Inflation in air fares is expected to run at around five per cent in 2005, but with increased opportunities for cost reductions and savings, along with proper management, companies should be able to avoid any significant increases in their air travel spend in the year ahead.

As 2004 comes to a close, this initial prediction comes from one of the world’s top business travel management companies, Carlson Wagonlit Travel, based on studies by its consulting arm CWT Solutions Group.

An increased use of ‘self-booking tools’ is predicted for 2005, with more companies booking online. And, recovery in the hotel sector will lead to growth, increases in occupancy – with some regional differences – and increases in average daily rates.

The use of SBTs, currently running at around three to five per cent across Europe, is likely to increase to around ten per cent.

The advent of more small to medium size companies (SMEs) booking online – and Carlson Wagonlit Travel’s Corporate Select has introduced online booking as part of its special range of services for SMEs – is set to boost this figure even more in 2006.

Adoption rates of SBTs tend to be linked to the culture of the company and the country – with the US leading the way. In the US around 31 per cent of transactions are processed online and this figure is expected to grow to around 60 per cent by 2007.

There is a definite north to south divide in Europe, with a higher adoption rate experienced in Scandinavian countries than in Spain and Italy for example. Whereas it is much harder to predict progress in Latin America and Asia Pacific, where there are still significant barriers to online transactions. The value of SBTs is not really recognized in these regions, mainly due to a combination of technical constraints and cheap labour costs.

With regard to hotels, the global hotel industry is enjoying a recovery in business and will continue to strengthen throughout 2005.

However it is somewhat of a mixed picture at regional and country level. The key areas for growth are expected to be the US and

Asia.

In the Europe, Middle East and Africa region (EMEA) there is a static supply of hotels and a distinct ‘country focus’. The UK market is

set to strengthen, with strong growth likely between 2005 and 2007. Spain is experiencing a generally weak demand, mainly due to the terrorist threat and Germany is now experiencing modest growth – although it is predicted that ‘it will be a long haul’ for it to return to the levels experienced in 2001.

The Asia Pacific region is likely to enjoy only a modest growth in the year ahead. There were however significant improvements in 2004 after an extremely tough 2003 - due in particular to the SARS crisis and the Bali bombing. The countries leading the recovery in the region are Japan, India and Australia, with the strongest performing cities set to be Delhi, Bangalore, Hong Kong and Sydney. It is becoming increasingly difficult to obtain rooms in some Indian cities.

When it comes to air, the business travel market, particularly in Europe, has become a true ‘fare market’ and this will really become evident in 2005. Although ‘negotiated fares’ are still a corporate reality, the drive for lower fares has led and will increasingly lead throughout 2005 to additional fare types forming part of the equation. There are now three additional fare options in Europe – those from Low Cost Carriers (LCCs), Dynamic Fares (lower fares from traditional carriers) and a new addition – lower fare options in long haul business class.

The savings achieved from LCCs and Dynamic Fares range from 35 per cent to 55 per cent. With the new fare types being offered on long haul routes in business class, there is a difference of 20 per cent between them – and all that is required in return is some additional flexibility in terms of advanced offered by Low Cost Carriers, the mainstream airlines now offer an increased number of cheaper fares in return for small constraints – such as booking a week to ten days in advance for the new long haul business class fares or, in the case of dynamic fares, non- refundable tickets.

LCCs and Dynamic fares are now also common across Latin America and Asia Pacific – with 25 LCCs across Asia, mainly in Singapore, Thailand and Indonesia, and carriers in Brazil and Mexico. Dynamic fares are driven by LCCs and they are also now on offer in both Australia and Canada.

There will not only be an increase in the variety of fare types and levels in 2005, but there will be additional complexity. For example, there will be constant changes route by route – caused by increased emphasis on yield control and competition.

The other major trend in 2005 will be the real use of price differences - country to country, and the use of one-way ticket combinations – an opportunity created by new IATA rules. This change will enable companies to make their purchasing decisions based on the most advantageous exchange rates and the standard of living of the country of origin. ‘A revolution’ is not predicted when the change of rules come in on 15 January, but each corporation may find some ‘real nuggets on certain routes’ and genuine opportunities.

Overall inflation of fares is expected to run at around five per cent, unless there is a significant drop in the price of jet fuel. But, all the opportunities for ‘cost reductions and savings’, should enable corporations who are managing their air travel well to maintain their

air travel spend for the year ahead.