Transcript average daily rate forecast

CWT Solutions Group
Rate Forecasts 2010-2011 Air, Hotel, Ground
USA & Canada
Mauricio Molina
Director, CWT Hotel Solutions Consulting NORAM
Agenda
Forecast process
Forecast elements
Forecast variables
Forecast approach and methodology
Forecast assumptions
Airlines – Average Segment Price Forecast
Hotels – Average Daily Rate Forecast
Ground – Average Daily Rate Forecast
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Forecast elements
CWT transactional data
USA and Canada booked rates from Q1 2006 to Q2 2010
Macroeconomic indicators and forecasts
US State and National aggregate income and employment series
GDP and unemployment
Canada National aggregate income and employment series
GDP and unemployment
Industry specific variables
Oil price
Available seat miles
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Forecast variables review
GDP
Strong recovery
Slow recovery
2.5% in 2011
3.2% in 2011
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Forecast variables review
Unemployment
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Forecast variables review
Crude oil
Crude prices will continue to increase at 8% over the next 6 months and then
slow to 5%
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Forecast variables review
NORAM Domestic
Trend in the YTD Number of Seats
2001 - 2010
900,000,000
800,000,000
700,000,000
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
0
Jan - Oct
2001
Jan - Oct
2002
Jan - Oct
2003
Jan - Oct
2004
Jan - Oct
2005
Jan - Oct
2006
Jan - Oct
2007
Jan - Oct
2008
Jan - Oct
2009
Jan - Oct
2010
Series1 842,838,764 763,024,100 731,350,451 766,553,800 783,245,817 748,583,835 766,329,721 748,006,649 689,821,255 686,292,101
Note: NORAM domestic equals US domestic, CA
domestic and US-CA travels
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Forecast approach and methodology
CWT Solutions Group partnered with the following econometrics experts:
Patrick Bajari, Professor of Economics at University of Minnesota
Connan Snider, Assistant Professor at University of California Los Angeles (UCLA)
Our approach consists of building a multi-regression analysis that evaluates a price
index, seasonal elements and macroeconomic variables to extrapolate statistically
valid conclusions
Price indexes are built using CWT’s transactional data
Price indexes provide a good measure of underlying price changes and a convenient way to
aggregate massive amounts of transactional data
The approach followed to build the price indexes is similar to the one utilized to construct
indexes such as the Consumer Product Index (CPI)
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Forecast assumptions
GDP will continue to grow at a roughly 2.5% rate in the US; a slightly lower rate
than that of the last few quarters
No “Double Dip”
Key drivers like housing and consumer durables are generally thought to be at their lowest
possible levels
a second dip would require some kind of major coordinating device to get consumers all pulling
back even more rapidly, and at the same time.
Unemployment will inch downward to 8.7% by 2011Q4
Crude prices will continue to increase at 8% over the next 6 months and then slow
to 5%
ASM’s will continue to remain low growing by only 0.5-2.5% percent over the next
18 months.
