INTERNATIONAL REPORT—Memorial Day weekend is supposed to usher in the start of leisure travel season for many U.S. hotel markets. But with the unofficial start of summer just a day since gone, hoteliers have their eyes focused intently on another segment entirely: corporate travel.
The downturn hit the leisure segment hard. There’s no debate there, said STR’s Bobby Bowers. But corporate travel? That’s a whole different story. STR is the parent company of HotelNewsNow.com.
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Bobby Bowers Senior VP STR |
“I just don’t think leisure travel was really impacted as hard,” he said. “Even though it was impacted, obviously—all segments were impacted—I really think that from the corporate perspective that spigot was just about shut off.”
The Lehman Brothers collapse, the AIG effect, austerity measures and slashed budgets—they pushed this treasured base of business off a cliff.
“It was kind of dead after AIG,” said Jan Freitag, VP of global development for STR. “Suddenly, taking people to luxury trips like the AIG trip specifically got a really bad rap.”
But lately? “I think that we’re back to normal,” Freitag said.
Indeed, everything from industry metrics to broader economic indicators show corporate travel is returning—and it’s driving the global hotel industry to recovery along the way, experts interviewed for this report said.
Corporate returns
Depending on whom you ask, corporate travel actually has been back for some time now.
“We’re really noticing those average booked rates climbing starting with the end of last year into this year,” said Marwan Batrouni of American Express Business Travel. “(In) Q4, we really noticed the average booked rates at their highest levels in the last couple of years.”
For February 2011, the average domestic booked rate for business travelers was US$150, up 2% year over year, according to AmEx Business Travel. The average international booked rate for business travelers was US$240, up 7% year over year. Rates are showing even more pronounced gains in primary markets, such as New York, Washington, D.C. and Chicago, Batrouni said.
John Clarke, director of sales and marketing for Great Hotels of the World, said the group’s corporate base already has returned to pre-recession levels, driven by increased volumes in key cities such as Amsterdam, London, Paris and New York. The global alliance of luxury hotels and resorts draws 52% of its business from corporate travel.
The Global Business Travel Association recorded “stronger-than-expected rates” of growth for business travel spending and volume during the fourth quarter. For the year 2010, total U.S. spending on business travel grew by 3.2%—up substantially from the 2.3% for the year forecast previously.
Changes in business travel
There are some notable changes to corporate travel during the recovery. For one thing, average spend is increasing as travelers try to cram more meetings and business into a single trip.
“Generally speaking, we are seeing the average spend per trip is rising, which has been a long-term trend. This is primarily related to inflation, efficiencies in trips, meaning travelers are looking to do more with each itinerary (i.e., potentially staying longer to meet more people) which makes each individual trip more expensive,” Michael W. McCormick, the association’s executive director and COO, said in an email.
U.S. travelers are increasing the number of outbound international trips as well, he added.
“From the Business Travel Quarterly Outlook, we are seeing some very strong numbers for U.S. international travel, which bodes well for global economy and spend as more U.S. companies look to develop and enhance their international business relationships. A separate GBTA study shows that global business travel was up in 2010 with the increasing strength in the global economy and we forecast business travel spend will continue to grow at the global level this year.”
Incentive travel—which took a much-publicized hiatus in the wake of the infamous AIG corporate boondoggle—is returning, albeit in shorter increments and smaller budgets.
“The overall inquiries for incentive travel have increased, however length of stay and budgets remain a challenge,” Clarke said. “We are seeing buyers returning to the market specifically from the USA with travel to Europe on the increase. Although the numbers are not large, there is a growing need by companies to reward employees who have assisted in weathering the storm of the downturn.”
Macroeconomic factors
“Of course there are always factors that can have an effect on the recovery rate,” the GBTA’s McCormick said.
Rising oil prices, for example, could have a dampening effect, though McCormick said the impact would be limited.
“Our research shows in hypothetical scenarios of oil per barrel at the levels of (US)$125, (US)$150 and (US)$200 price per barrel, business travel would continue to expand and could only potentially forego 1.5%, 1.8% and about 2.5% in new growth respectively between the years 2011-2013,” he said.
STR’s Freitag shared a similar view. “I’m not sure high oil prices are going to impact the corporate business travel.”
Nor will the ongoing turmoil in the Middle East, he said.
The only thing that might slow recovery is “another recession—a double dip—and demand quiets down and hotels feel they have to cut their rates again,” Freitag said.
A return to the peak
While Great Hotels of the World already has seen its corporate base return to pre-recession levels, other sources say business travel still has a ways to go to reach previous peaks.
“It’s approaching pre-recession levels. As to when it will actually hit that level, it will be hard to tell because there are a lot of different things going on in the industry all at the same time,” AmEx’s Batrouni said.
The GBTA estimates U.S. corporate spend to reach pre-recession levels during the latter half of 2012, McCormick said.
Forward-looking data from Rubicon suggests the industry is well on its way. As of 1 May 2011, business demand (transient weekday retail and negotiated segments) for the top 25 markets in North America for this summer (June, July and August) has been and remains very strong with reserved roomnights up 8% year-over-year and average daily rate up 5% year-over-year.
For the remainder of 2011 as a whole, business demand is up 8.9% year-over-year. ADR for this segment is also up—4.4% compared to the same time last year.