Spend trends

Business travel’s not what it used to be. Literally. The data seen by corporate payment companies about how clients are paying for travel reveals much about the state of companies’ managed travel programmes – and it’s clear what the story for 2020 will be.

“Volumes are going to be catastrophically down,” says Steve Robson, head of commercial cards EMEA for Citi. “There have been huge drops in travel because of coronavirus. [Even before countries started to shut their borders], client reductions ranged from business-essential only to a complete ban, where travellers had to go to senior management to ask for an exception.” According to Simon Barker, CEO of the virtual card technology provider Conferma Pay, volumes were down by more than 90 per cent in some cases before the border closures.

Nor is it only the number of trips that will end 2020 lower than for 2019. So too will be what business travellers pay for them. “One would expect air average transaction value to fall as airlines look to fi ll the aircraft that are still flying,” Robson says.

So far so bad, certainly for travel suppliers, but Robson thinks business travel may never be the same again. “The story is what happens next? People are being asked to work from home and do video-conferencing. But once we recover will there prove to be more fundamental changes? Will business people say they got what they needed by using virtual conferencing, or will they say it has made them value face-to-face relationships even more and want to continue travelling?”

Maria Parpou, chief product & commercial officer for commercial payments at Barclaycard, suspects some travel volume declines will be permanent. “Conferences and overseas trips have been cancelled and businesses are seeing that doing it with WebEx instead is doable and you can survive in a nonface- to-face environment,” she says. “I think business travel will be dampened down and there will be a pattern shift, especially if coronavirus continues next winter.”

2019 travel spend tightened in the Eurozone
In the pre-coronavirus world, average spend per transaction by Barclaycard customers on corporate cards fell 3 per cent between 2017 and 2019. Parpou attributes these figures to “better management of expenses, with better control on where you are spending.”

According to Parpou, travel managers are making smarter use of technology, such as tools that rebook hotel reservations if a lower rate becomes available. “Companies have put their arms around travel spend and now with coronavirus I think that will go further,” she says.

Citi likewise saw what Robson characterises as “muted” travel spend across the Europe, Middle East and Africa region in 2019. “It was pretty fl at, but it wasn’t down,” he says. However, Robson thinks macro trends beyond business travel were the main reason: economic downturn in the eurozone and Brexit-related uncertainty. Beyond Europe, client spend in sub- Saharan Africa was up modestly, and surged by double figures in the Middle East.

Figures from AirPlus International, meanwhile, shed light on shifting costs for business air travel. The average ticket price paid by AirPlus customers in the UK in 2019 rose 2.8 per cent. “In most countries, ATP was on the decline, reflecting the UK outperforming the eurozone,” says AirPlus UK managing director Paul Spelman.

ATP growth in the UK was entirely attributable to higher domestic fares. Short-haul fares to the rest of Europe were flat, while long-haul fares were down. There were also variations by cabin class. Economy fares shot up 4.8 per cent and business class fares 3.1 per cent, but premium economy was flat and first class was down.

As a result, the diff erence in price between a business class and first class tickets is now pretty small: £3,479 versus £3,899, suggesting that flying first class may occasionally make sense, although Spelman points out that few corporate policies permit it.

One of the reasons first class has become relatively affordable is that it is booked farther in advance: 58 days on average in 2019, compared with 35.1 days for business class. However, first class remains a tiny proportion of all bookings by AirPlus customers – just one ticket in a thousand.

Overall, business travellers continued to book further ahead than ever in 2019, with the average number of days ahead of departure lengthening to 22.4 days from 21.7 days in 2017 and 21.9 in 2018. Strikingly, 24 per cent of tickets booked by AirPlus’s largest clients were two days or fewer before departure, whereas for its smallest clients the figure was only 8 per cent. Presumably, larger clients negotiate better deals for more expensive fare classes that are available at short notice.

For several years there was also a lengthening in the number of days between when travellers booked hotels and when payment was taken on a Conferma Pay virtual card on arrival or departure. However, this figure stuck at around 18 days in 2019. “There is a balance to be struck between booking far enough in advance to get lower rates and too far in advance that travellers might have to cancel,” says Conferma Pay’s Barker. “It may be the wisdom of crowds has decided 17 to 18 days is optimal.”

Another trend Barker has noticed is that use of prepaid rates grew to 15 per cent of all bookings in 2019. Pre-paid rates are generally lower but the problem is what to do about extras run up by the guest at the hotel. The solution has been to cover those extras on the same virtual card payment. Historically, an average of 1.1 charges have been made to each Conferma virtual card used for hotel payments. That rose in 2019 to 1.3 charges – yet another example of how payment strategies for corporate travel continue to evolve.

Revolution in 2020?
Evolution, however, may not be the pace at which spend patterns change for 2020; at present revolution seems more likely. Should border restrictions remain in force and visa requirements tighten due to an ongoing health threat, advance planning for business trips may be required by governments, not simply requested by corporations. On the other hand, the potential for infection waves may drive businesses to book closer to the travel date to reduce cancellation risk. Or, with both issues in play, companies may have to spring for fully refundable airline tickets and eschew those cheap prepaid hotel rates.

One thing is certain: payment data will tell the story of business travel in 2020 as it starts to reemerge. Companies should look to that data over time to understand the reality on the ground for their travellers and use it to reshape their programmes.