CWT study: Energy industry influences travel costs
Upswing in the energy industry means higher travel costs, according to the Energy, Resources and Marine Forecast 2018 study. According to the CWT study, tariffs and hotel rates at key destinations for the energy industry will increase in the coming year.
Energy industry deals are also affecting travel costs. That's the prediction of CWT Energy, Resources & Marine, the specialist division of global travel management company Carlson Wagonlit Travel. Business in the energy industry is showing signs of recovery. Nevertheless, one has to take a more nuanced view of this finding when it comes to specific continents and travel conditions over the next 18 months.
Costs in the energy industry
"Companies in the energy sector are finally able to operate at a profit, despite the ongoing low price of oil," says Raphael Pasdeloup, senior vice president of CWT Energy, Resources & Marine. "Investments are increasing, especially within supply chains. But as business grows, energy travel prices will rise, which means rising costs must be managed accordingly."
According to the International Monetary Fund, global gross domestic product will grow by 3.6 percent in the coming year. Together with advantageous exchange rates (against the US dollar) in many countries dependent on the energy industry, this is driving up prices.
Companies working in remote areas, for example, would have to contend with more expensive airline connections and hotel fees, reversing the trend of past years.
Travel in the energy industry - recommendations
The forecast identifies four main areas where companies can manage spending to address external, volatile and unpredictable growth factors:
- Preparation - This starts with unit cost optimization and better capacity utilization.
- Robust travel policies - based on cost-effective agreements, especially with the hotel industry.
- Technology - Software tools help manage the entire travel process.
- Safety/risk optimizations can improve previous precautions (but employee health needs constant reassessment).
Regional and local variations
Although an overall increase in travel costs is expected around the world in 2018, there are regional and local variations for the energy industry.
Europe, Middle East and Africa
For such a broad and diverse region, it is not surprising that growth rates differ significantly between countries. Overall, hotel costs and capacity are expected to grow strongly in Europe, but much more flatly in the Middle East and Africa.
Hotel prices in Stavanger, Norway, are expected to rise by 11.5 percent next year due to increasing oil production. Because of the oil industry as well as tourism, especially from China, international arrivals will grow at double-digit rates. A similar pattern is emerging for airfares. Strong growth is emerging for Western and Eastern Europe, while moderate growth is expected in Africa.
North America
In North America, demand for hotels has leveled off since mid-summer 2016, yet supply is expected to continue to grow steadily over the course of 2018. For Canada, we expect slightly stronger growth for the hotel market. For example, Calgary's hotel rate is forecast to increase by 3.8 percent in 2018.
In light of the devastating effects of Hurricane Harvey, uncertainty characterizes the city of Houston. Despite being one of the most important centers of energy supply in the region, it continues to face the challenge of low oil prices - and low hotel occupancy rates of just over 60 percent. Hotel rates in Houston in 2018 are forecast to decline 2.2 percent.
The forecast expects discontinued air service to oil-producing regions to reopen as the market situation improves. Houston is likely to be among the main beneficiaries, resulting in a two percent increase in airfares. Other cities are expected to benefit, for example Chicago with its strong competition for domestic flights or Los Angeles with strong supply of international flights.
Latin America
The hotel market in South America is still very fragmented, with stable competition from a large number of brands and from independent players. Rio de Janeiro has an oversupply of hotel capacity after the World Cup and the 2016 Summer Olympics, which will cause rates to fall by 3.8 percent.
The region's low-cost flight capacity will grow as Brazilian airline GOL expands its fleet.
Also visible is the unbundling of airfares - airlines charge a base price for seat reservations and separate additional fees for services such as checked baggage and meals. This results in lower ticket prices overall, but together with the additional charges, the final prices of overall travel are unlikely to decrease or even increase.
Asia/Pacific
Energy industry centers in Asia Pacific have all felt - or are still feeling - the effects of particularly bad years. Some key destinations, such as Mumbai, Singapore and Tokyo, are recovering, while others, like Perth, are still struggling.
In China and India, increases in airfares and hotel rates are inevitable - the macroeconomics show a steady growth in domestic demand. Indeed, if demand remains unchanged, capacity problems are on the horizon. At the same time, airlines are evolving their business models and governments are trying to manage the market to increase capacity to meet demand. Low-cost carriers will also play a larger role for business travel through route expansion and the provision of premium cabins.
Nevertheless, growth in airfares is emerging for the region as a whole. With the strongest increase for Mumbai (7.7 percent), Jakarta (7.0 percent) and Manila (6.0 percent).
The CWT study on the situation, Respectively Travel Costs in Australia: "With the recovery of mining, there will be pressure on certain air routes, especially in Australia. Companies have a legal obligation to minimize impacts on their surrounding communities. That also means making sure there is enough air service at a reasonable price, even if the mining industry books every available seat."
About the method
The forecasts of the "2018 Energy, Resources and Marine Forecast" are based on:
- a statistical model developed by the market and economic research company Rockport Analytics, which calculates future price references based on price data from the recent past;
- the market-specific expertise and extensive travel industry knowledge of CWT Energy, Resources & Marine and CWT Solutions Group employees around the world;
- macroeconomic information from International Monetary Fund Research and other sources as indicated.
