Air fares, hotel prices tipped to climb: survey

There were no commercial passenger jet fatalities in 2017 making it the safest year for aviation...
International Air Transport Association figures show jet fuel prices up more than 40% in Asia and Oceania during the past year. Photo: Getty Images

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 climb 7.5% (against a global average of 2.6%) and room rates are predicted to soar by 11.8% (compared to 3.7%), 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% overall and hotel rates up 3.7%.

Global growth hit a cyclical bottom in 2016, but economic prospects have been steadily improving since fueling 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% in 2018, and further growth of 3.4% 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 (whose staff often travel in premium cabins) 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, putting even more pressure on airlines.

International Air Transport Association figures show jet fuel prices up more than 40% 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% and fuel costs just over 20% although fuel makes up a bigger proportion of expenses for airlines travelling long haul routes to more remote destinations such as 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% of the market - increased average domestic published fares by 5.1% last year.

The FCM report estimated that these fares will rise by a further 4-5% across the top routes measured.

On trans-Tasman routes, economy class published airfares across all airlines increased 2.9% and business class by 3.7% during 2017, and there was likely to be a 3-4% increase on key routes in both classes for the year ahead.

Last year in business class, there was an 18.5% 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 fueling demand by business travellers.

The report notes the risk posed by trade tension but says the global economic growth will hit 3.4% in 2018, and further growth of 3.4% is forecast in 2019.

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% in 2019.

Inflation has been subdued, but looking ahead, it may rise in Asia with the increase in commodity prices. The sheer growth in tourism and business travel, particularly coming from China (now the world's largest corporate travel market and New Zealand's second biggest source of visitors), 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.''
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.

''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.

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