Bob Papworth talks to industry leaders about corporate travel’s prospects for the coming year...
Anyone familiar with the 2007 magnum opus that is former Led Zeppelin frontman Robert Plant’s collaboration with Alison Krauss, Raising Sand, will attest that track nine is a bluesy little number entitled Fortune Teller.
In this ditty, the flaxen-ringleted one tells how, disappointed by the non-appearance of a predicted perfect love-match, he returns to his palm-reader to demand a refund, only to discover that it is she who is the girl of his dreams. “Now I’m a happy fellah,” the ageing rock-god croons, having married the crystal-gazer. “Now I get my fortune told for free.”
Which, in this day and age, is probably just as well. Never an exact science, predicting the future has probably never been more imprecise. Most of us haven’t got a clue what’s happening next week, let alone way down the line. If you can get your trend analysis for diddly-squat, you’re quids in.
Fortunately for the corporate buying community, there is no shortage of prognosticators ready and willing to pore over the travel industry tea-leaves and pronounce, gratis, on the business life yet to come. Unfortunately for the corporate buying community, their findings rarely make comforting reading.
Christa Degnan Manning, for example, doesn’t beat about the bush. “Pricing power will swing back to air and hotel suppliers for the first time in two years [in 2011] as more competition for limited seats on planes and increased occupancy levels at hotels are expected,” says the director of American Express Business Travel’s eXpert insights and research division.
“Companies should re-examine programme strategies and policies undertaken in the past few years and look to manage budgets and cost-control tactics competitively to protect them from the significant rate increases expected,” she adds.
The soothsayers at Advito, BCD Travel’s consultancy unit, are only marginally less pessimistic. They expect 2011 to bring “moderate” increases in air fares – anything up to 7 per cent in North America and Europe, 6 per cent in the Middle East, and 5 per cent in Latin America, Asia-Pacific and Africa.
Similarly “moderate” increases are expected in room rates, with hotels in the developing markets of Latin America and Asia-Pacific taking the most aggressive pricing positions.
Worse still, while average daily rates across the US are expected to work out only 3.5 per cent higher than in 2010, staying in New York is likely to cost 13 per cent more this year. In Asia-Pacific, where prices are expected on average to be 5 per cent higher, the destination to avoid is Singapore, where room rates are set to soar 8 per cent.
To add to travel managers’ woes, Amex’s annual Global Business Travel Forecast predicts: “In spite of the nearly across-the-board increases in business travel prices next year, most procurement and travel departments will still be expected to return incremental year-over-year savings to the business.”
That situation will be exacerbated, eXpert boss Manning reckons, by the fact that companies will travel more, in the hope of making up for lost commercial ground. Employers looking to win new business will be unleashing their road warriors – but with the same recession-induced cost-constraints as before.
The assertion that travel is on the increase is borne out by an opinion poll conducted by Deloitte, in which 80 per cent of business traveller respondents said they expect to take at least as many commercial trips this year as last – if not more – and 79 per cent said travel spending will at least match, if not exceed, 2010 levels.
Further indirect evidence of a likely upturn in travel comes from Ernst & Young’s Competing for growth: Winning in the new economy study, which shows that British businesses, having relied during the recession on traditional trading partners in Europe and North America, are now looking to break into new markets.
Nearly one-third (29 per cent) of the UK company bosses surveyed for the report say China will be a key source of profitable growth in the next two years (up from 11 per cent for the last two years) and 16 per cent said growth would come in India (up from 9 per cent).
Andrew Goodwin, senior economic advisor to Ernst & Young’s ITEM Club, says: “The developed world faces significant challenges over the next few years, with households and governments looking to get their debt levels under control. As a result, these economies are likely to see a much more subdued recovery than might usually be the case and it will be several years before output regains its previous peaks.
“In this climate of subdued demand, in both domestic markets and our traditional export markets, UK firms will increasingly need to seek new income streams from developing economies, particularly those in Asia.”
