After posting sharp rises in 2019, prices in the global travel industry are likely to slow in 2020, with flights rising a modest 1.2%, hotels rising only 1.3%, and rental car rates up 1% (in USD terms), according to the sixth annual Global Travel Forecast, published today by CWT and GBTA. While the global economy is doing well overall – and expected to grow a solid 3.6% in 2020 – a raft of uncertainties are set to put a damper on pricing.
“The risks and ambiguity have increased over the past few months – not least the threat of escalating trade wars, the impact of Brexit, possible oil supply shocks, and the growing likelihood of recession,” said Kurt Ekert, CWT’s President and CEO. “This forecast will help travel buyers make the right decisions in an increasingly challenging environment.”
India’s strong economic growth is fueling greater demand for business travel and driving up prices. Airfares are forecast to increase 5% (in local currency terms; 0% in USD terms), while hotel rates and ground transport prices are expected to climb 6.8% (1.8% in USD terms) and 4.5% (-0.5% in USD terms), respectively.
“Earlier this year we saw a spike in airfares after Jet Airways ceased its operations in April, so we’re already at a high base in 2019,” said Vishal Sinha, CEO, India, CWT. “With other airlines adding capacity to fill the vacuum, fares have begun to normalize and we expect that to continue next year. However, if the rupee weakens against the dollar, Indian carriers could be faced with bigger fuel bills and we might see that being passed on to travelers.”
“Hotel rates are also expected to rise, as the demand for rooms outpaces supply, especially in secondary cities like Chandigarh, Jaipur, and Ahmedabad. At the same time, the commercialization of mid-tier properties by players like Oyo is also pushing prices upwards.”
Released by the Global Business Travel Association, the voice of the global business travel industry, and CWT, the B2B4E travel management platform, the 2020 Global Travel Forecast uses data generated by CWT Solutions Group, to give an early look at the trends and developments that will shape the business travel industry in the year ahead.
“Technological advancements and an increasingly volatile economic and political landscape across the globe have changed the way today’s travel buyers need to do their jobs,” said Scott Solombrino, GBTA COO and Executive Director. “This annual forecast provides insights into the key drivers forcing these shifting priorities and gives a road map for travel buyers looking to plan their 2020 travel programs.”
Air: 1.3% Hotel: 1.3% Ground: 0.5%
Asia’s expansion has slowed down due to worsening US-China relations, tighter global financial conditions, and natural disasters. But the region remains the most dynamic, with steady GDP growth, benign inflation, and a sense of optimism.
Air: In Asia Pacific, the shutdown of India-based Jet Airways’ operations in April created a gap in the market for some key routes, and the reduced competition has meant higher airfares – but with other airlines adding capacity to fill the vacuum, fares have begun to normalize.
Hotel: Asia’s hospitality industry is booming with hotel investment volumes predicted to grow 15% year-on-year. Japan will host the Rugby World Cup later this year, and the Olympic and Paralympic Games in 2020, which will boost visitor numbers to the region. The Japanese hotel market is seeing a sharp increase in supply to accommodate the anticipated surge in visitors to the country during these events.
Ground: In China, steady demand and increased competition will hurt car suppliers. Across the Asia Pacific, ride-sharing is booming, with many companies allowing their employees to use these services for business travel. Providers like Didi Chuxing, Grab, Go-Jek, and Ola is pursuing aggressive expansion plans, while also taking steps to put more stringent safety measures in place.
Europe, Middle East & Africa
Eastern Europe: Air: -0.2% Hotel: 0.7% Ground: 1.5%
Western Europe: Air: 0.5% Hotel: 0.7% Ground: 0.5%
Middle East & Africa: Air: 2.2% Hotel: 2.5% Ground: 0.5%
The International Monetary Fund (IMF) expects steady growth, ranging from 0.3% in the Middle East to 1.6% in Europe, and 3.6% in Africa. Across Europe, labor unrest, climate change protests, global trade wars, rising oil prices and regional terrorism all have the potential to cause a slowdown.
Air: Istanbul’s new airport, one of the largest in the region, will likely change flows between Europe and Asia, providing an alternative stopover point for flights to China and Eastern Asia.
Hotel: Denmark and Egypt are both countries to watch, with hotel prices in Denmark expected to fall next year. On the other hand, Egypt’s rates are on the up – projected to rise by 4.7% – as its economy settles down after a period of unrest.
Ground: Eastern Europe’s franchise model for rental car businesses will see slightly higher growth of 1.5%, due to supply and demand in the region. Rail prices still vary greatly across EMEA due to inconsistent regulation.
Air: -1.6% Hotel: -0.4% Ground: 1%
Economic activity in Latin America continues to grow – albeit slower than anticipated – and is expected to rise by 2.5% in 2020. A volatile political and economic situation in some of the largest economies like Argentina, Mexico, and Brazil will hurt prospects.
