Oct. 9, 2012 at 10:35 AM ET
Unemployment, economic turmoil in Europe and slower growth in China and the Far East are expected to curb business travel growth in the United States.
Those are the major findings of a report released on Tuesday by the Global Business Travel Association (GBTA)—a trade group for corporate travel managers and suppliers—which projected business travel spending in the U.S. through the end of the year and 2013.
“With disappointing job gains and the upcoming presidential election on the horizon, businesses appear to be taking a cautious approach to their investment in travel until there is greater economic certainty,” the quarterly report said. They noted that while the total U.S. business travel spending—which includes both domestic and international outbound travel—is expected to grow for the remaining months of 2012 and 2013, the uptick is largely being driven by rising travel costs, not more trips.
“While companies aren't cutting their business travel spend and we’re still seeing very modest growth, we are cautious about the outlook for the next several quarters,” Michael W. McCormick, executive director and chief operation officer of the association, said in a statement. “Corporations are in a wait-and-see mode and holding back on investment decisions that would help boost the economy.”
McCormick added that the looming "fiscal cliff," a combination of more than $500 billion in expiring tax cuts and automatic spending sequestration set to trigger at the beginning of 2013, “is causing even more uncertainty, which we are monitoring with real concern.”
A major finding of the report is that unlike in past economic recoveries, job growth is not generating more business travel. Since the start of the economic recovery, job gains have been concentrated in areas that are less business travel prone, and the gap may be getting worse, a graph in the report noted.
And the projected growth in international outbound business spending—which in past years has been a boon to the U.S. business travel industry—has been constrained due to persisting economic concerns in Europe and growth in the developing world continues to slow. The report found that the volume of both imports and exports to China and the rest of the Far East are projected to slow over the next six quarters, which would impact business travel to and from the U.S.
Another factor that has contributed to dampened business travel growth is the slowing of group travel. Transient business travel—which refers to lone travelers who work for smaller businesses, not travelers for large corporations that have high volume contracts with heavily negotiated rates—continues to outpace group travel for meetings and events.
“Although group business travel has bounced back from its bottom in 2009, it has been a much more modest recovery over the last year after robust growth in 2010 and 2011, respectively,” the association said, noting that it expects growth to pick up as the broader economy recovers, “given the more cyclical nature of group and convention travel.”
Travel industry analyst Henry H. Harteveldt said overall he agreed with the report’s findings, but that it did not reflect the fact that many business people themselves do not appear to be eager to travel.
“Business travel policies that make business travel less-than-pleasant, ongoing frustrations with airport security, increasingly crowded flights due to airline capacity reductions, and airline delays don't exactly make business people want to hit the road,” said Harteveldt, who is co-founder of the Atmosphere Research Group, a market research company.
"In addition, companies have invested in technology solutions, such as videoconferencing, that reduce the need for some travel," Harteveldt said. "I also believe that higher airfares and hotel costs are suppressing some demand."
Michael Steiner, executive vice president of Ovation Travel Group, said his New York-based travel management company is seeing slightly better results than the downward trend forecast by the GBTA report.
“Our bookings are actually up 10 percent,” when compared to this period last year, Steiner said. He explained that it was not a surprise, as many of Ovation’s clients work in the financial services and legal fields, which typically have stronger numbers than the corporate sector. The good news, Steiner said, is in the past, corporate sector activity usually followed those industries soon afterward.
He also said Ovation is seeing a “nice uptick in meetings and events,” the opposite of what the GBTA report found. “There is a lot of interest and advance bookings are up 15 percent.”
“We are realistic and pragmatic, and we understand macroeconomics,” Steiner said, “but we are cautiously optimistic.”