There was a time not so long ago when containing or cutting costs was a travel manager¡¯s top priority. Those days were looking somewhat anachronistic even before Covid-19 devastated the travel industry. Nobody is denying the importance of cost containment, but it was already slipping down the pecking order, usurped by the likes of duty of care, wellbeing and sustainability.?

As business travel resumes, these will rightly be many organisations¡¯ primary focus areas, together with restoring travel confidence and navigating new processes and restrictions. After all, with business travel volumes reduced to near-zero for many organisations, and recovery expected to be tentative at best, pricing and rates might now appear less critical.

Discretionary travel at risk of extinction

¡°Negotiated rates are seen as inconsequential in the face of huge savings delivered by not taking as many trips,¡± asserted Scott Gillespie, founder of business travel consultancy tClara, in a recent article about the future of business travel.

There¡¯s going to be ¡°less focus on travel prices and cost savings¡± and ¡°buyers will shift their focus from price to evaluating suppliers¡¯ product, service and relationship qualities,¡± he added.

Discretionary travel is at risk of extinction and ¡°the more important the trip, the less worry about the price¡±.

It¡¯s an opinion shared by some corporates, but it would be neglectful to disregard price altogether. There does, however, seem to be an acceptance that the cost of business travel is going to rise. Travel managers at companies like Microsoft and Discovery have said publicly that business trips may get more expensive.

A travel manager in the pharmaceutical sector recently told BTN Europe: ¡°Many travellers will rethink what trips are really necessary and evaluate the benefits against confidence to travel and cost differently going forward.¡±

They continued: ¡°Airlines have reduced their fleets and capacity and that¡¯s going to make air travel more expensive. There¡¯s also additional cost with increased hygiene standards. It¡¯s all going to lead to higher costs.¡±

They even floated the idea that ¡°if demand comes back quickly, we could find our overall travel costs increase despite the number of trips falling.¡±?

Alison Rogan, global head of travel and expense at Barclays and chair of the Institute of Travel Management, also believes discretionary travel¡¯s days are numbered and expects trip costs to rise.

¡°The fact [is] travel volumes are currently zero for many companies¡­ they will see that as an opportunity to reduce discretionary travel, but I also see revenue generating travel being impacted as well because of sustainability concerns,¡± she said in a recent BTN Europe?podcast.

¡°Suppliers have spent a lot of money preparing for the return to travel and there¡¯s so much more complexity. We don¡¯t know what the supply chain¡¯s going to look like when travel resumes and how much capacity there¡¯s going to be.¡±

Rogan continued: ¡°I think the struggle is really going to be for the airlines. They¡¯ve made a significant amount of investment in additional cleaning regimes, air filtration systems¡­?

¡°Aircraft aren¡¯t going to be operating as full as they were previously so someone is going to have to pick up the cost. I do foresee the average cost of a trip increasing, for sure.¡±

Airfares on key routes heading up

Few suppliers and intermediaries have talked confidently about rates and likely movement in the year or two ahead. In normal circumstances, the mega TMCs would have published price forecasting reports for 2021 toward the end of 2020, but on this occasion such predictions would have been a fool¡¯s errand.

Nevertheless, it is thought likely that air fares on key corporate routes will increase.

¡°Airlines have to make up for lost revenues over a long period of time and, to maximise yield, popular routes will have tough pricing,¡± says Dean Mitchell, supplier relations manager at travel management company ATPI. ¡°Conversely, some routes don¡¯t attract as many corporate travellers and there will be some good pricing opportunities.¡±

He adds: ¡°As a general trend, we expect big peaks and big troughs as the sector weathers further inevitable storms.¡±

Mitchell says industries that have continued operating throughout the pandemic have frequently faced higher fares. ¡°Reduced airline capacities and demand from the marine industry has meant that pricing increased significantly on routes where demand outstrips capacity, especially for premium seats. It¡¯s likely that we will continue to see prices rise on these successful routes.¡±

He also expects premium fares to rise. ¡°Across some long-haul routes, business class was operating at full capacity during the latter half of 2020 when travel was permitted.¡±?

The appeal of more space in the higher specification cabins means that there is an increase in both corporates and high-end leisure travellers occupying the premium cabins, he says, which will drive-up prices.

Penny Munn, head of supplier relations, Europe, at CTM, expects "moderate" fare increases over the next 12 months. "As demand increases in H2 2021 and into 2022, airlines will be required to more aggressively manage their yield. They are unlikely to allow capacity to outweigh demand, meaning fare increases can be expected."?

Hotel outlook less clear

While many agree that air fares on key routes could be higher as travel recovers, the jury is out about hotel rates.

Many hotel groups offered to roll over corporates¡¯ 2020 negotiated rates to 2021, but organisations were aware the savings those rates had previously represented had been eroded by plummeting publicly available rates. It is undoubtedly a more complex picture than for airlines where supply can be removed comparatively easily.

According to data from Tripbam, the average hotel rate booked across EMEA dropped from ?130 per night to ?102 over the last year.

"We don¡¯t see that increasing any time soon because corporate transient [travel] is still 95 per cent down across Europe,¡± says Peter Grover, Tripbam¡¯s managing director for Europe.

¡°We¡¯re expecting UK domestic to come back first and rates will then start to trend upwards. We think by Q4 we¡¯ll be at 40 per cent of 2019 corporate hotel volumes in Europe."??

In the meantime, London hotels have been keeping their rates high because the availability of rooms is still at a premium while many properties remain closed, says Grover.

¡°I don¡¯t think it¡¯s going to be as simple as across the board rate rises or falls,¡± says Neil Ruth, COO of TapTrip.

¡°While some hotel rates may remain static and others may even rise, overall hotel costs will fall because the indications point to economy priced hotels recovering before luxury hotels.?

¡°After saving millions on travel over the last 12 months, most corporates will be keen to retain some of those savings, so it¡¯s going to be a while before business travellers will be back in four and five-star hotels.¡±

That is likely to impact their rates, he says, but suggests rates at the other end of the spectrum are likely to be in flux too.?

¡°Economy hotels are in a really interesting position right now. It¡¯s much easier for them to offer lower rates than it is for luxury hotels, because margins are directly linked to human resources. Economy hotels are also increasingly integrating contactless technology and services to reduce their costs even further.¡±

CTM's Munn also believes hotel rate movement will be specific to individual market demand. ¡°As face-to-face connectivity returns, markets that attract meetings and events business in 2021 and into 2022 will likely see rate increases sooner than those destinations that are historically dependent on ¡®transient¡¯ travel,¡± she says.

¡°Those ¡®transient¡¯ destinations which rely on international visitors, such as major capital cities, will likely see longer periods of softer average daily rate increase until international travel returns.¡±