Rates of acceleration

Costs are rising faster than corporate travel is recovering, writes Elizabeth West

Plenty of business travel players have talked about moving into a 'post-Covid' world. I've written it; supplier CEOs have said it in their earnings calls and industry interviews; we all wish for it. The truth of the matter is that there will be no 'post-Covid' world, but that doesn't mean business travel is stuck in a slow-motion recovery pattern forever.

Even as we prepare BTN Europe's 2022 Corporate Travel Index of business travel costs in some 50 European cities, and BTN's assessment of 200 cities globally, the profile of business travel is changing in those destinations.

South Africa was among the first to burn through the crucible of Covid's omicron variant. The country lifted most Covid restrictions in February. The UK, which has five cities in our index, has lifted all travel restrictions and Covid-19-related travel documentation. France has suspended its vaccination requirement to enter the country for US travellers (though a negative test is still required); it has also suspended its vaccination pass to enter restaurants and cultural spaces. Germany also has lifted travel restrictions for travellers from across the Schengen Area and for 'green' third countries – though vaccination or proof of negative test is still required.

In Latin America, case loads are now dropping after an early 2022 spike. Most business travel in the region continues to be domestic but is picking up pace with international business travel emerging. Travel intelligence firm ForwardKeys' VP of insights Olivier Ponti, speaking at a Latam travel industry conference in March, projected business travel would return to at least 70 per cent of pre-pandemic levels by the end of the second quarter.

He noted active leisure travel demand was already filling planes and getting international travellers into the market, driving a quicker recovery and higher hotel rates than most analysts had expected at this point. Most Latin American markets still require proof of vaccination and testing to enter the country.

Likewise, the US continues to require proof of vaccination and a negative test result for international travellers to enter the country, but domestic business travel is recovering again after clearing an early 2022 omicron hurdle. ARC has reported 10 consecutive weeks of sequential gains for corporate travel agency air bookings since the second week of January 2022.

The US is also reducing local government restrictions and there may be a near future where masks will no longer be required on US-based airplanes and public transport. The US travel industry will find out 18 April whether the federal government will make that move.

Asia-Pacific markets are loosening restrictions as well. Australia, which had among the world's most restrictive Covid rules in place for nearly 100 weeks, began welcoming vaccinated international travellers in February. New Zealand has a plan to open its borders more gradually from May. South Korea has lifted its quarantine requirement for incoming international travellers, and Japan, which closed its borders to travellers during omicron, has targeted 1 April to ease some restrictions, specifically for students and short-term business travel. The rules, however, remain complex.

HIGHER TRAVEL COSTS

Covid-19 won't exit the corporate travel stage in 2022, and how it will affect business travel patterns and volumes remains to be seen. With citizens in many Western countries weary of governments regulating their movements, officials may be loath to re-instate restrictions and likely will look to vaccination rates, treatment availability and hospitalisation rates rather than raw case rates to influence their next steps.

What is clear, however, is that demand for travel is high. Hotel occupancy rates are climbing and though they have not reached pre-pandemic levels in most markets, average daily hotel rates nearly have in most regions – and in specific cities they have far exceeded 2019 levels. Copenhagen, Dubai, London, Miami, Paris, Sydney – in all these cities, corporate booked hotel rates have surpassed pre-pandemic highs.

Commercial real estate firm CBRE has commented on the atypical nature of the hotel industry recovery., noting that room rate is leading recovery, rather than occupancy.

"Typically, when recovering from downturns, [average daily rate] growth lags occupancy gains," CBRE head of hotel research and data analytics Rachael Rothman said in a December statement releasing the firm's 2022 forecast. "The trend has reversed this cycle, owing to strong leisure demand and a nascent recovery in corporate and group demand."

But the drivers behind increasing hotel rates – and other per diem business travel costs – will go far beyond demand in 2022. Hotel executives, particularly in earnings calls last autumn, commented on labour shortages and the challenge of attracting workers back to the industry after cutting them loose during the pandemic.

Meanwhile, supply chain issues in the car manufacturing industry have hampered production and impacted availability at car rental companies, many of which sold off older fleet at the beginning of the pandemic as a survival tactic. A subsequent demand boom for drive-to travel – particularly leisure – sent car rental prices soaring and providers in a pinch to source new inventory.

With business travel returning, there will be more competition to nab the available cars – and rental companies may prove choosier about who gets them at what rate. Longer rentals, which become more profitable for rental firms because of less turnaround demand, have been prioritised, according to some travel buyers. Business travel rentals tend to be shorter. That said, preferred negotiated rates may have insulated some business travel customers from the impacts of these car rental challenges. At least so far.

Russian military aggression in Ukraine has pushed oil prices to all-time highs, particularly for markets that rely heavily on Russian sources. The effects of oil prices can be far reaching for travel and not always obvious. How oil impacts ground transportation costs, however, is clear. Lyft and Uber introduced fuel surcharges in the US in March, which both companies said would go directly to drivers to offset the rising fuel costs those workers have suddenly shouldered to do their jobs. In Ireland, the National Transport Authority is considering a hike to the maximum allowable taxi fare.

Airlines, of course, are keenly attuned to jet fuel prices, which have doubled since the beginning of 2022. Carriers in the US have not yet gone the route of fuel surcharges, but several have cut routes and capacity, relying on reduced supply to drive up fares. Internationally, European regional carrier Loganair has "realistically no option but to introduce a fuel surcharge on new ticket sales," according to CEO Jonathan Hinkles. AirAsia Malaysia announced new surcharges this month and Japan Airlines has increased its fuel levies.

The impact of rising fuel prices has a long tail that can extend through to food distribution for restaurants and supplies needed by hotels, car rental companies and other travel providers, causing business travel per diems to inch up across the board – sometimes unexpectedly. Companies should plan for this in 2022, and BTN Europe's Corporate Travel Index will track changes throughout the year.

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