NZ prices tipped to take off
Business travellers face huge hikes in costs for air travel and accommodation
Air fares and hotel prices in New Zealand are forecast to climb for business travellers at nearly three times the global average next year. The cost of air travel is forecast to rise 7.5 per cent (against a global average of 2.6 per cent) and room rates are predicted to soar by 11.8 per cent (compared to 3.7 per cent), according to research by the Global Business Travel Association and Carlson Wagonlit Travel (CWT), a global travel management company.
The New Zealand price rises far outstrip the Asia-Pacific region where air fares are forecast to go up 2.6 per cent overall and hotel rates up 3.7 per cent.
Global growth hit a cyclical bottom in 2016, but economic prospects have been improving, fuelling demand by business travellers for flights and hotels.
The report notes the risk posed by trade tension but says the global economic growth will hit 3.4 per cent in 2018, and further growth of 3.4 per cent is forecast in 2019.
Early signs indicate strong demand for business travel as economic growth and corporate travel are tightly correlated.
As oil prices continue to climb from the lows of 2016, this could fuel demand from a revitalised energy sector and traditionally a key driver of air travel. However, this increases costs for airlines, which are passed on to passengers.
According to the United States Energy Information Administration, jet fuel demand growth will outpace that of other petroleum products. International Air Transport Association figures show jet fuel prices up more than 40 per cent in Asia and Oceania during the past year. Airlines were also feeling pressure from rising labour costs with pilots in hot demand. Across the industry, labour costs are estimated at 31 per cent and fuel costs just over 20 per cent although fuel makes up a bigger proportion of expenses for airlines travelling long haul routes such as to New Zealand.
The CWT report echoes one done for Flight Centre’s corporate travel arm, FCM, which revealed that on domestic routes, Air New Zealand — which has 81 per cent of the market — increased average domestic published fares by 5.1 per cent last year. The FCM report estimated these fares will rise by a further 4-5 per cent across the top routes measured.
On transtasman routes, economy class published airfares across all airlines increased 2.9 per cent and business class by 3.7 per cent during 2017, and there was likely to be a 3-4 per cent increase on key routes in both classes for the year ahead.
Last year in business class, there was an 18.5 per cent increase in fares across the top 10 routes studied.
The CWT report finds that global growth hit a cyclical bottom in 2016, but economic prospects have been steadily improving since fuelling demand by business travellers.
The report says the Asia Pacific region (APAC) continues to be the most dynamic in the global economy.
According to the International Monetary Fund, Asia growth is forecast at 5.6 per cent in 2019.
The sheer growth in tourism and business travel, particularly coming from China, will have an “overwhelming” effect on supply and demand dynamics across
APAC.
“As pressure increases on accommodation providers, corporate travel buyers will face challenges in their ability to secure rooms at their preferred properties, much less at their preferred rates,” the report says.
“While this is helping to keep prices buoyant, we expect prices will rise as the pace of demand growth is currently outstripping supply growth. In aviation, one of the challenges will be around capacity — both in terms of seat availability and the infrastructure in many of the region’s airports, the report says.