Air: Given the long distances, a growing middle class, and low market penetration of air travel, there are many opportunities, and airlines are making the best of them. Since 2017, several new carriers have entered the market and low-cost carriers have gained a significant share in Brazil, Mexico, and Colombia.
Hotel: Following a steady decline in new hotels from a 2015-2016 peak, things may be picking up, with Mexico leading the way. More than 10 new corporate chain hotels opened in the region in the first quarter of 2019 with growth set to continue throughout 2020. Properties in Mexico and across Latin America are likely to continue to cut prices.
Ground: A slight increase for rental cars is driven by growing demand in Brazil, the region’s biggest economy. Rental car companies report a cultural shift towards sharing cars rather than owning them, and growth in tourism is also boosting the industry.
Air: 2.3% Hotel: 2.3% Ground: 1%
While the US economy is thriving, there is growing uncertainty, due to tariffs and trade wars. US GDP growth is set to slow to 2.1% in 2019, and slow further in 2020 and 2021, to 2% and 1.8%, respectively.
Air: Flight prices are expected to rise, reflecting the strong economies of the US and Canada. Most airlines are looking to ancillary fees as a way to stay competitive, so the costs of services like Wi-Fi and lounge access may be up for negotiation for corporate travelers.
Hotel: The hotel industry has seen slow, but steady growth. A gradual slowing will help rates return to normal, correcting the high prices seen in some of the major cities. Technology-focused areas – like San Francisco, San Jose, Seattle, and Vancouver – are still seeing growth. However, demand in these cities has been high for so long that prices have risen too far – and business travelers are staying further out in response.
Ground: Due to the nature of long-term contracts, we are unlikely to see any upward trends in pricing until 2021 or 2022. Traveler preferences are dictating a change in car preferences, shifting away from traditional sedans in favor of more versatile SUVs and trucks.
Indigo adds 14 new flights
IndiGo is further enhancing its customer experience with the launch of 14 new flights on its network. The country’s largest low-cost carrier has introduced three new routes and will operate its first flight between Chennai – Raipur,
Hyderabad – Gorakhpur, and Kolkata – Gorakhpur. The airline will also add flights on its existing routes
connecting, Chennai – Trivandrum, Bengaluru – Mangalore, Bengaluru – Udaipur, and Bengaluru – Chennai.
All new services will commence in April 2019.
William Boulter, Chief Commercial Officer, IndiGo said, said, “We are very excited to add 14 new flights to our network along with 3 new routes connecting Chennai, Raipur, and Gorakhpur. IndiGo has completed 12 years of successful operations in the India market as a low-cost carrier, and adding new flights to its network will further augment the connectivity that we aspire to provide to our customers. It is our constant endeavor to provide our customers on-time, courteous and hassle-free service, and an affordable flying experience always.”
3 new routes include:
- 1st flight between Chennai – Raipur
- 1st flight between Hyderabad – Gorakhpur
- 1st flight between Kolkata – Gorakhpur
Additional frequencies include:
- 2nd flight between Chennai – Trivandrum
- 2nd flight between Bengaluru – Udaipur
- 4th flight between Bengaluru – Mangalore
- 9th flight between Bengaluru – Chennai
Airline trends: Cautious optimism extends into 2019
The future looks bright for India’s aviation industry as business soothsayers predict impressive numbers in the next three years. According to the findings by India Brand Equity Foundation, the civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is currently considered the third largest domestic civil aviation market in the world. India is expected to become the world’s largest domestic civil aviation market in the next 10 to 15 years. India is also expected to displace the UK to become the third largest air passenger* market by 2025.
India’s passenger* traffic grew at 16.52 percent year on year to reach 308.75 million. It grew at a CAGR of 12.72 percent during FY06-FY18.
Domestic passenger traffic grew YoY by 18.28 percent to reach 243 million in FY18 and is expected to become 293.28 million in FY20E. International passenger grew YoY by 10.43 percent to reach 65.48 million in FY18 and traffic is expected to become 76 million in FY20E.
In FY18, domestic freight traffic stood at 1,213.06 million tonnes, while international freight traffic was at 2,143.97 million tonnes.
India’s domestic and international aircraft movements grew 14.40 percent YoY and 9.40 percent YoY to 1,886.63 thousand and 437.93 thousand during 2017-18, respectively.
During Apr-Aug 2018, passenger traffic in India stood at 141.77 million. Out of which domestic passenger traffic stood at 113.44 million while international traffic stood at 28.32 million. Total freight traffic handled in India stood at 1.49 million tonnes during the same time. As of May 2018, there are nearly 558 commercial aircraft in operation in India.
