Higher hotel and flight prices force strategic thinking

An airplane on its approach to Heathrow Airport. (BBC)

For frequent travelers waiting for hotel and airline prices to fall… you might be in for a long wait, at least if you travel frequently to, from or through the US. You’ll wait even longer if your taste in hotels runs on the high end.

American Express's most-recent Business Travel Monitor (BTM) reported that airfare continued to climb in 2010 and is just 6% shy of 2008's record highs, which rose just before the economy tanked and while crude oil was trading at nearly $150 per barrel.  Despite higher airfare, US hotel rates remained steady overall in 2010 but crept up in the fourth quarter.

2011 has already seen a strong start for airfare increases due to the recent spikes in oil prices and the cuts in airline capacity growth plans. For example, recent BTM data shows domestic US airfare in January 2011 was up 8% compared to January 2010.

Specifically, from 2009 to 2010 in the US:

• Average domestic airfare increased 7%, to $231
• Average international airfare increased 7%, to $1,795
• Average domestic hotel rates remained flat at $152

Of the cities that did increase hotel rates, Las Vegas topped the list with a 12% increase year-over-year. Denver, New York, Washington, DC and San Francisco all increased rates by 5%.

If you find yourself overpaying for airfare this year, you can at least save on hotel costs by steering clear of the higher end. According to PKF Hospitality Research, average daily hotel rates in the US will increase by 4% in 2011 -- and even more than that at luxury hotels. Since upper-tier hotel guests are benefiting most from improvements in the economy, they are generating more demand for luxury accommodation, which is driving up rates at high-end properties. The number of US millionaires increased by 8% in 2010, according to a report by the Spectrem Group.

On the other hand, recent overbuilding in the mid-market segment means you can get great rates at many relatively new hotels, so always inquire about the age of the hotel or the date of its most recent renovation.

While it's not going to be as easy to avoid higher airfares in coming months, you can hedge your bets by scheduling flights during dips in demand such as mid-day (generally 10 am to 2 pm) or mid-week (Tuesday, Wednesday or early Thursday). Increasingly, the price gap between one-stop and non-stop flights is widening, so always be sure to check both options.

Chris McGinnis is the business travel columnist for BBC.com/travel