Hotels, airlines adapt to tight corporate travel budgets (page 1 of 2)

As the downturn took hold many firms across the globe imposed travel restrictions on their employees as part of efforts to trim corporate budgets. Employees were increasingly told to economise while travelling and use video or teleconferencing rather than visit clients in person.

Those wishing to travel on business typically were required to provide more evidence as to why the trip was necessary and how it would benefit the organisation's bottom line. As a result, business travellers became more price conscious and are now savvier about finding deals.

Low-cost options

At the same time, the composition of the hotel inventory was changing in the Middle East, as more regionally and internationally branded economy and mid-scale brands entered the market.

With a wider array of options to choose from, and tighter budget restrictions in place, corporate travellers were increasingly trading down from upscale to more mid-scale brands, according to Paul Arnold, Ernst & Young's Head of Transaction Real Estate Advisory Services Group - Middle East.

Hotels in Dubai, which enjoyed some the some of the highest room rates in the world in 2008, suffered a 35% drop in revenue per available room (revPAR) in 2009, due in part to the slowdown in corporate travel. Dubai's meetings and conference sector also was impacted as the emirate became too expensive for some exhibitions, he noted.

In response to the downturn the big hotel chains stepped up their loyalty programmes in an effort to hang onto their customers and at least encourage them to return to properties within their portfolios. At the upper end of the luxury scale, five-star properties focussed on providing more value-added services, such as free breakfast, airport transfers, and wireless access.

And while hotels also were forced to cut back on their rates, they have been trying to maintain their rate integrity as much as possible, so that when demand recovers they will be in a stronger position and their brand image will remain intact, he noted.

Still, average room rates in the emirate continued to fall in the first seven months of this year, with an approximate 12% decline through July 2010 compared to the same period last year, Arnold noted.

New competition

Meanwhile, another trend that has had a huge impact on business travel in the Middle East this year has been the emergence of low-cost carriers, says Bill Horsley, General Manager of Al Futtaim Travel in Dubai. Many middle managers and sales people have opted to use these airlines, he said, creating new competition that caused some carriers in the region to 'panic' and bring their fares down to 'ridiculous' levels.

'Movements were not impacted, but revenues in some cases fell up to 50% because of discounting. The only way you could get those revenues back was by doubling passengers, but that didn't happen,' he said.

The region's big three carriers (Emirates, Etihad, Qatar Airways) did not reduce their fares as much as the other carriers, yet were able to 'maintain their level of business and are doing quite well', he noted. Still, the downturn forced the big carriers to scale down their capacity, and that has enabled the low-cost carriers to come in and take some of that business, he argued.

'The big carriers are losing on their back end (coach class), so they are focusing on their fares in business. That's why they are working to retain their level of supremacy in the corporate world,' he said.