What you can do about the rising costs of air fares and hotel rates
By Natasha Samuel, Director of Product Marketing
If your company has started to travel again, you may have noticed an increase in travel expenses, specifically airfares and hotel rates. As a result, your average ticket price (ATP) or average daily rate (ADR) compared to 2019 (the last full year most companies regularly travelled for business) might seem seriously out of whack.
There are a few reasons for this, but the good news is, there are things you can do to control your costs and travel budget in this volatile environment.
Industry losses impacting the cost of your business travel
It’s no secret that the travel industry in 2020 and 2021 suffered incredible losses—from airline bankruptcies to hundreds of thousands of people working in the industry losing their jobs. 2020 saw industry losses at $137.7 billion and $42.1 billion in 2021.
However, the industry in 2022 appears much improved with a positive outlook for 2022 and 2023. Yet, this very welcome recovery is putting pressure on travel agencies, travel management companies, airports, airlines and hoteliers to respond to demand much faster than anyone anticipated. Macro-economic factors such as oil and fuel price rises, increased inflation and higher interest rates—combined with challenges in labour—are all contributing to increased costs and operations for the travel industry.
From an airfare standpoint, IATA’s forecast yields estimate that airfares will rise by 5.6% globally this year, while Phocuswright indicates that ADR in the United States rose by 19.6% in 2021 and is expected to increase further. STR data from May 2022 shows an increase in ADR of 15% in 2022 compared to 2019.
In this environment, businesses are responding, and a recent survey conducted by the Global Business Travel Association (GBTA) indicates that in response to the pressure of inflation, companies are reacting by increasing their business travel spend, with 34% increasing hotel spend.
So, what can you do to control your travel program costs?
We’ve put together six recommendations to help you manage the rising travel cost for fares and rates in your business travel programs.
Activate dynamic hotel rate cap travel policy
Egencia’s recently launched feature lets you take advantage of the fluctuations in hotel rates. Since the launch of the dynamic hotel rate cap policy, Egencia has delivered savings to customers on over 80,000 hotel bookings by using real-time market prices to set the rate cap! And this innovative feature has even been shortlisted for the Business Travel Awards Europe 2022 in the Technology Innovation category.
This is available to all customers globally, and a simple one-step activation delivers increased flexibility and configuration choices to you, including:
- A mix-and-match hotel policy to suit your business needs—keep static rates in some locations, activate dynamic hotel rate caps in others. And this won’t impact your negotiated volume commitments to hotels.
- Unlimited travel policy groups mean more opportunities for you to personalize your policy for different groups and types of travelers.
- Customize the stringency of rate caps by specifying the minimum star rating for median rate calculation.
And all of this on top of the ability for you to customize your preferred and negotiated rates as part of the traveler’s booking. No other travel management provides this level of personalization at your fingertips to control your hotel spend and prevent overspending.
Egencia Savings Finder for Air and Hotel
Second only to air, a company’s hotel spend is one of its biggest expenses when it comes to business travel.
Therefore, securing the best value hotel bookings can have a significant impact on an organization’s overall business travel spend; however, fluctuating, competitive prices have traditionally been challenging to track.
- Over 97% of Egencia’s customers use Savings Finder for Hotel to re-shop their hotel bookings. The average saving per optimized hotel booking with Savings Finder for Hotel is $37. Listen to this webinar to learn more about how customers are saving with this proprietary technology from Egencia.
- When it comes to Savings Finder for Air, on average, we have saved our customers 14% per ticket.
Conduct a thorough analysis of your 2019 vs 2022 spend—and adjust your travel policy accordingly.
When it comes to hotels, Egencia’s got you covered with our dynamic hotel rate cap travel policy feature.
In addition, we have two additional hotel features to help you cut down on meal expenses as part of hotel spend: the functionality to increase the rate allowance in a particular city automatically if breakfast is included, and travelers have the ability to sort their hotel results to display those with dinner included.
For air, this is where you’ll need to take some time to understand the opportunities to optimize your travel policy to drive savings.
Here’s what Egencia’s spending data tell us about the potential for customers to manage their air spend effectively by making changes to their air policies, such as highest cabin class allowed, price above recommended fare, fixed price air policy and advance purchase, resulting in a significant decrease in the Average Ticket Price or ATP ($/km). The estimated realized savings are as follows:
- Enabling general air policies resulted in Average Ticket Price (ATP) savings in the range of $4–$18 for short-haul flights.
