What’s in store for the coming year and how will it impact on business travel? Mark Frary takes a look into his crystal ball...
2014 WILL BE A BIG YEAR. It is the 100th anniversary of the start of the First World War, the 50th of the formation of rock band The Who, the 30th of the foundation of Capita, Cisco and Virgin Atlantic, and the 20th of Amazon, Yahoo! and Carlson Wagonlit Travel. 2014 will also see the FIFA World Cup return to Brazil while Glasgow will host the Commonwealth Games.
There will be much to celebrate as a result, more so as the country starts to believe that economic recovery has finally begun in the UK and elsewhere. The International Monetary Fund’s (IMF) most recent World Economic Outlook forecasts global growth of 3.8 per cent in 2014, up from 3.1 per cent in 2012 and 2013 (predicted).
Andrew Cates, senior international economist at investment bank UBS, tells BBT: “Many Asian economies have been through tough times in recent months as a European recession, a slowdown in China and a narrowly-based and sluggish US recovery have combined together to inhibit the demand for their exports. The prospect of a US Federal Reserve ‘tapering’ campaign [cutting quantitative easing] and higher long-term interest rates in the US have also undermined those economies that have been highly dependent on domestic credit growth and the external finance to support that credit growth.
“Heading into 2014, tepid export demand ought to warm up a little as Europe recovers, and a US recovery broadens and quickens. That will help generate greater export growth, particularly for those economies that have a high exposure to global trade, such as China, Taiwan and Korea.
“Other Asian economies that have greater need for external finance and which are less dependent on exports as a source of domestic income growth are likely to see less upside to their economic growth, though they should nevertheless still benefit somewhat from an improvement in global growth conditions.”
BULLISH BRITAINHere in the UK, things are certainly looking up. The IMF forecasts the UK’s economy to grow by 1.5 per cent. The September 2013 report, Forecasts for the UK economy, from HM Treasury is even more bullish. The average growth for 2014 predicted by 26 independent forecasters in the report stands at 2.1 per cent. Business confidence measures, such as the ICAEW/Grant Thornton UK Business Confidence Monitor and the CIPS/Markit Purchasing Managers’ Index are also heading into more positive territory.
Andrew Roberts is co-head of European economics, rates and research at the Royal Bank of Scotland. He says: “The housing market has turned convincingly and is boosting confidence. Meanwhile, business is seeing signs of pickup and investing. The Engineering Employers Federation has revealed that capital expenditure intentions are at a six-year high.”
Roberts believes the Bank of England will keep rates ultra low but “don’t be surprised if the UK is the first major country in the world to raise rates. It now has a 7 per cent unemployment promise, but that could be met in 2014 easily enough.”
But Roberts does sound a note of caution. “The economy risks a boom,” he says, “and not because the economy has been fixed. We are likely only halfway through the household deleveraging process [individuals reducing their debt] and the injection of government guarantees into housing will stop this process.”
POSITIVE MINDSET
The biggest prediction for 2014 from Paul Wait, chief executive of the GTMC is that the economy is looking better but that companies are very much in two different camps. “You can say things are getting better and let’s just wait for things to improve – or you can turn around and say things are looking better but I am going to do my thing to get ahead of the competition. It’s about having a positive mindset to get things moving,” he says.
Wait sees growth coming from the small- to midsize-companies and, increasingly, these are in the regions, not in London and the south east. “Your office base is becoming less relevant.”
With growth on the cards, buyers are expecting to spend more on business travel. The GBTA [Global Business Travel Association] BTI Outlook – Annual Global Report & Forecast, published in August, says it expects business travel spending in the UK to increase by 3.7 per cent in 2014, following a predicted rise of 1.9 per cent during 2013.
And with a growing economy and increasing demand, a rise in the cost of business travel seems inevitable. Stewart Harvey, HRG’s group commercial director, says that a two-tier pricing regime has emerged and will dominate in 2014. “Airlines are strategically pricing, and more immediate bookings are getting higher fare increases while more advanced fares get lower fare increases,” he says.