Stewart Harvey, client services director at HRG (Hogg Robinson Group), reckons that’s a pretty accurate assessment. “Travel is being controlled and, therefore, while I can see double-digit growth to and within the Middle East and Asia, there is only slight growth in Europe and North America,” he says.
“We get a sense that the controls are being enhanced, but they’re also being targeted – clients can see where the growth is, and are being less restrictive in those areas.
“We have definitely seen an upturn in business, almost to the levels of two years ago. The big difference is that now there is a lot more emphasis and focus on the need to travel.”
That business upturn is reflected in the most recent quarterly transaction figures from the Guild of Travel Management Companies, which suggest that the corporate travel recovery is already well under way.
In the first nine months of 2010, Guild members completed nearly 11.4 million transactions, more than 10 per cent up on the 10.3m total reported for January-September 2009. Air travel bookings were more than 11 per cent higher, at just shy of 4.9m.
One GTMC statistic could be taken as a harbinger of things to come – rail transactions, which have shown consistent double-digit percentage increases in previous quarters – rose only 7 per cent in Q3/10 and January’s hefty fare increases seem likely to stifle further growth.
Somewhat disingenuously, the Association of Train Operating Companies (ATOC) highlights Office of Rail Regulation figures which show the average price paid for a single journey was only £4.89; the average 6.2 per cent increase, ATOC says, will add just 30p to that tariff.
ATOC chief executive Michael Roberts said: “Even with these fare increases, the money passengers spend on fares covers only half the cost of running the railways – taxpayers make up the difference. The government is sticking with the previous administration’s policy to cut the taxpayers’ contribution to the overall cost of running the railways.”
Perhaps optimistically, Roberts expects demand for rail travel to double “in the coming decades”. As a consequence, he says, “it is more important than ever that money is spent on providing better stations, more trains, and faster services.”
He does concede, however, that “in the longer term we need reform, which drives down the cost of the railways by relying more heavily on the innovation and resources of the private sector to give passengers a better service and taxpayers better value for money.”
A bigger concern for buyers is – or should be – the price of hotel accommodation. Although the pundits cannot agree on the scale of the price increases, they are unanimous in their conviction that overnights are not about to become cheaper.
Deloitte’s aforementioned poll findings show that 68 per cent of business travellers work in their hotel rooms, 65 per cent say they expect more than just “a clean room and a comfortable bed”, 79 per cent want free high-speed internet access and 77 per cent expect free parking.
Deloitte vice-chairman Adam Weissenberg, who leads the company’s tourism, hospitality and leisure sector, says: “Consumers are more value-conscious than ever and have been conditioned to expect more for their money after a steady diet of recession-era deals.”
That may be so, but they should be prepared to be disappointed. A recent PricewaterhouseCoopers study – admittedly confined to US hotels – suggests that occupancy figures will this year climb back towards pre-recession levels, and average room rates, having fallen for the past two years, will rise by more than 4 per cent. STR Global reckons US room supply will grow by just 2 per cent this year, while demand will increase 7.4 per cent.
Even more worrying, for the longer term, is Lodging Econometrics’ (LE) November decision to revise downward its forecasts for new hotel openings “as the ongoing banking crisis continues to curtail the availability of construction financing”. The New Hampshire-based number-crunchers now expect the global supply to increase by fewer than 57,500 rooms this year, and by only 52,213 rooms in 2012. “From an operations perspective,” LE says, stating the blindingly-obvious, “hotel owners and operators consider this excellent news.”
On the aviation front, things are less certain. Having calculated that its member airlines will have ended 2010 with cumulative profits of US$15.1 billion, the International Air Transport Association (IATA) expects that to fall significantly this year.
For a start, the post-recession return to ‘normality’ will lose momentum; there is a clear concern that some crisis-induced cutbacks will never be reversed. Second, unemployment and flagging consumer confidence, both in the US and Europe, will repress demand.