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CWT Solutions Group
AIRLINES – AVERAGE SEGMENT
PRICE FORECAST
Agenda
Forecast process
Airlines – Average Segment Price Forecast
Industry dynamics
Forecast elements
Forecast 2011
Forecast Breakdown
Cost savings opportunities
Hotels – Average Daily Rate Forecast
Ground – Average Daily Rate Forecast
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Industry Dynamics
Crude oil prices
Fuel remains significant cost, up 16% vs. 2009
Prices and hedges have moderated
Ancillary fees
Remain unpredictable and mostly untrackable
Consolidation
Delta/Northwest, United /Continental
No compelling evidence mergers led to significant price increases
Demand
Increasing vs. 2009, international segments up nearly 6%
International front cabin recovery slightly lower
Capacity
Slightly lower with some “cautious” additions to schedules
Other
Airspace shutdowns, union strikes, mergers/anti-trust immunity
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Forecast elements in Airlines ASP
Macroeconomic variables
GDP
Unemployment
Crude oil prices
Industry level variables
Air Travel Price Index (ATPI)
Available Seat Miles (ASM)
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Forecast ASP
NORAM ASP
Domestic
Economy
• NORAM
3-5%
increase
International
Economy
• NORAM
3-5%
increase
Domestic
Business
• NORAM
2-4%
decrease
International
Business
• NORAM
3-5%
increase
Domestic First
• NORAM
5-7%
decrease
International
First
• NORAM
4-6%
increase
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Forecast Breakdown
Domestic economy
The US business traveler is slowly
returning to routes
a 1 percentage point decrease in
unemployment leads to a $3
increase in fares
Stable/growing ASM’s indicates that
supply changes will not fully relieve the
pressure from increased demand
A 1% increase in ASM’s leads to a
$.22 decrease in fares
Increasing crude prices following the
recent rebound will put pressure on
airline costs
A $1 increase in the price of crude
leads to $.45 increase in fares
FORECAST : 3-5% INCREASE year over
year
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Forecast Breakdown
Domestic business class
Improving economic conditions will
lead to the return of more price
sensitive consumers
Cheaper fares, if available, will be
purchased
a 1 percentage point decrease in
unemployment leads to 3% more
business class travelers
Increasing demand for cheaper
inventory may bring average fares
down
Increase in capacity (ASM) leads to
price decrease
A 3% increase in volume leads to a
$10 decline in fares
FORECAST: 2-4% DECREASE year over
year
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Forecast Breakdown
Domestic first class
Big decrease in first class volume
caused these prices to spike as price
sensitive customers dropped out of the
market
Economic recovery will lead to
increased demand and a return to more
normal volumes in the First class
segment
1 percentage point decrease in
unemployment leads to a 2%
increase in first class travelers
Average fares will start returning to
normal
FORECAST: 5-7% DECREASE year over
year
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Forecast Breakdown
International economy
This segment has been less sensitive to
macroeconomic factors
Expect strong trend growth to continue
FORECAST:
year
3-5% INCREASE year over
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Forecast Breakdown
International business class
Average Fares in this segment have
strongly mirrored overall economic
activity and oil prices
We expect this trend to continue
As the economy returns to normal
trend growth, we expect fares in this
segment to return to their preeconomy downturn trends
Look for strong growth heading into
the recovery
FORECAST: 3-5% INCREASE year over
year
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Forecast Breakdown
International first class
As with Domestic First and Business class
segments prices have been highly
volatile during the downturn
Volumes have remained fairly steady
Slowly
recovering
economy
and
increases in oil prices will be the main
drivers
$1 increase in crude leads to $3.50
increase in fares
FORECAST:
year
4-6% INCREASE year over
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Cost-Saving Opportunities
Supplier rationalization
Ensure proper mix of savings and coverage
Consider low-cost carrier options
Policy rationalization
Business class allowance
Lowest logical airfare requirements
Advance purchase requirements
Highly discounted, restricted fares available with aggressive advance purchase
behavior
Expand the flight search “window”