He believes that North American fares booked far in advance will increase by between 3 and 4 per cent in 2014 while those booked at short notice will rise by more like 7 to 9 per cent. In Latin America, the differential is even more stark: advance fares will rise by 5 per cent while last-minute fares will increase by double digits.
The move to the back of the plane – the average percentage of passengers flying in premium classes has fallen from an average of 9.5 per cent before the 2008 crisis to around 8 per cent now, according to IATA – means there are deals to be done for those companies still flying their employees in premium cabins.
Hotel rates in key international cities are continuing to rise sharply, says Harvey. “Rates in megacities with lots of venues for conferences and exhibitions, such as New York, Barcelona, Hong Kong and Manila, will grow by between 5 and 10 per cent”.
Trevor Elswood, chief commercial officer at Capita Travel and Events, says cost control is still going to be a key theme for 2014. He believes the move of travel management to procurement will continue, but procurement teams are getting more and more stretched. “There is a continued trend of outsourcing management of spend and this is now coming down through to the UK,” he says.
TRAIN FARES
Rail prices seem sure to increase. The government’s formula of RPI (retail price index ) + 1 per cent applies to certain types of regulated fare, such as commuter season tickets, so these will go up. The more business-focused walk-up tickets are not subject to the same cap, and as rail passenger numbers continue their upwards spiral, unregulated fares are sure to follow. Capita’s Elswood says there is a greater propensity for companies to capture spend on rail where it was perhaps missed before when part of expenses.
UK hotels are of major importance for Capita. “London and key cities are looking more confident in 2014, but I don’t see provincial demand coming roaring back,” says Elswood.
Pricewaterhouse Coopers’s (PWC) 2014 hotels forecast, meanwhile, sees average occupancy in the regions increasing slightly, by 0.4 per cent to 71 per cent, and in London by 0.9 per cent to 82 per cent, despite increases in room supply in both. Average daily rates will be up 1.4 per cent in the regions to £59.40 and by 1.5 per cent in London to £138.20, PWC says.
TRAVELLER-FRIENDLY TECH
Will 2014 finally be the year of the mobile? There is some evidence that people are moving away from wanting information on their mobile devices to wanting to do more, such as booking and rebooking. Capita’s Elswood believes the traveller is now at the centre of travel management. “Companies are starting to put the emphasis on technology that is customer and traveller-enabling. Everything we have has to be far more personalised although not many providers have reached that yet – and it will be interesting to see how that shapes technology in the year ahead.”
The GTMC’s Wait says: “What is going to be interesting is how choices of individuals will actually dictate what happens in the next two or three years. Has traveller behaviour remained the same or are we seeing a new breed of business traveller?”
There has been much talk about open booking – essentially allowing travellers to book what they want – in the past year and supported by technology. Will 2014 be the year it breaks into the mainstream?
“Almost every company still wants control” says HRG’s Harvey. “We are getting a generation that are technologically tooled up and conversant, and we should use this. Our big challenge is not that we want to turn these people loose – we want to empower them, but with within a framework so that we can forecast and control the suppliers we are booking.”
So 2014 is shaping to be an interesting year as the economy finally returns to reasonable growth. The question is – are you ready?
SPORTING CHANCES
There is a big question mark over the effect of next year’s big sporting events, just as there was before the London Olympics in 2012.
HRG’s Stewart Harvey says: “For the six-to-eight week period around the FIFA World Cup in Brazil there will be an effect, but then it will be back to business as usual. One of the things airlines are trying to do is be careful how they judge incentivising one-offs rather than keep their eye on those giving business right now and in a year’s time, rather than a company that wants to flood them with demand in July next year when the World Cup is on.”
Flights to the Russian capital will probably increase in February during the 2014 Winter Olympics in Sochi, and Glasgow is likely to experience its own spike during the Commonwealth Games later in the year.