Socio-Economic Issues Cause Price Volatility in Latin America

Business travel in the Latin American region, which for this report includes Mexico, South America, Central America and the Caribbean, was recovering at a slow but steady pace leading up to mid-December 2021, when the omicron variant of Covid-19 halted and reversed that trend, sources told BTN.

The number of new Covid-19 infections in the region was trending down from the end of June, but omicron caused a spike in new cases, and the region saw infections go from about 17,000 a day as of Dec. 11 to a peak of 471,000 as of Jan. 25, according to the Reuters Coronavirus Tracker. Since then, the decline in new cases has been equally steep as its rise, with about 67,000 reported as of Feb. 27.

By mid-February, 63 percent of the overall population in Latin America had been vaccinated, according to the Pan American Health Organization, but coverage remains uneven, with 14 countries and territories yet to immunize 40 percent of their populations. The key countries with business travel, however, show vaccination rates at or above that average, with Chile leading the way at 89 percent as of Feb. 25, according to Our World in Data.

 

_{Business Travel Recovery Trends}

Prior to omicron, business travel volumes had been about 60 percent recovered compared with 2019 levels, CWT senior director of global market management for the Americas Fernando Michellini said, and as business has begun to pick up again, the company expects to achieve a recovery level of 60 percent for 2022.

"Some [travel] restrictions are going down, and the vaccination rate in Latin America is healthy," Michellini said. "After March, clients are saying they will travel more, depending on if there are no more variants. The recovery will be much faster from March on."

Beat Wille, who started his role as SVP and managing director of Latin America for BCD Travel in 2021, saw similar numbers at the end of last year. "We were almost to 50 percent of pre-Covid levels in the region, with different countries at different rates and paces," he said, adding that omicron slowed that down. "We hope to end up around 50 percent of pre-Covid levels [again] by the end of February. Looking forward to 2022, we hope to be between 70 percent to 80 percent [recovered]."

Three-quarters or more of the volume has been domestic, according to Michellini.

There was some variance among regional segments. Central America and the Caribbean, for example, have higher international percentages because domestic travel is low in those areas, so they are "slow to start with," Wille said. "Then markets like Mexico, Colombia and Brazil always have a higher percentage of domestic on the corporate side."

Chile and Peru are driven mainly by businesses in oil and gas, mining and construction. "Lately retail has been picking up again in domestic travel," Wille added. 

American Express Global Business Travel VP and general manager for Latin America Jose Camarena agreed that the energy sector was a contributor to the recovery, and he has seen pharmaceutical business pick up, as well as technology. "To our surprise, one sector that was almost dead was banking, finance," he added. "We were very concerned about the financial sector, but it is finally recovering. [Companies] started to reopen offices in January, and as they reopen office locations, travel is coming back."

Overall, the region's recovery has been led by Mexico and Colombia, Camarena said, adding that Brazil also was starting to pick up.

_{Factors on Rate Volatility}

Still, uncertainly will persist in 2022, Camarena said. There are presidential elections this year in Brazil, Colombia and Costa Rica, which could cause social unrest; unemployment remains high; and inflation is on the rise, led by soaring oil prices. BCD's Wille concurred, noting that "the main driver for our region is always on what is happening on the social-political side," he said, also noting inflation across the region.

"There is volatility in commodity prices," Camarena said.

Indeed, looking at total quarter-over-quarter fourth-quarter 2021 costs for the 14 Latin American cities in the BTN Corporate Travel Index Calculator, nine went up from a range of less than 1 percent (Lima) to nearly 49 percent (San Salvador, El Salvador) to more than 82 percent (Buenos Aires). San Jose, Costa Rica, posted the biggest decline, at 13 percent.

Hotels and regional airlines—three of which went bankrupt during the pandemic—are trying to recover revenue. CWT's Michellini anticipates that 2022 rates on average will increase about 3.2 percent. As a result, companies are adjusting per diems for employees, Michellini said, adding, "It's no longer on a yearly basis, but by semester, or by quarter, because inflation is impacting employees."

Amex GBT's Camarena also noted increasing per diems, mainly due to rising inflation rates. "Some countries were seeing a higher level of increase, like Argentina, followed by Mexico, then Colombia," he said. "Others have been more stable, like Chile, Ecuador, Peru and Panama."

Camarena added some corporations have been able to manage volume and ensure negotiations so there wasn't as much volatility in pricing. "Large corporations have seen a 5 percent or less price change based on volume management," he said. For smaller companies, prices increased on average from 10 percent to 20 percent last year. "Midsize companies are seeing volatility because they don't have the scale to negotiate."

A contributing factor for increased hotel costs has been a reduction in capacity. "During the pandemic, many hotels temporarily closed all or part of [their properties]," Wille said. "They're slowly bringing capacity back. [But] there has been more demand than availability, and that drives hotel prices up."

CWT has been using rate-assurance technology in the Latin American region for hotel re-shopping, but while that has been effective, "there are some gaps," Michellini said. "As such, we are currently transitioning our clients to our own rate optimization tool. It also enables re-shopping for non-[global distribution system] inventories and embeds them in client itineraries to provide full integration with our reporting suite."

During the pandemic, many companies stopped allowing employees to use online booking tools to make their own reservations, Michellini said, adding that some companies have started to reopen them.

All three TMC sources agreed that some travelers have shifted to higher hotel tiers for reasons related to trip safety. "There's a shift in tiers to ensure [travelers] go to a hotel that has the best safety and health conditions for them," Camarena said.

Hotel chains are drawing a growing share of business travelers, possibly because they have had more marketing capabilities to get the word out about their safety and cleanliness programs, Wille said. "It's been a key driver," he said.

 

_{Taxi and Car Rental Trends}

The car shortage coupled with rising oil prices have affected taxi costs and rentals globally, and Latin America is no exception.

"Taxi rates will increase a lot," Michellini said, citing inflation, fuel prices and exchange rates. But some business travelers of late have preferred to drive shorter trips of two to three hours instead of flying, he said, adding that 2021 car reservation volume was up 123 percent from 2019 volume. "That's a really huge growth for Latin America especially because, culturally speaking, they normally do not use car rentals. People also want to keep socially distant."

Wille concurred. "Car rental in Latin America was much smaller [than in the U.S.], so the tendency was always to use more taxis or shared ride services or transportation companies," he said. "During the pandemic, there was an increase in rentals because of people wanting their own space. But then the capacity of cars was also limited. But we've seen it really growing for business travelers."

In addition, business travelers have been using buses. "The trend increased the last year and a half, and I don't think that will change back," Camarena said. "There will be more share gain on bus transport going forward. It's something to keep an eye on, and it can provide a wider variety of transport services to global clients. That was not explored in the past."