Consider connections for long-haul routes
Demand management
Reduce day trips, consider telepresence/video conferencing
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CWT Solutions Group
HOTELS – AVERAGE DAILY RATE
FORECAST
Agenda
Forecast process
Airlines – Average Segment Price Forecast
Hotels – Average Daily Rate Forecast
Industry dynamics
Key observations
ADR Historical review US and Canada
ADR Forecast
Regional breakdown
Cost savings opportunities
Ground – Average Daily Rate Forecast
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Industry Dynamics
Economic downturn in North America
United States: Declines in average daily rate (ADR) of 8.2% year-over-year in 2009 and 4.4%
H1 2010
Canada: ADR declines 1.6% in 2009 and 0.3% in H1 2010
4-5 Crown properties severely impacted in the United States
Average 18-month ADR decline of 12-19%
Occupancy rates barely reach 60%
Revenue per available room (RevPAR) growing
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Industry Dynamics (continued)
U.S. hotel markets respond to seasonal pricing and macroeconomic indicators
Canadian markets show more predictable seasonal pattern
U.S. ADR Price Index
Canada ADR Price Index
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Key observations
Hotel rates are influenced both by seasonal &
macroeconomic factors
Canadian markets – seasonality
US markets – seasonal & macroeconomic influences
In a GROWING economy, the 1st quarter generally presents the lowest price
index point in the yearly cycle
On average, a 1% increase in GDP leads to a 5% increase in
the ADR Price Index
On average, a 1% decrease in unemployment leads to a 1%
increase in the ADR Price Index
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ADR historical review* for the US
ADR growth deteriorated:
Starting in 2008 with lower inflation averages as compared to 2006-2007
Deflation during the year 2009 through the first half of 2010
* NOTE: Actual inflation Q1 2006 to Q2 2010,
as measured from four quarters prior
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ADR historical review* for Canada
There were mild effects of the economic downturn across all regions:
* NOTE: Actual inflation Q1 2006 to Q2 2010,
as measured from four quarters prior
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ADR Forecast H2 2010-2011
Our forecast model’s r-squared is 91%, which provides strong foundation to make
accurate predictions for future price movements in the industry
On a country level, we expect inflation of the following magnitude (as compared to
the previous four quarters)
H2
2010 USA
2011
USA
0.2%-2.1%
6.4%-7.4%
Canada
Canada
2.5%-2.8%
4.7%-5.4%
Rates bottomed in Q1 2010 and will recover with the economy
We expect Hotel rates to be responsive at turning points of the economy due
to limited ability to adjust capacity
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ADR Forecast H2 2010-2011 (continued)
US price increases will be driven by increases in the Pacific and Northeastern
regions
California and New York are most sensitive to changes in economic activity
On a regional level, we expect inflation of the following magnitude (as compared
to the previous four quarters)
Northeastern
Pacific
Great Lakes
Southeastern
Mountain
Plains
Southwestern
2H 2010
2H 2010
2H 2010
2H 2010
2H 2010
2H 2010
2H 2010
4.8%-8.7%
-0.4%-0.6%
0.6%-1.3%
-1.1%-2.0%
-0.5%-0.5%
0.5%-2.0%
-2.6% to -0.3%
2011
2011
2011
2011
2011
2011
2011
12%-12.5%
6.1%-8.0%
4.7%-6.0%
6.5%-7.4%
4.3%-5.3%
5.5%-7.3%
4.4%-6.7%
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ADR Forecast H2 2010-2011 (continued)
Canada price increases will be led by increases in the Prairie region
On a regional level, we expect inflation of the following magnitude (as compared
to the previous four quarters)
Central
Canada
East Coast
Mountains
and the West
Prairie
2H 2010
2H 2010
2H 2010
2H 2010
1.9%-1.5%
2.7%
1.7%-2.1%
3.4%-5.5%
2011
2011
2011
2011
2.5%-2.8%
3.6%-4.9%
3.0%-5.4%
6.7%-10.1%
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ADR Forecast H2 2010-2011 (continued)
US inflation forecast by Hotel Category (national average)
1-2 Crowns
3 Crowns
4-5 Crowns
2H 2010
2H 2010
2H 2010
-0.1%-1.1%
-0.3%-1.9%
0.9%-3.3%
2011
2011
2011
4.4%-5.6%
6.9%-8.6%
7.9%-8.4%
Canada inflation forecast by Hotel Category (national average)
1-2 Crowns
3 Crowns
4-5 Crowns
2H 2010
2H 2010
2H 2010
2.6%-3.1%
0.5%-1.2%
4.1%-4.7%
2011
2011
2011
4.5%-5.7%
3.3%-3.9%
5.1%-6.7%
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Q3 2010 Top 10 USA Cities by RevPAR
October 2009 vs October 2010 RevPAR
2009
2010
2009
2010
2009
2010
Occ.
Occ.
Var.
ADR
ADR
Var.
RevPAR
RevPAR
Var.
