By John Hall
Spending on business travel is expected to continue rising in 2013, but trip volume will continue its multi-year decline. By the end of 2013, however, experts predict business travel overall will rebound to pre-recession levels, fueled largely by an improving domestic economy and growth in international travel.
When order is restored, however, corporate travel buyers will come out of the experience with a keener eye toward stretching their travel dollars and helping their travelers become more efficient.
Business Travel Budgets Bigger
Business travel buyers this year will see their travel budgets continue to rise at a modest clip, although actual trip volume will continue its downward trend that began after the economic collapse in 2008, according to the Global Business Travel Association (GBTA).
“Business travel spending growth slowed through the tail end of 2012 as companies postponed critical investment decisions until after the U.S. presidential election and Congressional debate on the fiscal cliff,” the association notes in its GBTA BTI™ Outlook. The report projects aggregate business travel trends over the next eight quarters.
With the fiscal concerns abated for the time being, GBTA believes its data now shows greater corporate confidence in spending decisions and predicts U.S. business travel spending will rise 4.6% this year to $266.7 billion.
Trip volume, meanwhile, is expected to drop slightly (1.1%) to 432 million person-trips for the year. Business travel bottomed out to its worse level this millennium in 2009, when trip volume was down more than 10% and travel spending fell more than 14%, according to GBTA’s data. By 2014, however, spending and trip volume are expected to climb more than 7% and nearly 2%, respectively, with business travel spending approaching near pre-recession levels.
While 2012 business travel spending increases were due mainly to rising travel rates, GBTA believes expected increases this year and next will mean greater “real dollars” are being allocated for travel because of modest inflation.
The year is getting started at a slow clip, but “pent up demand” should lead to 6.4% and 7.2% increases in business travel spending during the last two quarters of the year, respectively. Fueling global trends in 2013 are notable increases in international outbound travel (expected to jump nearly 6%) and group travel spending, which GBTA predicts will rise more than 5%.
Eurozone crises in 2012 curtailed group and international travel spending, causing a “ripple effect” in other markets. With China’s industrial production and retail spending now on a positive upward rebound, GBTA predicts the trend to turn around this year.
“Businesses will be looking to capitalize on growth opportunities abroad and spend more on in-person meetings and events as well,” says Michael McCormick, GBTA Executive Director and COO.”By nature, meetings are longer-lead investments that require greater confidence in the future.”
Meanwhile, China will overtake the U.S. as the world’s top business destination in 2014, according to GBTA. “What’s interesting about China is because they’re still busy growing their domestic markets, 95% or so of their business travel is domestic,” Joseph Bates, GBTA Vice President of Research, tells My Purchasing Center. “What we’re finding is business travelers from other countries are going to China much more so than the Chinese business travelers are going outside China.”
Travel Prices to Rise
Travel management companies Travelocity Business and Carlson Wagonlit Travel (CWT) project much of the same.
In its 2013 “Travel Price Forecast,” CWT predicts “flat to moderate” North American airfare and hotel rate increases of up to 4% by the end of the second quarter. Car rental rates, meanwhile, are expected to decline between 2% and 3% during the same period. North American meeting costs, meanwhile, are climbing by as much as 5.3% per attendee, leading many companies to adopt strategic meetings management tactics such as registration and venue sourcing and planning and expense reconciliation.
Lower air and hotel rate increases are seen in other markets, including Asia-Pacific, Latin America and Europe, while car rental rates are expected to climb in those markets because of such factors as tightening supply, most notably by up to 6% in the Asia-Pacific market. CWT bases its projections on key macroeconomic and per-country indicators, such as current and expected gross domestic product (GDP) growth, the consumer price index, unemployment rates, and crude oil prices.
“The GBTA forecast and ours are aligned. We see an increase in spend and a slight decrease in travel,” Joel Wartgow, Senior Director, CWT Solutions Group, Americas Region, tells My Purchasing Center. “But we focus on slightly different aspects. The intent of our forecast is to provide our customers, who are corporate travel managers and procurement professionals, insight into how we think the cost of travel will evolve in the future so they prepare their T&E budgets appropriately.”
