2015 Corporate Travel Index: U.S. Hotel And Dining Costs Drive Business Travel Per Diem Increase

March 16, 2015 – 02:40 PM ET
By Julie Sickel

As corporate travel demand rises within the United States, the combined daily cost of renting cars, staying in hotels and eating three meals a day looks as though it will follow suit in the coming year, much as the data in BTN’s Corporate Travel Index show occurred in 2014.

Hotels are poised to lead the way for rate hikes, capitalizing on high demand and below-average supply growth. With both corporate spending and transaction volume up year over year in the dining sector, restaurants, too, will enjoy improved pricing power.

Rental car companies, on the other hand, are struggling to raise rates in a highly competitive market. Though some agencies predict 2015 may be the year car rental suppliers successfully hike pricing, CTI data indicates 2014 generally was another flat year.

Add all those costs together, and San Francisco, with a per-diem rate of $509.50, for the second straight year topped the 99 other U.S. markets in the CTI as the most expensive city in which to conduct a business trip. That compares with an overall average U.S. daily cost of $306.91.

Hotels Push for Hikes

According to the Index, daily corporate hotel expenses across 100 U.S. markets increased about 3.5 percent year over year. Multiple markets experienced double-digit percentage growth in average daily rate, but San Francisco beat out second-place New York by a significant margin. Other top-five markets for daily hotel expenses included Boston, Washington, D.C., and Honolulu.

The connecting thread across the markets, and particularly the CTI top five, is the combination of rising demand across all segments and a fairly stagnant supply rate, especially among full-service hotels.

PricewaterhouseCoopers in a January 2015 report confirmed the trend, noting that occupancy in 2015 should reach levels not seen since 1984, while supply is expected to increase only 1.5 percent year over year, below the long-term average of 1.9 percent.

In its 2015 forecast for business travel, Advito, the consulting arm of BCD Travel, projected that U.S. hoteliers would seek to take advantage of favorable conditions by hiking corporate rates 6 percent to 8 percent year over year. Large hotel companies made a similar attempt in 2014, seeking rate increases of 7 percent or 8 percent, but most achieved only 3 percent to 5 percent increases outside the highest-demand cities. Advito attributed these lower increases to a lack of confidence in the economic recovery and growing competition from midprice chains.

American Express Global Business Travel in its 2015 forecast also argued that increased competition from midprice hotels could mitigate increases at higher-end properties. It did project price increases in the 3 percent to 7 percent range, noting, “The degree of these increases will vary significantly city to city.”

TCG Consulting in its 2015 global forecast predicted a similar U.S. ADR increase of 4 percent.

Meanwhile, during a recent earnings call, Hilton Worldwide president and CEO Christopher Nassetta spoke confidently to investors when asked about corporate negotiations. “Frankly, I think it’s becoming more of a seller’s market than a buyer’s market,” he said.

Starwood Hotels & Resorts in a recent earnings call confirmed that corporate-rate increases in 60 percent of its 2015 bids in were in the “mid-single digits on average.”

Marriott International reported similar year-over-year increases of 5 percent to 6 percent on average. CFO and executive vice president Carl Burquist said Marriott is bidding on fewer accounts “in order to increase available inventory for higher-rated retail business.”

Car Rental Firms Yearn For Increases

Though rental car companies are itching to grow rates after a spell of flat or decreased pricing, 2014 doesn’t appear to have been their year in the United States.

The average paid corporate daily car rental rates in the CTI’s 100 U.S. markets among BCD Travel clients decreased about 3 percent—1 percent if accounting for taxes and fees. At an average daily cost of $46.89, rental car spending makes up 15 percent of on-the-ground costs for a business trip.

Consolidation has continued to create challenges for industry leaders, which are forced to manage excess inventory as used-car pricing remains weak.

Another factor forcing down pricing power, in spite of growing demand, is competition among the three major suppliers: The Hertz Corp., Enterprise Holdings and Avis Budget Group, which make up approximately 90 percent of the U.S. car rental industry.

Enabled by its lower cost structure, Enterprise continues to undercut its competitors’ attempts to raise rates, according to Advito. But Enterprise may not be able to keep up its current pattern.

“Since Enterprise Holdings is not making massive marketshare gains, it may change strategy by seeking to boost profits by raising rates and improving yield instead,” according to Advito’s forecast. “While it may not yet be ready to compete on product instead of price, it is getting closer.”

Advito has seen no solid evidence that any car rental firms are raising corporate rates but forecasts that any increases would stay within the 2 percent to 4 percent range.

Carlson Wagonlit Travel predicted rental rates would remain flat in 2015 but noted that a steady reduction of supply and more effective vehicle utilization could result in pricing power down the road.

During a recent earnings call, Avis Budget Group reported full-year commercial and overall 2014 year-over-year price increases of 2 percent each in North America. The company also disclosed that 75 percent of corporate contracts that were renewed in 2014 maintained pricing levels or included rate increases.

Avis Budget chairman and CEO Ronald Nelson said the company would continue to push pricing in 2015.

“All the signals from our competitors are that they’re moving to raise prices. They have the same cost pressures that we do,” Nelson said, adding that Avis Budget since the start of 2015 had increased pricing four times, and twice the rate pushes were met with “unprecedented adoption rates” from competitors.

American Express, meanwhile, predicted corporate buyers would push back against increases and generally succeed, with car rental base rates growing 0.5 percent to 1 percent at most.

Hertz, still wrapping up a review of its financial statements for the past three years, did not officially report earnings for 2014. However, in an update of operating results, the company reported fairly flat 2014 revenue across the board.

Nelson, referencing an unnamed competitor in “financial disarray”—Hertz, probably—said that once that firm solves its financial issues, the industrywide pricing would improve.

Restaurants Maintain Pricing Strength

Dining makes up more than 31 percent of daily on-the-ground business costs, according to CTI data, and the average U.S. cost to eat three meals a day was $96.89.

Honolulu, dependent on imported goods, topped this year’s list as the priciest city for business dining with a total daily cost of $129.25. Trailing just behind were New York and Seattle.

Dinova, a provider of dining rebate programs, witnessed a 5.6 percent year-over-year increase in 2014 overall restaurant spending by its clients. Additionally, transaction volume increased 3.6 percent last year, illustrating that employees are eating out more often. The average per-check dining spend among Dinova’s clients in 2014 increased about 2 percent year over year to $53.44.

In its 2015 corporate dining spend forecast, Dinova predicted year-over-year client spend increases between 5 percent and 8.5 percent, and a transaction volume increase of 5.5 percent.

“The average check itself we don’t anticipate being a major cause for corporate programs to see their dining bill go up,” said a Dinova spokesman. “It’s more the frequency that’s going to drive the overall dining spend up for corporations.”

Dinova anticipates the average 2015 per-check dining cost will increase about 2 percent to 3 percent year over year, costing between $54.50 and $55.04.

The National Restaurant Association projects 3.8 percent growth in overall restaurant sales in the United States during 2015. However, according to National Restaurant Association data, wholesale food prices rose about 25 percent during the past five years and year-over-year pricing jumped more than 5 percent in 2014.

“The wholesale food cost levels of many key commodities are putting significant pressure on many restaurateurs’ bottom lines,” National Restaurant Association senior vice president of research Hudson Riehle said in a statement. He added that price inflation during the next year is expected to let up on certain major commodities, such as pork and dairy.

“Slowing price growth is obviously good news,” Riehle said, “but it doesn’t mean that food costs will be back down to what they were before those increases started.”

This report originally appeared in the March 16, 2015, issue of Business Travel News.

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