July 30, 2019 / 4:34 PM / a month ago

Global airfares, hotel rates set for modest rise as economy slows in 2020: industry forecast

SINGAPORE (Reuters) - Escalating trade wars, the impact of Brexit, possible oil supply shocks and a growing likelihood of recession will put a damper on global air travel and hotel rates in 2020, according to an industry forecast.

A tourist takes pictures on a beach while an airplane prepares to land at Larnaca International Airport, Cyprus October 22, 2017. REUTERS/Yiannis Kourtoglou

Airfares will rise by a modest 1.2% and hotel rates by 1.3% in U.S. dollar terms and an average of about 2.2% for both in local currencies, said the annual business travel forecast from Carlson Wagonlit Travel (CWT) and the Global Business Travel Association (GBTA) released on Wednesday.

“We have seen over the last few years that the economy has been growing at a very stable rate. That was the case in 2018 as well,” CWT Senior Director of Asia Pacific Multinational Sales Akshay Kapoor told Reuters in an interview.

However, the outlook has become more questionable in 2019, and the economic uncertainty is expected to continue next year, he added.

Global trade expanded by just 0.5% in the first quarter of 2019, marking the slowest year-on-year pace of growth since 2012 amid signs a more significant slowdown is possible, International Monetary Fund officials said last week, lowering the growth forecast for this year and next.

The International Air Transport Association (IATA) in June forecast passenger yields, a proxy for airfares, would be flat this year after a 2.1% drop in 2018.

Germany’s Lufthansa on Tuesday posted a decline in second-quarter earnings, hurt by price competition on short-haul routes and rising fuel costs, adding the European market would likely remain challenging until at least the year’s end.

In Asia, Cathay Pacific Airways Ltd has also warned yields will be under pressure in the coming months as performance in North America and Europe lags expectations due to intense competition.

An anti-government campaign in Hong Kong that led to protests so far had only a minimal impact on business travel bookings, although some companies were starting to tell employees to defer non-essential travel or cancel plans to visit the city, Kapoor said.

“The businesses are in a kind of look-and-see mode at the point in time,” he said. “We are not seeing a major decline or any of that.”

The global hotel market has been hit by the same weakening in economic growth as airlines, with Hilton Worldwide Holdings Inc and Wyndham Hotels and Resorts Inc last week lowering their forecast ranges for revenue rises in 2019.

CWT and GBTA expect a 2.3% rise in North American hotel rates next year, but a 0.4% decline in Latin America and more modest growth in Europe and Asia in U.S. dollar terms.

Reporting by Jamie Freed, Editing by Sherry Jacob-Phillips

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