- Enabling general air policies resulted in Average Ticket Price (ATP) savings in the range of $8–$35 for medium-haul flights.
- Enabling general air policies resulted in Average Ticket Price (ATP) savings in the range of $39–$177 for long-haul flights.
Not sure where to start with a review of your travel policy? Check out the seven steps for building an effective corporate travel policy, which are full of tips from experienced Egencia account managers.
Take advantage of faster airline ticketing
In late 2021, Egencia piloted a new solution to address challenges that travelers and travel arrangers often face with price changes and ticketing deadlines. Before, Egencia instructed the airline to issue the ticket at the last ticketing date. This led to price changes and failed bookings for customers that need approval for flight bookings. As well as that, later ticketing led to customers paying more.
Below are a few examples of how later ticketing can impact your travel program costs:
As soon as the traveler or arranger confirms a booking with Egencia, we now instruct the airline to issue the ticket immediately. This helps reduce customer costs and the potential for failed bookings as prices and inventory change dynamically.
- Issuing a business-class ticket on the day of booking in 2019 was $1,000 cheaper than the airline issuing it 10 days after booking.
- For an economy flight, the average ticket price issued on the same day was $350 cheaper than 10 days later.
- For international flights, issuing a ticket on the day of booking was $1,600 cheaper compared to 10 days later.
Consider supplier share-shift
Providing you have accurate data to start with, share-shift is a common practice in the business travel industry.
Share-shift provides an opportunity for your company to direct booking towards an alternative supplier and is typically driven by cost savings and, in some cases, by companies that have negotiated agreements with a supplier.
Here’s an example from a cost perspective. Let’s say that 25% of my company’s annual air spend is from London to New York. I do not have a preferred agreement in place with a particular airline—our travelers book several different airlines while also remaining compliant with our company’s travel policy.
However, as the cost of fares continues to increase, I’d like to know whether there’s an opportunity to save money on that 25% of our business travel spend. Here, I can use data to make an informed decision about which airline, travel class and ATP for this route is the most cost-effective.
Enabling customers to make data-driven decisions like this is why Egencia has a market share report in Egencia Analytics Studio. The market share report provides a visual representation and downloadable raw data for air, hotel and car spend.
Travel managers can easily assess market share and even compare their program performance to other similar sized companies using a benchmarking dashboard.
Taking action on the data is simple. If you want to encourage travelers to book a specific airline for a specific route, we provide you with the ability to set your preferred airline policy, which we clearly display to travelers as part of the booking.
Helping you to not only save cost but also enable volume that could help with a negotiated agreement with a supplier.
Negotiations with suppliers can be a win-win for your company. Leveraging volume saves money. Bundling in perks boosts incentive for business travelers to book in policy, which means they can take more trips at the same cost or travel for the same amount while saving money.
Start preparing your supplier agreement reviews now
The market has fundamentally changed over the past several months and the way that suppliers manage corporate contracts will continue to evolve.
Keeping an open mind in this environment allows companies to be more creative about what they ask for in their negotiations with suppliers. From increasing the validity period from an annual to a two-year contract, to negotiating outside of peak seasons for hotels, the sooner you start to plan for 2023, the more beneficial it will be for your company.
Over and above supplier agreements, what can your travel management company do to help? We recommend that customers continuously revisit their preferred hotels and aim to consolidate volume where possible, and also think about leveraging discounted rates already negotiated by your travel management company—this is particularly useful in areas where your volume is lowest.
Need some advice on supplier negotiations or don’t have time for in-depth data analysis? Egencia’s travel management consulting team can share expert advice and actionable recommendations to help you prepare for supplier negotiations.
- Global Outlook for Air Transport Times of Turbulence, June 2022, IATA.
- U.S. Hotel & Lodging Market Report 20212025, March 2022, Phocuswright.
- Average savings for optimized bookings between 26/11/2020 and 06/03/2021, less 30% fee (Egencia data).
- In Europe and Asia-Pacific, Egencia Savings Finder for Air, on average, has saved our customers 14% per ticket (Egencia data). In North America, Egencia Savings Finder for Air, on average, has saved our customers 16% per ticket. Figures based on FY 2019, (Egencia data).
- General air policy is defined as one or a combination of advanced purchase, fix priced air policy, highest cabin class and price above recommended fare (Egencia data).
- January 2019–December 2019, Egencia data. The analysis and the figures are aggregated and anonymized. All the percentage points improvements correspond to customers who enabled the mentioned policy vs the customers who have not enabled the policy.