Meanwhile, the International Air Transport Association (IATA) forecasts the global airline industry net profit to be $35.5 billion in 2019, slightly ahead of the $32.3 billion expected net profit in 2018 (revised down from $33.8 billion forecast in June).
Lower oil prices and solid, albeit slower, economic growth (+3.1%) are extending the run of profits for the global airline industry after profitability was squeezed by rising costs in 2018. It is expected that 2019 will be the tenth year of profit and the fifth consecutive year where airlines deliver a return on capital that exceeds the industry’s cost of capital, creating value for its investors.
“We had expected that rising costs would weaken profitability in 2019. But the sharp fall in oil prices and solid GDP growth projections have provided a buffer. So we are cautiously optimistic that the run of solid value creation for investors will continue for at least another year. But there are downside risks as the economic and political environments remain volatile,” said Alexandre de Juniac, IATA’s Director General and CEO.
Performance Drivers in 2019
Economic Growth: GDP is forecast to expand by 3.1% in 2019 (marginally below the 3.2% expansion in 2018). This slower but still robust growth is the main driver of continued solid profitability. There are significant downside risks to growth from trade wars and political uncertainties such as with BREXIT, but the consensus view is that these factors will not offset the positive impetus from expansionary fiscal policy and growing business investment in major economies.
Fuel Costs: The 2019 industry outlook is based on an anticipated average oil price of $65/barrel, which is lower than the $73/barrel (Brent) experienced in 2018, following the increase in US oil output and rising oil inventories. This is a welcome relief for airlines which have seen jet fuel prices fall, albeit at a slower pace owing to the impact of low-sulfur environmental measures undertaken by the marine sector that have increased demand for diesel (which competes with jet fuel for refinery capacity). Nonetheless, jet fuel prices are expected to average $81.3/barrel in 2019, lower than the $87.6/barrel average for 2018). The full impact of this decline will be delayed due to heavy levels of hedging in some regions. Fuel is expected to account for 24.2% of the average airline’s operating costs (an increase from 23.5% forecast for 2018).
Labor: Total employment by airlines is expected to reach 2.9 million in 2019, up 2.2% on 2018. Wages are also rising, reflecting the tightness of labor markets, and it is expected that unit labor costs will increase by 2.1% in 2019 after a long period of stability. Aviation jobs are getting more productive. In 2019 we expect productivity to increase by 2.9% to 535,000 available tonne kilometers/employee.
Passenger: Passenger traffic (RPKs) is expected to grow 6% in 2019, which will outpace the forecast capacity (ASKs) increase of 5.8%, and remains above the 20-year trend growth rate. This, in turn, will increase load factors and support a 1.4% increase in yields (partially clawing back the 0.9% fall experienced in 2018). Passenger revenues, excluding ancillaries, are expected to reach $606 billion (up from $564 billion in 2018).
Cargo: The 3.7% annual increase in cargo tonnage to 65.9 million tonnes is the slowest pace since 2016, reflecting the weak world trade environment impacted by increasing protectionism. Cargo yields are expected to grow by 2.0%. This is well below the exceptional 10% yield growth in 2018. It does, however, continue the recent strengthening of the cargo business, since cost increases are lower. Overall cargo revenues are expected to reach $116.1 billion (up from $109.8 billion in 2018).
“Air travel has never been such a good deal for consumers. Not only are fares staying low, but the options for travelers are also expanding. Some 1,300 new direct links between cities were opened in 2018. And 250 million more journeys by air occurred in 2018 than in 2017,” said de Juniac.
APAC NET PROFIT
Asia-Pacific carriers are expected to report a $10.4 billion net profit in 2019 (up from $9.6 billion in 2018). The net profit per passenger is expected to be $6.15 (3.8% net margin). This is a region of diverse markets, some of which are seeing strong growth from new LCC entrants while others are very dependent on outbound cargo from key manufacturing centers. Cargo revenue growth has slowed from the strong performance of 2017 but remains positive for airlines in the region. Lower fuel costs, low levels of fuel hedging and strong regional economic growth are supporting profitability in 2019 in this region.
HIGHLIGHTS OF EXPECTED 2019 PERFORMANCE
- The return on invested capital is expected to be 8.6% (unchanged from 2018)
- The margin on net post-tax profits is expected to be 4.0% (basically unchanged from 3.9% in 2018)
- Overall industry revenues are expected to reach $885 billion (+7.7% on $821 billion in 2018)
- Passenger numbers are expected to reach 4.59 billion (up from 4.34 billion in 2018)
- Cargo tonnes carried are expected to reach 65.9 million (up from 63.7 million in 2018)
- Slower demand growth for both passenger traffic (+6.0% in 2019, +6.5% in 2018) and cargo (+3.7% in 2019, +4.1% in 2018)
- Average net profit per departing passenger of $7.75 ($7.45 in 2018)
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