GLOBAL REPORT—Luis Maroto, president and CEO of one of the world’s largest global distribution systems, Amadeus, is largely optimistic about the state of corporate travel. Yes, the next six months or so might be challenging in volatile regions such as Europe, he said, but the “medium-term” outlook is favorable.
But after Maroto shared those views during a general session at last week’s GBTA Convention, moderator Trip Davis, chairman of travel software company TRX, pressed him to be more specific.
“What do you mean by, ‘medium term?’” Davis asked.
Maroto paused, thought a minute, and then answered with a wry smile. “That is impossible to say.”
Though the thousands of attendees responded with laughter, the future of corporate travel seems more likely to evoke veiled anxiety than declarations of unbridled optimism. The sources interviewed for this special report painted a picture of cautious optimism for the months ahead.
For every market blessed with double-digit rate projections, another still was clawing back from recession. For every region buoyed by economic growth, another was stymied by turmoil.
The GBTA Foundation, the research and education arm of the Global Business Travel Association, highlighted the dichotomy in its “GBTA BTI Outlook – Annual Global Report and Forecast, Prospects for Global Business Travel 2012-2016.”
The report found that while the emerging BRIC countries of Brazil, Russia, India and China saw business travel growth rates of more than 15% in 2011, growth rates in the United States and Western Europe were much slower.
The picture in Europe is particularly shaky. “Conditions are more uncertain in the developed markets, in part due to the ongoing European debt crisis. Until that crisis is resolved, business travel is unlikely to grow at its pre-recession rate,” the report reads.
During the first quarter, the hotel rates for business travel outside of North America increased only 1%, according to American Express Business Travel’s “Business Travel Monitor.” In North America, year-over-year hotel rates for business travel during the quarter increased 5%.
Still, the broader outlook is positive.
“With the lack of new supply and less new business hotels being built, the existing hotels are going to do better next year,” said Jan Freitag, senior VP of global development at STR.
While the Hendersonville, Tennessee-based research company is projecting occupancy to increase only 0.7% during 2013, demand gains will be more pronounced in upper-tier properties in downtown locations, which traditionally cater to business travelers, he added.
“It’s going to be really, really hard for business travelers to get a room, and the hoteliers are going to take advantage of that,” Freitag said. “It’s a seller’s market.”
“The good news for us is corporate profits. They’re at an all-time high,” said Isaac Collazo, VP of performance strategy and planning for InterContinental Hotels Group during the GBTA Convention. “ … We really believe that business travel has really recovered.”
Corporate travel is at or near all-time highs as well, Collazo said. Now the focus will shift to rate.
The GBTA forecasts global business travel spend to increase 4.6% to approximately $1.1 trillion when 2012 is said and done. The following year will see an even healthier gain of 8.1%.
Forward-looking data from GDS Pegasus paints a similar picture for the months ahead. Despite a slight demand hiccup during July, increased reservations will help fuel increases in average daily rate.
Source: The Pegasus View, June 2012
The upper hand in negotiations
Hard data for 2013 is hard to ascertain, as the negotiation process is in its infancy. Dolce Hotels and Resorts, for example, has just begun to see its first requests for proposals, said Teresa White, senior director of North American sales.
But demand increases during 2012 have not gone unnoticed. After a challenging round of negotiations during 2011 that led to only modest gains, if any, the sources interviewed for this report said hoteliers have an upper hand this year, which should translate into increases in rate.
“You’re going to have a pretty interesting year. But overall, I think hoteliers are going to be able to push through some price increasing,” said Joseph Bates, senior director of research for the GBTA Foundation.
The sales team at Loews Hotels & Resorts expects the same.
“While it is still quite early in the bid process, based on the positive initial discussions we have had with clients, we are optimistic,” said Steven R. Spivak, VP of transient sales at Loews, the owner and operator of 18 luxury hotels and resorts throughout North America.
But progress will not be made on rates alone. Spivak’s team also is intent on making gains in volume by participating in more corporate travel programs.
Dolce Hotels and Resorts
Steven R. Spivak
Loews Hotels & Resorts
The same is true at Dolce, which targets smaller, regional meetings and events throughout its portfolio of 25 managed properties worldwide. While rate increases are definitely a goal, the sales team “would like to see the increase in the number of programs that we’re in,” White said.
A potential deal breaker in both instances is value. Corporate travel buyers are being pressured like never before to get the most bang for their respective bucks, Bates said.
“It is a lot about costs, but it’s also about what else can you provide me of value,” he said. “Maybe you can’t meet me at where I’d like to be on rate, but can you throw in free Wi-Fi? Can you throw in free parking? What add-ons can you provide to make that deal a little bit sweeter so I can sell it to my boss internally?”
That focus plays right into the hands of Dolce’s sales team, White said. The Rockleigh, New Jersey-based company already offers complimentary Wi-Fi, breakfast, access to fitness centers and parking.
Travelers going ‘rogue’
Throwing a potential wrench into the corporate travel landscape is the rise of the unmanaged, or so-called “rogue,” traveler—those business travelers who book trips independently of corporate travel policies.
“That poses a huge, huge challenge for the travel managers,” Bates said. The phenomenon can translate into increased travel expenditures, lost leverage in the negotiation process and issues surrounding safety and security.
But where travel managers see a need to educate their associates and colleagues, hoteliers see opportunity.
Loews, for one, later this year will roll out a program specifically designed to meet the needs of the unmanaged traveler as a way to capture more demand, Spivak said.
The market seems to support such an effort. According to a recent survey conducted by the GBTA, 22% of travelers are usually not in compliance with corporate travel policies.
Conversely, Bates said the 78% that usually are in compliance is a good number. “But any travel manager is going to say they want 100% compliance.”