New Orleans
55.8%
77.6%
39%
$102.74
$128.35
24.9%
$57.77
$100.27
73.6%
Orlando
50.5%
61.5%
22%
$79.10
$83.26
5.3%
$39.86
$51.18
28.4%
Detroit
51.5%
60.2%
17%
$72.92
$70.61
-3.2%
$37.49
$46.79
24.8%
Norfolk
54.3%
64.1%
18%
$75.76
$79.78
5.3%
$41.27
$51.13
23.9%
Miami
63.0%
68.8%
9%
$119.27
$130.22
9.2%
$75.27
$89.59
19.0%
Los Angeles
71.4%
80.2%
12%
$109.02
$114.53
5.1%
$77.85
$91.79
17.9%
Atlanta
53.8%
66.7%
24%
$79.27
$78.68
-0.8%
$42.62
$50.14
17.6%
San Francisco
89.9%
93.7%
4%
$141.36
$158.93
12.4%
$127.09
$148.99
17.2%
St. Louis
70.7%
78.9%
12%
$81.70
$85.51
4.7%
$57.67
$67.42
16.9%
New York
82.0%
84.0%
2%
$233.03
$248.12
6.5%
$190.79
$208.35
9.2%
Tampa
50.2%
56.1%
12%
$84.53
$82.26
-2.7%
$42.42
$46.14
8.8%
Minneapolis
71.9%
80.7%
12%
$93.55
$89.19
-4.7%
$67.07
$71.96
7.3%
Philadelphia
71.1%
76.2%
7%
$104.61
$103.44
-1.1%
$74.12
$78.81
6.3%
Seattle
63.8%
67.2%
5%
$102.87
$103.44
0.6%
$65.59
$69.46
5.9%
Denver
70.5%
70.9%
1%
$96.79
$92.67
-4.2%
$68.50
$70.64
3.1%
Top 15 Markets
by RevPAR
Source: Hudson Securities and Smith Travel Research
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US - Northeastern
ADR inflation forecast; all Hotel Categories (as compared to the previous four
quarters)
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US - Northeastern
ADR inflation forecast by Hotel Category (as compared to the previous four
quarters)
Significant inflation expected for 4-5 Crowns properties
1-2 Crowns
3 Crowns
4-5 Crowns
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US - Pacific
ADR inflation forecast; all Hotel Categories (as compared to the previous four
quarters)
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US - Pacific
ADR inflation forecast by Hotel Category (as compared to the previous four
quarters)
Mid quality properties are expected to evidence the largest price adjustments
1-2 Crowns
3 Crowns
4-5 Crowns
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US – Great Lakes
ADR inflation forecast; all Hotel Categories (as compared to the previous four
quarters)
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US – Great Lakes
ADR inflation forecast by Hotel Category (as compared to the previous four
quarters)
Mid quality properties are expected to evidence the largest price adjustments
1-2 Crowns
3 Crowns
4-5 Crowns
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Cost-Saving Opportunities
Request for proposal process/negotiations
Timing is key, finalize 2011 program rates soon
During negotiations communicate policy changes
Consider step down, or tier down, hotel classification level
Evaluate two-year rate agreements
Closely monitor compliance to travel policy
Identify program optimization opportunities
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What region does your state fall into?
Review this chart to identify your region:
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What region does your province fall into?
Review this chart to identify your region:
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CWT Solutions Group
GROUND – AVERAGE DAILY RATE
FORECAST
Agenda
Forecast process
Airlines – Average Segment Price Forecast
Hotels – Average Daily Rate Forecast
Ground – Average Daily Rate Forecast
Industry dynamics
Rate Forecast
ADR and Volume Trend
Cost savings opportunities
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Industry Dynamics
Rental car
Hertz and Avis/Budget Fight over Dollar Thrifty
Reduction in employees
Locations closing
Strong used-car markets
Tight/restricted fleets, cars held longer
Non-contract/leisure prices rising
Continuing fleet diversification
Black car/limo
Large portion of suppliers no longer in business
Remaining suppliers financially strained
Rail
Record-high ridership for Amtrak in the United States, moderate price increases
Despite increasing interest in high-speed rail in Canada, $1 billion government commitment to
Via Rail for traditional rail upgrades/infrastructure
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2011 Rate Forecast
Rental car
Rates decreasing 1.52%
By the third quarter of 2011 prices will remain relatively stable across car segments
1-3% average decrease for the compact segment
2-4% average increase for the full size segment
1-3% average increase for midsize segment
Black car/limo
Rates decreasing 35%
Rail
Rates increasing 47%
High-speed rail will experience the largest increases in the Northeast United States
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ADR and Volume Trend
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Cost-Saving Opportunities
Strategically source all areas of ground transportation
Closely examine black car/limo for best value, safety, and security
Go green, save on gas mileage and reduce carbon footprint
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CWT Solutions Group
APPENDIX
Companies can save up to 21% of Hotel Spend
Sourcing efforts may deliver up to 7% of Hotel Spend savings
Optimization activities account for additional 14% potential Hotel savings
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Seven steps to a best in class program
Sourcing efforts address
only one of seven key
elements
Multiple other areas
exist beyond sourcing
that contribute to
maximize effectiveness
of a Hotel program
A best-in-class program
will be reflected on a
best-in-class Average
Daily Rate (ADR)
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Unraveling savings potential
Seek for specialized support
Look at a broad spectrum of sourcing and optimization opportunities
Compare your company’s metrics and travel behavior against benchmarks either
internal or external
Use multiple sources of data
Your own Agency data captures only a fraction of your total Hotel spend
Consolidate other sources, i.e. credit card, Hotel Reports
Do not benchmark against yourself
Your own transactional data can uncover no more than 20% of your total savings
potential
Incorporate competitive sources such as external benchmark information and
Negotiated rates to uncover all options
Your own
Transactional data
Benchmark
Transactional
data
Data feed for
Strategy
Analysis
Corp Rates
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Strategic Assessment
What is your Hotel Program’s savings potential?