Fuel prices were expected to remain constant at around US$79 a barrel, but airlines will be taking delivery of some 1,400 new aircraft during the year, and the market for secondhand planes is very weak. That will create a 6 per cent increase in airline capacity, while demand is predicted to grow only 5 per cent.
Never one to be dazzled by silver linings, IATA director-general Giovanni Bisignani reckons 2010 was “as good as it gets” in the recovery cycle. “Governments are running out of cash for pump-priming,” he says. “Unemployment remains high and business confidence is weakening. And we expect the 3.2 per cent GDP growth of 2010 to drop to 2.6 per cent in 2011. As a result, 2011 is looking more austere.”
In relation to these gloomy predictions, when interviewed by Buying Business Travel, HRG’s Stewart Harvey doesn’t actually say “poppycock”, and the term doesn’t feature in either Amex’s or Advito’s prognostications, but the word is there in spirit if not in fact.
“I would say that while there is definitely no migration towards the front of the plane – people who were travelling economy class are still travelling economy class – we are seeing more business class travel as new, and more senior managers are travelling again – and, of course, they are travelling in business class,” Harvey says. “And economy class is growing, too, as we see greater frequency of travel.”
Amex adds: “As airlines aggressively ran promotions to fill seats as people stayed home last year, many companies encouraged employees still on the road to take the lowest air fare available – even with restrictions – as the cost to change a ticket, plus the lower promotional base cost, would likely be less than a more flexible, but higher, corporate negotiated fare.
“With fewer promotional fares expected to be available next year, a more likely
strategy to reduce air costs will be increased advanced booking, to both ensure a lower-priced corporate ticket as well as availability on popular business flights.
“Airlines are expected to keep capacity constrained so business travellers will have to book sooner for both cost and convenience purposes.”
Advito warns: “Fares will rise much more as a result of airlines putting fewer seats in lower-fare buckets than [as a result of] official increases in published prices. More restrictive conditions on cheaper fares are also likely.”
At a more general level, what travel purchasing trends are likely to gain traction in 2011? HRG’s Harvey anticipates much greater scrutiny of the need to travel, and suggests that the buyer/supplier relationship has become much more finely balanced. “We are certainly seeing evidence of trips not being approved,” he says, “and control has definitely got tighter. On the one hand, buyers are saying ‘we stuck by you when times were bad so now, when things are getting better, how about you sticking by us?’, but at the same time suppliers are saying ‘don’t think you can drop off the volumes by 20-30 per cent and still expect the same prices.”
Lessons have been learned from last April’s ash-cloud crisis, too. “From that difficult time a lot of good has come, a lot of lessons have been learned, and even though times are getting a bit better, those lessons have stuck,” Harvey says. “Clients are now saying they want some kind of structure to their crisis management contingencies.
“Clients have now recognised the value of good contingency planning – they want to know what the back-up plan is – and they are, in many cases, prepared to pay for one.”
Never one to keep his head below the parapet, Andrew Burch, Hillgate Travel’s business development manager, suggests that further fall-out from BP’s Deepwater Horizon catastrophe may spill over into corporates’ near-obsession with shifting travel into the procurement arena.
“We can’t predict the outcome of the inevitable enquiries,” he says, “but should it emerge that the method of outsourcing and subcontracting at the lowest possible price contributed – even in the smallest way – to that disaster, I suspect that companies will start looking very closely at their procurement practices.
“It’s not going to happen overnight, if at all, but it may be that over the next two or three years, the emphasis will shift from lowest price to best value.”
But enough of travel management gurus – let’s get back to Robert Plant. The title of the final track on Band of Joy, his latest offering, provides a neat and timely reminder that whatever 2011 throws at us, this time next year we’ll be obsessing over something else. It runs to five verses, and lasts just over four minutes. It’s called ‘Even This Shall Pass Away’.
This article was first published in ABTN's sister title Buying Business Travel, the award-winning magazine for company travel & meetings buyers and arrangers.
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