solutions Group

The CWT Solutions Group is the global consulting arm of Carlson Wagonlit Travel, with practice areas dedicated to helping clients with their managed airline, hotel, and ground transportation programs, and to help clients drive travel policy and compliance improvements, with a wide variety of specic oerings in each practice area. CWT Solutions Group consultants combine their corporate travel expertise with local knowledge in all regions to drive substantial savings and other program improvements for their clients.

CWT Travel Management Institute

The CWT Travel Management Institute conducts in-depth research into eective travel management practices to help clients worldwide derive the greatest value from their travel program. Drawing on the global resources of Carlson Wagonlit Travel, the institute aims to provide a regular ow of business intelligence and best practices, oering actionable insights into what CWT has identied as the eight key levers to eective travel management. To this end, the CWT Travel Management Institute publishes original research, white papers and case studies, and co-produces the global periodical CWT Vision. The institutes most recent research is Business Travel Services: Finding the Right Fit, released in June 2011.