Upward trajectory

Demand growth and capacity caution drive costs skyward in Europe, writes Amon Cohen

If you plot a curve of business travel booking volume in Europe during the past 12 months, you end up with what looks remarkably like a diagram of a rollercoaster.

Following a 2020 of minimal business trips, transactions climbed steadily in 2021 and were accelerating nicely until the Covid-19 omicron variant materialised. Omicron “drove business travel demand back on a downward trajectory as we entered the end of 2021 and into the beginning of 2022,” said Jason Geall, American Express Global Business Travel SVP and general manager for Europe, the Middle East and Africa. “But from the second week of January 2022, we’ve seen again the beginnings of a recovery, with eight weeks of week-on-week growth.

“We’re seeing the recovery across multiple sectors. That pent-up demand is very real. There’s still a need for people to engage face to face,” Geall said.

Now the big question is whether that rollercoaster is poised to take another lurch downwards following Russia’s invasion of Ukraine. It’s too early to tell, said both Geall and FCM head of global account management and consulting Jo Lloyd. Amex GBT was already recording some impact on bookings in central and Eastern Europe in the approach to the outbreak of war. The only safe conclusion right now is that 2022 will prove another volatile year for European business travel in spite of the region appearing to shake off the ravages of the Covid-19 pandemic.

With regard to the pandemic, “there’s definitely a desire to travel,” said Lloyd. “When people are allowed to travel, they will. There is a direct correlation between how easy it is in terms of quarantine and testing, and the number of people traveling.

“There were companies that travelled all the way through the pandemic – the engineers, the guys in the field – but we have seen a return in Europe in the last few months of sales-driven activity as well. That’s starting to come back face-to-face when last year it was mostly done virtually. Regional heads are also back on the road,” she said.

“We’re seeing the recovery across multiple sectors. That pent-up demand is very real. There’s still a need for people to engage face to face”

Lloyd did, however, caution that even without taking the Ukraine conflict into account, volumes are still well below where they were pre-pandemic. “Most of our customers are projecting that they will be back to 40 per cent to 60 per cent of 2019 levels before the end of this year,” she said. Permanently inhibiting factors, she said, will include an even greater focus on sustainability and employee wellbeing in Europe than in other regions.

Recovery has not been consistent across Europe. FCM has seen the strongest growth to this point in France, the Netherlands, Italy, Spain and Turkey. Geall offered a similar list. Spain has been Amex GBT’s fastest-recovering market, “along with France and Benelux, with the UK just behind them,” he said.

In addition to the war in Ukraine, Geall attributed the national variations to the speed at which Covid restrictions have been relaxed and cultural attitudes. Businesses in Latin countries, he said, regard it as particularly important to see customers and colleagues in person.

Another contributing factor could be coronavirus vaccination rates. Southern Europe is especially advanced in terms of fully vaccinated individuals, with Portugal at 93 per cent, for example, Spain at 84 per cent and Italy at 80 per cent, according to figures collated by the Financial Times. Almost all of Western Europe has higher rates than the United States (64 per cent, according to The Times) but many central and Eastern European countries are well behind the western end of the continent, including Hungary and Czech Republic (64 per cent), Slovenia and Poland (58 per cent), Serbia (47 per cent) and Bulgaria (29 per cent).

Assuming Europe can maintain its business travel recovery (matched, Lloyd noted, by a rapid return of leisure travel too), price can only go one way in 2022. “European air capacity is still 45 per cent lower than pre-Covid,” Lloyd said. “If demand is back but the capacity isn’t, then you have the ideal recipe for fare increases, plus you have external factors such as oil prices.”
(continues below Europe highlights)

Europe highlights

  • Omicron torpedoed nascent business travel recovery in Europe in late 2021, but week-over-week growth since January shows strong pent-up demand in the region.
  • Vaccination rates vary across the region. They are strongest in Southern Europe but lag significantly in some Eastern European countries. 
  • Crisis in Ukraine is driving uncertainty and has spurred a cautious pullback in demand for business travel to Eastern European nations. The longer-term effects are hard to predict.
  • Senior TMC execs say strongest growth markets in Europe so far are France, Italy, the Netherlands and Spain.
  • Prices can "only go one way" in 2022, according to experts, aided by a strong surge in demand for leisure travel as well. Expect airfares, hotel rates and ground transportation costs to rise. Rising oil costs and an inflationary environment will also push per diems up in many markets.

    “It’s the same with hotels: they’re also going up; and car rental. There’s been a growth in rate of 50 per cent to 70 per cent since the beginning of 2021. Some cities are going to exceed 2019 levels by the end of this quarter,” says Lloyd.

    Amex GBT is also seeing the cost of business travel rocketing. Geall points to chronic labour shortages as another contributory factor to rising hotel rates.

    Price needle points skyward

    The perspectives of Lloyd and Geall are consistent with the picture painted by BTN Europe’s Corporate Travel Index for the continent. It shows a price needle pointing firmly skyward. In the 2021 index, for example, there were only four cities with an average daily hotel rate north of €180. This year there are ten. Similarly, Zurich was the only city in Q4 2020 to have a total per diem above €450. This year, Switzerland’s financial centre is joined by London and Geneva.

    In Scandinavia, Oslo's per diem has risen from €290 in Q1 of 2021 to €346 in Q4 and Copenhagen's has grown from €280 to €386 over the same period.

    London is a similar story. Its per diem grew from €369 to €467 over the course of the year. Not all cities are higher than two years ago but three-quarters of European cities in BTN's index are up from last year.

    Generally, prices rose every quarter during 2021. In Amsterdam, for example, hotel rates climbed from €121 in Q1 to €141 in Q2, €158 in Q3 and €160 in Q4. Edinburgh, another standout performer over the past year, also grew quarter-on-quarter, climbing from €72 in Q1 to €105 in Q2 and then rocketing to $154 in Q3 and €211 in Q4.

    One symbolic development is the decline in per diem of Kyiv, even in Q4 of 2021. It fell 18 per cent – the second largest quarter-on-quarter drop – from €234 to €193.