Insight
Where is travel going in 2023?
At the recent Ideas Exchange 2.0 event, Felicity Burke – Asia Pacific General Manager for FCM Consulting - shared an update on what's happening in travel as we move into 2023.
As the final months of 2022 play out, thoughts turn to predicting the business travel forecast for 2023. “Unless something dramatic changes, we won't be back to pre-COVID levels at this stage,” said Felicity Burke. “So next year is still going to be this kind of new normal.” While many people want to know when airlines scheduling, passenger demand and affordability will be back to ‘normal’ levels – it remains difficult to predict.
Airlines, availability and anomalies
“I don't know how many aircrafts are still in the desert, in hibernation,” said Felicity, “but I do know that it takes an airline nine months to get an A380 back into circulation. By the time they dust it off, clean it, get pilots and crew - and I think a lot of consumers and travellers don't have any sort of understanding of that.”
So clearly, travel management providers need to manage expectations that what we're going through now, is going to be the new normal for a while. “We’ve seen this huge surge in leisure travel and it's really imbalanced,” said Felicity. “At the start of Q2, we had a lot of Australians going out bound to Europe for holidays or to see family – and they were staying away for a lot longer than previously. That’s another reason airlines couldn’t get their scheduling right and we saw so much upheaval, because people simply aren’t doing what they’ve normally done.”
The flip side was that all of the return flights to Australia were empty. So the airlines are now trying to work out what scheduling to put in place, so they don't have this capacity imbalance. Meanwhile, business travellers are only just starting to get back out there in significant numbers.
Domestically, they're flying at the start of the week and returning at the end of the week, or when it's international, they might be away for a week and a half. That’s more guaranteed and predictable for airlines when it comes to filling the seats, compared to leisure travellers. At the same time, some companies are expected to travel less because they are now so well connected virtually.
Here is what we do know:
- Airfares hit their peak in Quarter 2, for both economy and business class tickets when compared to 2019.
- There is finally a downward trend in international business class airfares again, but this is coming off a big high.
- There’s a big increase in advanced purchasing, because people were burnt by paying $25k to get to New York when booking close to departure.
- Airfares for now will remain high because fuel costs are higher, there are additional costs for staff and just about everything is now more expensive.
- Leisure travel is just starting to ease after the peak that was experienced when the borders first opened back up.
- We are starting to see Korean, Taiwanese and Japanese airlines coming into Australia and that's adding extra leisure capacity, which will ease pressure on corporate travel.
- Hotel occupancy is well and truly back and moving into next year, we expect rate increases of 10% and 15% for hotels due to high demand.
- Hotels are facing increased operating costs, while trying to recuperate some of the losses of the last two years.
- In the car rental market, the focus is on customers wanting electric and hybrid vehicles.
- Car hire demand has gone back to pre-COVID levels and rates are very expensive. This is also a reflection of the domestic market and many people still not venturing overseas.
Emerging regional trend
“An interesting regional trend is emerging as we look at airline seats in August in 2022, versus August 2019,” said Felicity. “Capital cities such as Melbourne, for example, are only 75% back to pre-COVID levels. However, some key regional locations have surged – Orange is at 132%, the Sunshine Coast is at 113% and Geraldton in Western Australia has also grown.”
What we are seeing is that Orange and Dubbo have benefited from business travel related to huge infrastructure projects, including the in-land rail. A lot of regional areas are also experiencing business growth and global organisations are choosing to have hubs in these locations, such as Orange. “Companies are realising that people who don’t want to live in Sydney anymore can reside in Orange, work effectively from home and still have the same job,” said Felicity.
So the cost of seats to Orange and Geraldton are well beyond pre-COVID levels – up an extra $118 and $95 respectively. Correspondingly, hotel rates are right up there too, with Orange at $168 a night, now on parity with staying in Melbourne.
As the travel market continues to adapt and flex to new pressures, costs and demands, it is clear that business travel programs in 2023 will continue to be far from set and forget.
To find out more visit FCM Meetings & Events
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