CWT’s Strategic Assessment will address this fundamental question by:
Analyzing your program’s performance on multiple levels
 Policy and Program
 Negotiations
 Traveler compliance
 Performance tracking
Stretching the depth and reach of the analysis by incorporating external sources of data
 Benchmark data
 Corporate rates
Providing rich and actionable details and recommendations for each category so that our
analysis can be used as a “road map” for program management efforts
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Strategic Assessment
Reporting details
Dashboard
The model identifies and reports all potential sources of savings together with ease of
implementation for each category
Ca tegory
Pol i cy a nd
Progra m
Lever
Pri ori ty
Ea s e of
i mpl ementation
Impa ct
Ma na gement
effort (%)
Ti me to
i mpl ementation
Sa vi ngs opportuni ty i n US$ (Low/Hi gh)
Sa vi ngs a s a % of
Hotel Spend
Total Ca tegory
Sa vi ngs (%)
Hotel Category (downshift)
High
Medium
Client 90 <> 10 CWT 6 months
$
161,812 $
518,943
4.7%
15.0%
Share Shift Preferred
High
Medium
Client 70 <> 30 CWT 6 months
$
23,488 $
39,146
0.7%
1.1%
Share Shift Non Preferred
High
Medium
Client 70 <> 30 CWT 6 months
$
42,908 $
71,514
1.2%
2.1%
City Caps
High
High
Client 70 <> 30 CWT 1 year
$
422,482 $
12.2%
0.0%
Best-in-class rates
High
Medium
Client 50 <> 50 CWT 6 months
$
27,983 $
46,639
0.8%
1.3%
Chain-wide deals
High
High
Client 50 <> 50 CWT 6 months
$
90,836 $
151,393
2.6%
4.4%
Non Preferred High Volume
High
Medium
Client 50 <> 50 CWT 6 months
$
2,465 $
3,081
0.1%
0.1%
Long-stay rates
High
Low
Client 50 <> 50 CWT 6 months
$
-
$
7,688
0.0%
0.2%
TMC usage
High
High
Client 90 <> 10 CWT 1 year
$
97,708 $
325,694
2.8%
9.4%
Absolute competitiveness
High
Medium
Client 90 <> 10 CWT 1 year
$
35,509 $
44,386
1.0%
1.3%
Missed savings
High
High
Client 70 <> 30 CWT 6 months
$
72,067 $
120,111
2.1%
3.5%
Total Gross Savings
$
977,258 $
1,328,595
28.2%
to
38.4%
Overlap
$
84,675 $
144,369
8.7%
to
10.9%
Total Net Savings
$
892,583 $
1,184,226
19.6%
to
27.5%
-
Negotia tions
Tra vel er
compl i a nce
Performa nce
tra cki ng
18.8%
to
18.2%
3.5%
to
6.0%
3.8%
to
10.7%
2.1%
to
3.5%
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Contact information
Mauricio Molina
Director, CWT Hotel Solutions Group North America
Office Phone: + 1 763 212 3168
e-Mail: [email protected]