Wartgow says CWT provides customized projections for its clients who want detailed data on specific regions of the world in which their business is concentrated. “Each company travels differently,” he says. “The price volatility that company is subject to will vary based on the markets they’re traveling from and to. We provide guidance and recommendations on how to optimize their travel spend, whether it’s establishing or improving supplier agreements or buying differently, such as purchasing in advance; changing arrival/departure patterns, etc.”
Stretching Travel Dollars
It’s no surprise that business travel spending trends closely mirror the economy.
“Overall business travel spend often correlates to the U.S. unemployment and exportation of durable goods,” Yannis Karmis, President, Travelocity Business, tells My Purchasing Center. Karmis expects business travel spend to mirror the steady recovery of the country’s economy and grow in 2013.
“We try to educate the market about it,” adds GBTA Vice President of Research Bates. “Our statistical analyses focus on business travel spending and how it correlates to the economy. We’ve found it is an economic indicator of the health of the overall economy – most specifically and directly it is a leading indicator of U.S. employment.
“That’s the one area where [GBTA’s data has] the most correlations, statistically speaking. That’s where we see the biggest impact. When we see the business travel spending is up, we know jobs in the U.S. are going to increase. And if we see a decrease in business travel spending, there’s probably going to be a decrease in total employment.” Bates points out that GBTA’s data only reflects employment, not unemployment, levels.
CWT’s Wartgow says the recession has had a “profound” impact on business travel – both domestically and globally. “As the economy worsens, corporate travel buyers become much more sensitive about travel,” he says. “It becomes essential. Buyers become more frugal.” Economic uncertainty in Europe, for example, affects travel to and from, and within, Europe.
Wartgow says travel buyers have stretched their dollars over the recession years in innumerable ways. “They have a number of trips they’re trying to support but those trips are getting more expensive, so they’re trying to figure out how to maintain a fairly consistent travel budget but still get all the trips finished they need to.”
At GBTA, Bates says one positive fallout from the recession has been an overall awareness of the need to make business trips more productive. This means more multi-tasking and consolidating business on trips. A proliferation of smartphone apps and other mobile technologies is also helping.
“More business is getting done on one trip than it used to be, so there’s been an increase in the spend per trip,” he says. “Part of the reason for the [current] business travel spending increase is inflation, which accounts for about 60% over the last decade. The other 40% represents real increases in travel and productivity. We’re seeing technology supplement actual travel. There’s a conscious effort by corporations to maximize the efficiency of their travel dollars. Travelers are probably spending more time on the road per trip, although trips are fewer.”
Still, Wartgow agrees with GBTA’s assessment that corporate travel is due for a turnaround in 2014. “Suppliers that operate in this space confirm this,” he says. “Hotels see improvement in business travel because of the pricing and the revenues they earn, even though they remain below pre-recession levels. The volume of travel looks to rebound rather quickly, with most categories except air slowly rebounding in pricing by 2014.
Speaking of airfares, they’re not likely to improve any time soon. Nothing brings this closer to home than the recent $11 billion merger of US Airways and American Airlines.
Regardless, most airlines have been running fuller planes on fewer routes over the past few years, making them more efficient but also keeping fares high.
“Major U.S. airline carriers most likely will scale back capacity in early 2013, aligning it more closely with passenger demand to offset record high jet fuel prices,” says Travelocity Business’s Karmis.
Dumping unprofitable routes and tightening capacity “gave the airlines the opportunity to increase pricing because there was more competition for a finite number of seats on those planes,” Wartgow says. “As a result of that, the airlines started to make money and decided they liked it.
“The airlines have been very hesitant to reintroduce some of that capacity and that has stretched into pricing for 2013. They’re able to keep their overall fares up because they’ve been so diligent at controlling the capacity and volume,” he says. “They’re allowing demand to outstrip supply to keep prices up so they can make more money.”
The exception: International outbound flights. “Those are the routes where they can make the most yield on their tickets,” Wartgow says. “That’s where the capacity has been introduced.”
Travel experts agree that international travel is far outpacing the rate of domestic travel, which has remained relatively flat or somewhat depressed over the past 13 years. “Domestic travel has been in a long-term historical decline dating back to 2000,” says Bates at GBTA. “Total person trips in the U.S. has fallen quite a bit.” Karmis agrees. “Companies, large and small, are looking to operate in markets overseas, which is a reason for the expected [international] growth,” he says.
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John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com.
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