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Fuelling growth 

This bite sized version of the CWT Energy, Resource and Marine forecast gives you a snapshot of the key sectors and trends that will affect travel rates next year

 

No one can deny that these are financially challenging times, worldwide. A sustained decline in oil prices since 2014 has had a profound impact in commodities, other markets and industries, and the overall economy.

 

Americas – Uncertainty abounds

Although Brazil’s recession has been less severe than expected, with positive growth possible in 2017 despite lingering political uncertainties, oil prices continue to be stagnant. Improved demand in the overall economy will likely generate inflation between two and three per cent in North America. Meanwhile, inflation is expected to reach over 10 per cent in Venezuela and Colombia, primarily due to devalued currency. Conservative clients are planning for a rebound in business, and so their travel programmes, in mid-2017.

 

Western Canada, which had seen the highest hotel rate growth during the past three years, is expected to see flat or even decreasing rates, due to lower demand from the oil and gas industry. However, considering the combined Marriott/Starwood properties in North America, hotel consolidation may boost rates in cities where they are dominant. For Latin America, two per cent price inflation is projected, driven by Venezuela and economic recession, low commodity prices and high inflation.

 

 

Asia Pacific – Over supply to decrease some rates

First quarter activity in Japan was slightly better than expected, yet domestic demand remains weak. In China, the near-term outlook has improved due to policy support measures including increased infrastructure spending, accelerated credit growth, and benchmark lending rates that were cut five times in 2015.

 

In countries such as Indonesia, airfares will remain flat due to airlines’ overcapacity combined with low oil prices. Generally, markets in Asia have significant competition keeping prices in check. In Australia, fares are expected to increase by one to two per cent in economy cabin as travellers are shifting more and more from business to economy class. The recent downturn in Western Australia’s mining industry is forcing local clients to cut travel costs as well, causing international travel to slow and impacting pricing in a favourable way for buyers.

 

Hotel rates are expected to decrease in Indonesia due to high supply versus petroleum/oil performance. The average room rate in India is also forecast to decrease for 2017 due to an overbuild situation in key markets and related high supply/low occupancy rates.

 

In Perth, Australia, room rates are declining given the slowdown in the mining sector. In Sydney and Melbourne, however, increased tourism is enabling upward pressure.

 

 

Europe, Middle East and Africa – Inventory growth outpaces demand

In the Euro area, Q1 growth was higher than expected at two point two per cent, reflecting strong domestic demand, including some rebound in investment. (Yet growth was revised – zero point two per cent given the United Kingdom’s Brexit referendum result and its potential impact on consumer and business confidence.)

 

Declines in excess oil supply are attributed to both a slowdown in non-OPEC production and supply disruptions. Growth projections were revised down substantially in sub-Saharan Africa, reflecting challenging macroeconomic conditions in its largest economies.

 

In the Middle East, oil exporters have benefitted from the recent modest recovery in oil prices while continuing their fiscal consolidation in response to structurally lower oil revenues.

 

Airfares are widely flat in Europe, attributed to oil prices that have fallen by more than 50 per cent and jet fuel by almost 60 per cent. That said, economies of some key markets are doing well enough to allow for a price increase despite decreased travel by ERM clients, who remain focused on essential travel only.

 

For EMEA destinations heavily reliant on the oil and gas industry, 2017 hotel rates will clearly be impacted by the oil industry’s ongoing slump or eventual rebound.

 

Mixed fortunes - Overview by sector

Oil prices will grow less than initially expected in 2017 as climate and economic issues continue. Global oil demand is expected to be one point two million barrels per day next year, down from the one point four million barrels per day in 2016 according to an August update from the International Energy Agency. Despite soft pricing, oil supply has increased recently, with both OPED and non-OPEC countries increasing output.

The World Bank downgraded its 2016 global growth forecast in June citing concerns over emerging markets and developing economies that have struggled to adapt to lower oil prices for their oil and key commodity exports. Stockpiles are elevated per earlier large investments, notably iron ore in Australia, copper in Peru, and aluminium in China.

In early September, Hanjin Shipping Co, the World’s largest shipping container operator, filed for bankruptcy and announced it would expand court protection to 43 jurisdictions including Canada, Germany, the US and the UK. The filing prompted spikes in spot shipping rates as shipping companies cited scarce capacity on trans-Pacific routes.

China’s economic slowdown is impacting demand for commodities which in turn is affecting dry bulk seaborne transportation demand.

During 2015, the global fishery and aquaculture sector sustained growth in overall production and consumption, yet trade of fish and fishery products declined due to economic contractions in key markets, exchange rates and lower fish prices.

These energy sources are attracting more attention following the US and China’s formal commitment to COP21, the Paris Agreement. The agreement is considered a turning point in the use of alternative energy to cut global emissions and minimise climate change worldwide.


 
Strategy for spend – how to get more for your money
  1. Align travel programme goals to business goals

  2. Budget with new parameters, such as class of service, clearly defined

  3. Continually assess traveller safety and security

  4. Turn to the consultants for supplier negotiations

  5. Learn internally from new and different perspectives

  6. Consider new market entrants for products and services

  7. Lean on CWT to demonstrate the value of your travel programme