by Michael J. Shapiro | December 01, 2012
Prognosticators for M&C's annual forecast really had their work cut out for them this year, their efforts further complicated by the U.S. elections and continuing economic uncertainty. Just how the Obama administration and Congress deal with the "fiscal cliff" likely will affect the industry as a whole.

At least, notes U.S. Travel Association COO Geoff Freeman, the government should have the industry's best interests at heart. "Regardless of which side of the aisle you're on," he notes, "the current administration has been supportive of our industry. This bodes well."

Generally speaking, analysts foresee continued improvement for travel suppliers, though in most cases at a somewhat slower pace than they have enjoyed in recent years. Modest hikes are likely in terms of hotel rates and airfare, with some exceptions. In Latin America, for example, costs could skyrocket in the strongest markets, principally Brazil. In the following pages, we take a closer look at industry segments.

Hotels: Demand Pushes Occupancy, Rates Up  
The U.S. lodging market enjoyed record levels of demand in the first half of 2012, with those high occupancy gains responsible for surging revenue. According to hotel data provider STR, though, we're now seeing a shift, in which hotelier revenue per available room increasingly is driven by rate growth as opposed to occupancy. And that trend likely will mean moderate rate increases in 2013 and beyond. "We anticipate room rates to reach 2008 levels, not factoring for inflation," noted STR president Amanda Hite when the company unveiled its forecast in September.

STR projects a 4.4 percent rise in average daily rate for this year and an additional 4.6 percent gain (to $111.01) in 2013. Occupancy, projected to rise 2.1 percent this year, should flatten out to just an 0.3 percent increase in 2013.

The inherent challenge in such projections is the big question mark of the economy, both here and abroad. For example, while PKF Hospitality Research's 2013 forecast calls for a slightly more robust 5.2 percent rise in average daily rate, 1.0 percent increase in occupancy and 6.1 percent RevPAR growth, the consultancy examined other possibilities, too.

One such scenario PKF-HR considered, in its October Hotel Horizons Market Update podcast, is dubbed the "Fiscal Cliff," in which the U.S. falls into another recession next spring. This would result in occupancy declining by a projected 1.8 percent in 2013, and average daily rate increasing by a paltry 1.9 percent. The other scenario -- "Kick the Cliff," in which there are no changes to taxes or spending -- would actually see occupancy rise by 2.1 percent, and average daily rate increase by 4.9 percent, slightly less than in the more expected case.

Proceeding with caution. Economic uncertainties mean planners and travel buyers have been reluctant to make too many long-term commitments thus far. "In North America, we're seeing that the travel buyer is very cautious because of variables such as the economic conditions in Europe," notes Joel Wartgow, senior director of Carlson Wagonlit Travel Solutions Group, Americas. "And because of that, we're expecting very moderate increases in prices for 2013."

American Express Global Business Travel, for its part, expects upper-range hotels in North America to see more robust increases (Click here for "How Room Rates Will Rise" chart).

Differences by destination. As usual, rate increases will vary considerably depending on location. According to Ovation Travel Group, proposed 2013 hotel rate increases from hotels in major global metropolitan areas average 6 percent, based on pre-negotiation proposals.

San Francisco rate-increase proposals top all regions, at 12 percent; Boston and Palo Alto, Calif., properties are looking for 8 percent increases. New York City, Los Angeles and Atlanta rate proposals are about 5 percent higher than this year's, while San Diego looks like a bargain with a 1 percent rate-hike proposal.

Among international destinations, London and Tokyo hotels are seeking the industry-average increase of 6 percent, according to Ovation, while in Paris, rate increases should be closer to 3 percent. American Express expects conservative increases in European hotel rates across the continent, despite the low supply growth due to the economic crisis.

According to CWT's Meetings & Events supplement to its 2013 Travel Pricing Forecast, European meeting costs will remain flat or rise by 2 percent or less next year.

Latin boom. In Latin America, lodging costs could skyrocket in 2013, depending on the country. Per-attendee, per-day meeting-cost increases will be the highest in the world, according to the CWT Forecast M&E supplement, at 9.8 to 12.2 percent. The upshot, writes Tony Wagner, vice president of CWT Meetings & Events in the Americas, is that "group sizes may decrease in the 5-9 percent range, and meeting durations will shrink to offset rate increases."

Hotel rate increases should be highest in Brazil, where CWT expects spikes of 13.3 to 14.8 percent in the first half of the year and 13.1 to 14.5 percent in the second half. CWT's forecast also calls for significant rate growth in Chile, Argentina, Colombia and Mexico. Brazil's rate growth, in particular, will be driven by surging demand that is expected to outpace supply growth for the next few years.

According to CWT's Tony Wagner, "Organizations holding meetings in Latin America do not tend to book far in advance. However, planners may need to adjust their behavior in order to secure space or risk being turned away at the last minute by full hotels and other facilities."

By Michael J. Shapiro