September 29 2022, Kimpton Fitzroy London
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21 November 2022, Hilton London Metropole
Corporate travel reflects the conditions in which it operates – so what does 2013 hold in store? Mark Frary talks to the industry
IS IT REALLY MORE THAN four years since Lehman Brothers collapsed? It is sometimes hard to believe that travel buyers have had to deal with a challenging economy for so long. The UK may be out of its double-dip recession – for the time being at least – but things are going on outside our national borders that will have an effect on companies in the UK. This will be reflected both in terms of overall corporate health and also in terms of what their travel managers will have to pay for air fares and hotel rooms.
We asked a number of experts for their views for the year ahead...
THE ECONOMIST VIEWDEUTSCHE BANK’S World Outlook report predicts global growth of just 3.2 per cent in 2013 “due to stalled recoveries in the US and Japan as well as planned American tax increases and spending cuts”.
The bank’s chief economist, Peter Hooper, says: “The outlook for the world economy has deteriorated. While new policy stimulus from the ECB [European Central Bank] and US Federal Reserve has underpinned equity and commodity prices... disappointing recoveries in the United States and Japan have left us little choice but to reduce our forecasts for global growth.” The bank’s figures are lower than its previous forecasts. “Our forecast downgrade is mainly due to a much slower than expected recovery in the US,” says the bank. “We now see US growth of just over 2 per cent [for 2013].”
On this side of the Atlantic, Andrew Roberts, head of European rates strategy at RBS, believes the eurozone is “in semi-permanent recession, driven by the crisis in the periphery and, with negative growth, that is likely to continue throughout 2013”.
The ECB’s promise to help countries has calmed the market but problems remain. “Spanish deficits continue to rise – the European Commission just raised their deficit forecast to 8 per cent for Spain – and growth expectations remain very weak, which is a dangerous phenomenon for the periphery,” says Roberts.
He believes the upcoming September elections in Germany have given Greece a little more breathing space, although the country may re-emerge as a concern in 2014. “There is a perceived willingness by the German government to give Greece money now to avoid a major financial accident in front of the elections.”
Roberts expects “modest but positive growth” for the UK, which is sandwiched between a better performing US and the weak eurozone, yet remains a global safe haven for capital. “The UK is more than halfway through its public sector job losses, which will surprise many, and real wages are set to rise for the first time in three years thanks to inflation being more under control,” he says. “The Bank of England’s funding-for-lending scheme should start to show results with increased lending, but households will be de-leveraging until 2019 on our numbers, so don’t get too excited about the economy.”
THE BUYER VIEWCAROLINE STRACHAN, global head of travel at Astra Zeneca, says 2013 will be a year for buyers thinking about how to move to the next level in sophisticated travel management. She says: “Many travel programmes have reached a level of maturity, so I think you’ll hear the question: ‘So what next?’ This will drive new innovation, create open dialogue between buyers and suppliers, and could also positively disrupt the traditional ways of managing travel.”
Despite economic uncertainty, a recent survey of 178 European travel buyers conducted by the Business Travel Show found that 37 per cent of respondents believed their travel budgets would be higher in 2013 than the previous year, compared with 19 per cent who believed they would be smaller. The survey also revealed that 47 per cent of buyers are expecting to have to arrange more trips in 2013 than 2012.
Mette Christensen, global head of travel for Danish shipping conglomerate AP Moller-Maersk, says buyers need to think more strategically in 2013 when it comes to hotels. “Do not jump between different chains just because someone offers you a discount. Concentrate on the destinations where you have sufficient volumes, sign a best available rate agreement for the rest, and/or buy on your travel management company’s [TMC] corporate rates,” she says.
THE SECTOR VIEWHOTEL PRICES look set to level off in 2013, according to analysts in the sector at PWC (Pricewaterhouse Coopers). In London, the company says revenue per room has grown by 25 per cent since 2009, helped by one-off events such as the Olympics, but also revealing a fundamental strength.
“London’s status as one of the leading global cities means it can attract people from all around the world, including those from emerging markets whose economies continue to prosper,” PWC says. It adds that new hotel supply during 2012 and 2013 is likely to bring down occupancy but these temporary factors are not expected to hold London back for long.
Outside London, the picture is different. “Here demand is more dependent on the domestic economy, which has been squeezed by high inflation and the aftermath of the financial crisis,” says PWC. “Revenue per room is still 10 per cent below its 2007 level. Despite near 70 per cent occupancy rates, hoteliers have been unable to pass price increases through the market. We expect revenue per room and rates to remain broadly flat in 2013, as they have since 2009.”
