GBTA Fears Biz Travel Cuts Due to Europe Slowdown

Europe’s economic woes are starting to cut into U.S. business travel. But companies on this side of the Atlantic have more to fear from their own reactions than from the slowdown in Europe.

“During the Great Recession, people and companies overreacted,” said Joe Bates, senior director of research for the Global Business Travel Association Foundation. “People cut travel too much and made things worse.

“Yes, you need to be monitoring the situation in Europe and be cautious. But don’t overreact,” Bates advised. “Businesses that slash their travel budgets end up weakening their competitive position, particularly when the economy improves.”

A more prudent approach, Bates told Travel Market Report, is to monitor your internal metrics, rather than reacting to economic forecasts.

Growth rate slows
Economists worldwide have been predicting slower growth in Europe for months because of continuing debt and banking problems. Those predictions have been borne out by early economic data reported by the European Union and its member countries.

GBTA recently downgraded its outlook for U.S. business travel for the second consecutive quarter this year.

During the first quarter, GBTA predicted 3.6% growth in business travel for the remainder of 2012. The latest GBTA BTI Outlook – United States shows business travel growing just 2.2% for 2012, despite strong demand and generally higher travel prices.

Europe not the only factor
At the end of the first quarter this year, the GBTA Business Travel Index came in two points lower than expected, at 116.

The cause was a combination of factors, including: deterioration in Europe, slower than expected growth in Asia and deepening signs of weakness in the U.S. economy, Bates said.

GBTA now expects the Business Travel Index to return to the pre-recession high of 120 during the first quarter of 2013, rather than in the third quarter of this year, as previously predicted.

Travel cuts hurt profits
It is easy to assume that two back-to-back slowing quarters represents an unstoppable trend. That’s the conclusion many companies drew during the early stages of the last recession, Bates said.

That’s when they overreacted. Instead of reducing travel based on actual need, they tried to get ahead of the curve. As a result, they trimmed travel so much that they ended up cutting into their own productivity and profits.

“We are seeing a trickle-down effect from Europe to business in China and the U.S.,” Bates said.

“The good news is that we don’t think it’s going to get any worse. We believe that Europe is going to make the changes necessary to address the debt crisis so that it does not have a more drastic effect on the worldwide economy.”

Tip: Watch the right indicators
Believing that things won’t get worse doesn’t mean they can’t get worse. That’s why Bates is advising travel managers to pay more attention to their own internal indicators.

Economists have a good handle of what happened in the past, he said, but business insiders often have a better grasp of where the company, the industry and the economy are headed.

“I would definitely pay attention to new orders. That is a very clear leading indicator of what is happening in your company and industry.

“You can also look ahead by watching your customers. If your salespeople start cancelling meetings because your customers are pulling back, that’s the point at which you have to watch out.”

Road warriors know best
Company travelers may be the best predictors of future business trends, he said. Road warriors have a direct view of what customers and competitors are doing and planning.

Just because the broad economy is weak does not mean your company or sector is slowing.

“Some companies are going to be very successful,” Bates pointed out. “There are certain sectors of the economy that are doing very well. Health care is one of those sectors. Because of recent legislation and court decisions, health care is going to continue to boom.

Economists behind the curve
“Watch your own internal metrics, watch your own sales activity, watch your order activity, and talk to your travelers to find out what they are seeing out there. The situation will change well before economists can recognize it as having changed.”