Business travel has been the hardest hit sector of the industry. But what are the most likely patterns to emerge over the next 12 months?
Of all the travel industry sectors, there is no doubt it is business travel that has been the most acutely affected over the past year.
Traditionally, business travel has been regarded as a good indicator of the overall health of the economy. And for those keen-eyed observers, the first danger signals in terms of the direction the economy was heading could be seen at the start of 2008 – well before the crash in September of that year.
Corporate budgets were tightened and travel policies reflected this new austerity. The front of planes – particularly those on transatlantic routes – and the executive floors of hotels began to slowly empty.
Travel reduction, which translated into travel freezes, became company policy as the reality of the global slide into recession became ever clearer.
The result has been disastrous for both suppliers – namely airlines and hotels – and travel management companies, who manage business travel.
The airline sector as a whole recorded its biggest financial loss since the Second World War – some $11billion – and it is the traditional airlines which have suffered the most.
The ones worst affected have been the US carriers, British Airways (which is soon to reveal the biggest corporate loss in its history) and Japan Airlines, which collapsed into administration at the start of this year – all of which have a business model which rely from profits generated at the front of the plane.
Both BA and Virgin pulled off services to North America and redeployed them to where the new business traveller wants to travel: India, China and the Gulf states.
Despite its losses, BA launched its first all-business service from London City Airport to JFK last year which is aimed directly at City workers. It is still too early to say definitely whether it is a success, but reports suggest the service is running half full.
BA also re-launched its new First cabin in February at a cost of £100m. Meanwhile, the US carriers have made significant investments in improving their business cabins, finally installing flat-beds.
It is just the Middle East carriers which seem impervious to the downturn, spending millions on upgrading their premium cabins and offering competitive fares.
Conversely, the low-cost carriers have thrived in the downturn as more and more business travellers choose to use their services. easyJet is perhaps the best example, working closely with corporates to entice their business travellers on board.
The trend is exactly the same in the hotel sector, with many five-star hotels being forced to put their development and expansion plans on hold. Many have been forced to drop rates to reflect this new austerity, while others are running promotions, special offers and discounts. Some hotels have even been forced to shut entire floors.
Again, by contrast the budget brands such as Choice, Holiday Inn and HI Express, Premier Inn and Travelodge, have been booming.
Premier Inn, for example, is on course to become the biggest budget hotel operator in London by 2012 and has even opened in Dubai, the first budget brand to do so.
In terms of the TMCs, results from Carlson Wagonlit Travel, the world’s largest travel management company, show its total transactions for 2009 were down 9.3 per cent compared to 2008.
Sales volume, which totalled US$21.4 billion fell 22.8 per cent year over year.
These sharp falls reflect the aggressive cost-cutting measures companies took to reduce their travel spend and were seen across all regions.
Volume in Asia Pacific and EMEA (Europe, Middle East, Africa) was impacted most, declining by 27.6 per cent and 27.1 per cent respectively.
In Latin America, volume declined 21.2 per cent year over year, while North America saw a 17.4-per cent decrease over the same period.
Revealing the results, president and chief executive Doug Anderson predicted that 2010 would continue to be “a challenging business environment”.
The most recent survey by the Guild of Travel Management Companies – the industry body which represents the 30 biggest TMCs in the UK and accounts for 80% of all business travel transactions – which was released in October, showed downward trends in almost all industry sectors.
The number of air transactions was down by 15% in the nine months to September 2009 compared to the same period in 2008, hotels by 17% and car rental by 16%.
There was one bright spot however: rail.
Rail booking have soared during the downturn. GTMC members made 2.5m bookings in 2006-2007, a figure which had risen to more than 4m in 2008-2009.
Improved track, frequencies and product including onboard and lounges at major stations, plus the green angle, means that rail has increasingly become the chosen mode of transport for the business traveller.
The GTMC Business Travel Manifesto, which was launched last month with the backing of the Transport Minister, reflects this move towards rail.
When asked what they feel should be government priority over the next few years, business travellers did not opt for a new airport in the Thames Estuary or a new runway at Heathrow – almost three quarters said a high-speed rail network should be the priority.
It also helped that for the first time rail tickets can be booked across the European rail network with the formation of RailTeam at the start of this year.
The question is now – are things picking up?
The feeling at this year’s Business Travel & Meetings Show – a good barometer for the health of the sector – is cautious optimism.
A poll released just before the show revealed that three-quarters of business travellers expect to travel the same or less this year. The survey of 317 business travellers worldwide found that just over half predict their travel will be unchanged in 2010, with 21% expecting to make fewer trips.
Cost cutting still dominates the business travel agenda, with 61% of respondents stating that employers cut the amount of business travel undertaken in 2009.
Commenting on the survey, Acte president Richard Crum said: “It is understandable that the last year has seen corporate leadership focus on the financial health of their companies.
“However, it is important to recognize that truly sustainable businesses balance the demands of shareholders with respect for the environment and the people and communities they impact every day.”
The good news from the poll, which was conducted by the Association of Corporate Travel Executives and online expense management company KDS, was that 27% of business travellers expect to increase the number of trips this year.