The International Air Transport Association (IATA), meanwhile, sees 2013 being more profitable than 2012, largely due to the recent fall in oil prices and a prediction that they will stay low. IATA’s forecast is for the world’s airlines to collectively make a profit of US$7.5 billion in 2013; the largest proportion of this will come from Asia-Pacific, with European carriers continuing to make losses. The fares paid by travel buyers are likely to mirror these profit levels.
THE TMC VIEWSIMON MCLEAN, managing director of Click Travel, thinks 2013 has the potential to be “a shocker”. He says: “There is still a huge degree of economic uncertainty which is putting pressure on travel budgets, and the European crisis still presents a huge risk to the corporate world.”
He adds: “We expect to see a degree of continued cabin downgrading on long-haul flights and carrier-switching across the board among incumbent customers.”
Prashanth Kuchibhotla, director of global consulting at American Express, believes the eurozone will be the looming shadow over business travel. “The eurozone is the big issue and has been dragging on for years,” he says. “It is a big trading partner for the UK.”
One of the side-effects of this uncertainty in Europe is in demand for long-haul. “If I am Spanish and planning a holiday, I am not going to go long-haul,” says Kuchibhotla. “As a result, the back of the plane on long-haul flights is, relatively, less full these days. This means that the lower fare classes usually picked up by leisure travellers are now available for the corporate to pick up. We saw this in 2012 and will see it continue in 2013.”
In its 2013 Global Business Travel Forecast, American Express predicts “low single-digit air fare increases in EMEA in 2013” with some countries, such as Spain, seeing declining fares.
It also expects “only conservative increases in corporate hotel rates, despite relatively constant hotel room capacity”, while car rental prices will be relatively flat in 2013.
Despite the worrying outlook for some economies, particularly in Europe, some countries are bucking the trend – the so-called BRIC nations in particular: Brazil, Russia, India and China. Even here, growth is predicted to be less spectacular than previously.
Kuchibhotla says: “Brazil is seeing strong growth, and China and Russia are still up there, while eastern Europe is seeing growth and the business class travel demand remains.
“Demand is still outstripping air capacity to those economies. If you look at aircraft orders, most of it is replacement rather than growth capacity,” meaning fares will remain high, he predicts.
Adam Knights, group sales director of ATPI, also sees Brazil as a growth market in 2013. “In Brazil, we partner with a top five local agency, Copastur, which operates in Sao Paolo and Rio de Janeiro. Both cities are experiencing massive growth, and our ability to use these local experts to service clients from Europe who are now venturing into that market, gives us a real advantage. The energy business – one of our specialist subjects – in Brazil is growing exponentially.”
The TMC also believes that the uncertainty over Heathrow expansion could see a cut in air fares. Knights says: “Ultimately it looks like the UK will lose out to European rival hubs like Amsterdam and Frankfurt. Ironically, we would argue that the lack of capacity from Heathrow could actually reduce travel prices for UK travellers. From a travel buyer’s perspective, while senior business travellers will always choose to travel the direct route [if their policy allows], cheaper travel options from the regions means that they simply won’t have the option, meaning longer journey times at lower cost to fit in with the reducing travel budgets and more stringent policy application.”
Asked whether he expects prices paid by companies for travel to rise in 2013, HRG group commercial director Stewart Harvey says: “We always do. We are seeing, and continue to expect, smarter inventory and yield management by hotels and airlines. We see fares and rates increase generally by 4-5 per cent but we have seen lower prices on certain days of the week. In Europe, there are not as many lower air fares on Mondays and Fridays, and certainly not before 9am or after 4pm.”
“You can also get a better hotel rate when it’s not for a Tuesday, Wednesday or Thursday. To give you an idea, the rate ranges can be 10-12 per cent depending on time that you travel and day of the week for the same product.”
Harvey says corporates will increasingly look to see how the booked fare or rate compares with the available fare or rate at the time of booking, and instances where travellers rejected a savings opportunity will be logged. However, the old approach of beating these mavericks with a stick is falling out of favour and being replaced by recognising best practice.
“A couple of years ago, the knee-jerk reaction was to create ‘bad boy’ reports. These days, companies are extolling the virtues of good behaviour,” he says.
Preferred deals, particularly those with airline alliances, are also becoming harder to put together, believes Harvey.
“Clients have become a lot more cautious as they can predict far less about their business while suppliers are asking for more solid expectations of either volume or market share. When clients are uncertain and cannot predict demand for the year ahead, it is difficult to commit. To do it across an alliance is even more difficult.
“Airlines are now having to use a record of past loyalty as a steer for the future.”