Airfares and hotel rates head in opposite directions in Q4.
Until the industry has fully recovered from the COVID pandemic and business travel has several quarters of regular activity, even most algorithms will have trouble looking into the future to make accurate predictions. To combat this uncertainty, we’ve decided to produce a quarterly travel price index report for air and hotel.
Market snapshot: Asia
We’re anticipating dramatic airfare decreases in Asia across the board in Q4, including domestic, intra-Asia and intercontinental routes. This shift represents a return to normality following an exceptional period with sky-rocketing fares in Q3. The acceleration in travel recovery from Asia has had a significant impact on airfares to all destinations and the full reopening of China, Japan and all other Asian markets has enabled airlines to absorb pent-up demand, resulting in fare decreases as we head into the last 3 months of the year. Hotel rates in the region are following a similar downward trend, despite the fact that rates are trending up in nearly every other region. Several markets, like Hong Kong, Thailand, and South Korea are showing significant increase in BAR compared to 2022. However, most markets in Asia have not met 2022 occupancy levels to date.
What is an index?
As a quick reminder, it’s important to note that this report is not a forecast. A forecast uses published rates and fares, along with other socioeconomic data and world events to predict how rates and fares will change. This is an index. An index quantifies how published rates and fares are changing and avoids making predictions for long-term trends.
The Advito travel price index looks at actual, historical pricing data and compares it with future shopping data for the remainder of the quarter to analyze variance versus the previous period and the trend versus the previous quarter. Our first index was released in Q4 2022, and after a very positive response from clients looking to understand pricing trends in the short- to medium-term, we have produced similar reports for each quarter of this year.
The full report (currently only available for Advito clients) features global trends, a breakdown of each region, as well as travel sector types. In the air analysis, we look at both business and economy class fares, as well as intercontinental and regional travel. In the hotel report, we’re analyzing the variance in average daily rates between Q4 2022 and Q4 2023. The result is a reliable report based on published airfares and hotel rates that does not make long-term predictions.
One of the most challenging parts of being a travel manager today is understanding how the constant change in the industry affects your program. Our air and hotel experts have used the travel price index to come up with some key focus areas for travel managers to address as we head into Winter.
Air program focus areas
There are several areas to focus on in your air program to ensure that it is set up for success heading into the last three months of 2023. Now is the time to look for savings opportunities in your air program. Airline network recovery is increasing carrier competition. Identify where there are new opportunities to increase discount coverage and determine where you’ll have strong negotiation power with airlines. Take note of significant changes to airline distribution and assess the impact on your air spend to choose the content strategy and mix of carriers that works for you. Lastly, focus on sustainability when considering your preferred carrier mix. Make a supplier assessment by factoring in airline fleet efficiency, investment in SAF, validation of science-based targets, relevant offsetting approach and any other sustainable initiatives.
Hotel program focus areas
In your managed hotel program, it’s time to assess the value of your preferred hotel program. Building a best-in-class program is getting tougher and tougher. It’s time to really dig into your preferred program’s performance to determine the right sourcing strategy heading into 2024. Look at your data, understand market conditions, and align with internal stakeholders. Most importantly, look at metrics that are true indicators of good performance, like rate availability and average booked rate (ABR) to average negotiated rate (ANR) variance. On average, we find that between 30-60% of hotels are underperforming for our clients. So, before you head into your next sourcing engagement, think about the factors that make a property the best fit for your organization, and only include properties that meet those criteria.
To combat rate volatility, you can time your sourcing engagement differently. Think about shifting to an off-season sourcing strategy to give you more visibility into your travel pattern and forecast. Most importantly, once your new program is in place, don’t set it and forget it. Dynamically monitoring your program can give you insights into things like emerging markets where you might need coverage, or hotels that are not performing. Don’t wait until the next souring season to make changes. You can and should ensure that your program is performing to its potential throughout the year.
Interested in the full Advito Travel Price Index Report? Reach out to your Consultant today. Not an Advito client? Get in touch with us, we’re ready to help you elevate your travel program.