Hotel pricing will rise faster than air fares in 2022 as business travel continues its recovery

30 November, 2021

Global travel pricing across air, ground, and hotels, is expected to increase in the next two years, primarily driven by increasing demand, capacity constraints, and travellers’ sustainability demands, plus increased labour and fuel costs, according to the seventh annual Global Business Travel Forecast published by CWT and the Global Business Travel Association (GBTA).  

The 2022 Global Business Travel Forecast, which uses anonymised data generated by B2B4E travel management platform CWT and global business travel industry organisation GBTA, alongside publicly available industry information, and econometric and statistical modelling developed by the Avrio Institute, highlights an increasing cost for travel, with rising prices anticipated in the year ahead.

GBTA CEO Suzanne Neufang says the forecast is designed "to help corporate travel buyers build and budget their 2022 travel programmes" in light of COVID-19, as it considers the macroeconomic factors that will affect pricing in 2022.

Business travel recovery is clearly already underway as the world begins to return to a more traditional pace of life. However, CWT CEO, Michelle McKinney Frymire, warns that while the best-case scenario for 2022 is for further recovery of business travel across all areas, “not all markets, nor all categories, will recover at the same pace”.

Continued recovery will spell growth for business travel

The global economy is expected to grow +5.9% in 2021, followed by +4.9 % in 2022, spelling “growth for business travel,” according to the report. However, as widely accepted there are several uncertainties that remain on the periphery that could influence the macroeconomic outlook and the global travel economy.

“Macroeconomic forces, government policy, and COVID protocols, will continue to impact future pricing more than ever before,” the report acknowledges. As with previous industry interruptions, many travellers won’t return immediately, and the business traveller “may find themselves in a price competition” with the leisure traveller – who is leading the recovery and willing to pay higher prices on key city routes and destinations, it says.

Even though macroeconomic challenges remain acute, global economy growth expectations across 2022 and 2023 will “help accelerate the recovery of business travel,” according to the report. But, factors including a pick-up in demand, capacity constraints, increased labour and fuel costs will “lead to higher prices globally” across air, hotel, and ground transportation.

On a positive note, despite these anticipated rises, business travel pricing, with the exception of ground transportation, is still unlikely to exceed 2019 pricing over the next two years.

Hotel prices will rise at double-digit rate in 2022 and 2023

After rising +3.5% in 2019, hotel prices fell -8.3% in 2020 and an additional -17.7% in 2021, with prices as of 3Q 2021 down from 2019 levels by approximately -25%, according to the report.

Although hotel prices are expected to rise +13% globally in 2022, followed by a further +10% in 2023, the report acknowledges “it will take some time” for a return to 2019 levels in many markets. As borders open for non-essential travel, occupancy rates will rise, “putting upwards pressure on pricing and 2022 will see a push in that direction,” it says.

Upscale hotels should see higher occupancy levels, and higher room rates, as business travel gains momentum. However, with higher global labour and operating costs and supply chain disruptions likely to continue, the reports notes the firming of hotel pricing to 2019 levels “may fluctuate” until these factors become more consistent.

Corporate meetings & events will ‘help impact hotel pricing’

It acknowledges that corporate meetings & events will “also help impact hotel pricing” with CWT Meetings & Events anticipating that the bulk of immediate meeting bookings will be small and regional. Virtual and hybrid meetings played a leading role in 2021, while the overall meeting size of live meetings dropped from an average of 42 attendees per meeting in 2019 and 2020, to an average of 24 attendees in 2021, according to its data.

The report suggests that many organisations appear to be choosing smaller regional meetings, as opposed to larger events involving travel at the current time, however, as restrictions lift, and pent-up demand leads to more people travelling for meetings, that looks set to change in 2022. Demand for meetings and events has increased +53% for the first half of 2022 from 2021, it says.

Air fare rises driven by decreasing airline profit margins

After rising +2.6% in 2019, air fares fell -3.1% in 2020 and a further -31% for business travellers, led by a -38% decline in premium class, followed by nearly a -19% decline in economy class tickets across 2021. However, air fares are now expected to rise again: up +3.3% in 2022 and 3.4% in 2023.

Airline capacity remains tight, and is unlikely to return to pre-pandemic levels until 2023, or 2024. As a result, business travellers “are competing for limited capacity with leisure travellers,” identifies the report: a trend that will “continue to exert pressure on airfare prices in 2022, as they move in unison with demand,” it says. “If demand increases faster than capacity returns, price increases could outpace these forecasted increases,” it warns.

Premium air fares will start picking-up in 2023

CWT and GBTA predict premium fares will start picking-up in 2023 as demand normalises, while economy fares, especially on domestic routes, will continue to benefit from strong gains in leisure traffic going into 2022.

“Domestic leisure destinations will continue to lead recovery in 2022, and, while urban centres with strong corporate traffic will take longer to recover, higher vaccination levels should strengthen business traveller confidence,” says the report

Higher oil prices increasing operating costs, and will continue to put “upward pressure on fares” as airlines seek to improve profitability metrics, and 2022 corporate travel policies will also be a factor in the recovery of air fare on corporate-heavy rates, notes the report.

Car rental prices will exceed pre-pandemic levels

The restricted supply of new vehicles, combined with a boost in demand for rental vehicles, will “drive higher price rises” in the ground transportation sector in the short- to medium-term, according to the report.

Global car rental prices fell -2% in 2020 and recovered +1.2% in 2021, it says, and pricing is expected to increase +3.9% in 2022, and an additional +3.0% in 2023, according to its estimates, taking levels up above those seen pre-pandemic.

Providers are looking to update their fleet “as a matter of urgency,” notes the report, but with a shortfall in the used car market and issues with global car manufacturing due to shortages of semiconductor computer chips, fleets are “unlikely” to be fully replenished until 2023, it says.

Offer of electric vehicles ‘pivotal’ over the next three years

The offer of electric vehicles is also going to be “pivotal” over the next three years, with sustainability a key priority for employers and employees alike, according to the report.

Some providers are already making in-roads towards electrifying their fleet, building their own charging infrastructure, and adding the booking of hybrid and e-vehicles to transfer and limousine services to account for customer’s changing requests.

Rail an increasing substitute for car rental and short-haul flying

The report also acknowledges that climate-conscious travellers may also choose rail over car rental (and short-haul flights) in increasing numbers. France has already moved to ban domestic flights on routes that can be travelled by train within two-and-a-half hours.

CWT and GBTA see returning business travellers being more conscious of their end-to-end travel time – plus the ability to work on the train which is obviously not possible when renting a vehicle – further boosting rail substitution.