Corporate Cost Cutting Threatens Biz Travel Rebound, Execs Say

Corporate travel has been rebounding, but it could be challenged by rising oil prices and austerity measures, according to members of “Travel’s Value Chain CEO Panel” at the recent National Business Travel Association (NBTA) convention.  
 
Representing four different segments of the corporate travel arena, the panelists, Carlson Wagonlit Travel (CWT) president/CEO Douglas Anderson, Southwest Airlines Chairman, president and CEO Gary Kelly, Starwood Hotels & Resorts Worldwide president/CEO Frits van Paasschen and Travelport Deputy CEO Gordon Wilson, shared their views on the risks and opportunities likely to mark the industry’s path going forward.

Business Travel Is Up
 
All agreed that corporate travel is on the rebound.

“It’s been a tough 12 – 15 months, but lately North American business levels are up double digits. And while the Asia/Pacific region has proven to be particularly strong, Europe has been lagging… likely as a result of value issues with the Euro,” said CWT’s Anderson.

The airline industry also shows signs of improvement. Southwest’s and the airline industry’s outlooks are “better than a year ago, mirroring (the gradual recovery of) the U.S. economy, said Kelly.” While admitting he’s still “waiting for profit performance,” Kelly nonetheless said it was heartening to see “35% – 40% of the air-traffic recovery in the business sector.”

The recovery has been especially evident in the hotel sector. Starwood’s van Paasschen said: “The recovery, so far, has been stronger than anticipated, (with) the pick-up in business beginning last fall- primarily in the transient area,” giving him reason to be “cautious, yet confident.”

Travelport’s Wilson agreed: “The turnaround is evident… perhaps as much as a 5% improvement.” He noted that airfares have risen between “15% – 23%,” and “corporate travel in general is up, with the Asia/Pacific region up sharply.”

Potential Stumbling Blocks

While expressing hope the worst is over, the panelists still took the opportunity to air their fears regarding scenarios that could well weigh down the business-travel rebound.
 
For starters, Anderson worried about the possibility of a double-dip recession. “Given the fact this industry is highly cyclical, costs (especially fuel) are high, and new technologies are entering the picture all the time, (it’s essential all involved) have to tightly manage our cost structures.”

Energy costs were also a concern for Kelly: “Unprecedented volatility, coupled with a glaring lack of a comprehensive U.S. energy policy, (only adds to) the uncertainties (we face).”

Starwood’s van Paasschen had another concern: “We have to face a paradox…the need to control spending …(wrapped in a time of) high unemployment.”

Travelport’s Wilson also expressed concern about “the impact of government austerity (undertakings) in Europe,” with specific attention being paid to talk of “a 25% cutback in the United Kingdom in 2011.”
 
Some Sobering Statistics

To be sure, the industry certainly isn’t sitting pretty, according to session moderator Trip Davis, TRX Co-Founder and Chairman. While others (particularly American Express Business Travel spokesperson, in concert with sources from the NBTA Foundation) at the 4-day gathering in Houston spoke of “global business-travel spend totaling $895 billion this year, with some $242 billion of that representing the U.S. portion,” Davis injected several cold, hard facts into the industry prognostication mix.

“As calculated by the Airlines Reporting Corporation (ARC), there were some 37,000 agency locations up and running in March of 2001,” Davis said. “By June of 2010, the number of agency locations dropped to 17,482.” Moreover, he pointed to studies that show what he termed as “dramatic growth in supplier-direct sales” during this same period.

Additionally, the shake-out of agency locations plays against a backdrop of heavy airline-sector losses over the course of the past decade. “In the years 2000 – 2009,” Davis said, “the Air Transport Association (ATA) pegged the airlines’ cumulative loss at $60 billion.”
Davis also said that this year’s hotel rebound has definitely come “in the transient area rather than in group dealings,” accompanied by “some recovery in room-rates.”
 
The TRX chief painted the Asia/Pacific region as the new land of lodging opportunity, noting that “lodging and hospitality growth in (that) part of the world shows some 61% currently unaffiliated with major (hotel) brands.”