In holding pattern

Stuck in the waiting lounge rather than cleared to take off – that’s the prognosis of the business travel market in the coming months

Cloudy economic growth prospects are forming a frost on the corporate travel market.

IATA’s latest air traffic results, for May, already indicated a general downward trend in demand.

A global survey of 541 CFOs by American Express/CFO Research Services released that same month suggested that the pool of travel resources was not likely to increase this year. The majority of respondents (42 per cent) said their companies were likely to spend less on travel. More than a quarter (29 per cent) said their firms were likely to spend the same amount on travel. Only 29 per cent said their organisations were likely to spend more.

Corporate travel will never completely disappear as companies still need to direct their travel resources to the form of travel that is most likely to support revenue growth, as the AMEX/CFO monitor pointed out. Several CFOs interviewed said conference calls were rarely an adequate substitute for in-person meetings when it came to developing business.

The research quoted Jeral D’Souza, vice president and regional controller of Cargill Asia Pacific, Singapore subsidiary of the US-based supplier of food and agricultural products, as saying: “We definitely didn’t see any reduction in the last two quarters of 2011. As people try to retain or grow the business, they have to travel. In Asia, the culture of doing business is not by phone; a lot of it is by meeting face-to-face.”


But, rather than stellar growth, all reports indicate a business travel market that is in holding pattern in the coming months.

Whether in Singapore or the US, domestic or international, a slowdown in business travel is imminent. CFOs in Singapore, cautious about the economic outlook as the country’s external-oriented sectors still face challenging times due to persistently uncertain global growth indicators, are holding the line on travel spending, according to the AMEX/CFO monitor.

Over in the US, Michael McCormick, Global Business Travel Association (GBTA) executive director and COO, said: “Earlier this year, we created a number of shock scenarios modelling the potential impact of the European debt crisis on business travel here in the US.

“In our Moderate Shock Scenario we predicted that a prolonged recession in Europe would result in a flattening of business travel spending in the US. Unfortunately, it now seems that this shock scenario is becoming a reality.”

GBTA is now expecting only a 0.4 per cent growth in total international outbound business trips from the US this year to 6.8 million and has scaled back on the volume for next year, when it expects just 3.7 per cent growth to seven million – or a full percentage drop from its earlier projection.

“Business travel to the Far East, particularly China, has been a boon for international outbound travel from the US for the last few years. However, falling economic growth rates in China will likely lead to less trade and hence, fewer trips from the US. The projected slowdown in China and the economic challenges in Europe will lead to lower levels of international growth in the near term,” said GBTA in its latest forecasts released last month.

McCormick’s concern, shared by TMCs interviewed, is that organisations may overreact in the challenging economy, slash their travel budgets and end up weakening their competitive position, particularly when the economy improves.

“That is the exact opposite of what they should be doing,” McCormick said.

“Beginning in December 2007, we saw companies make difficult decisions with their business travel budgets to the tune of 13 per cent from the US$271 billion peak in 2007 – a peak-to-trough decline of US$34.7 billion. Companies cannot afford to overreact just because there may be clouds on the horizon. Benching road warriors will only impact sales exactly when companies need to focus on growth. The return on investment for business travel is too good to pass up.”

TMCs interviewed believe now is the time for firms to put in place the best possible travel management programme and invest in technology to ensure compliance.

Nick Vournakis, senior vice president and general manager for Carlson Wagonlit Travel Canada, said: “Companies must perceive the current turbulence as a key opportunity to negotiate better travel rates as prices are expected to soften.

“Negotiate and secure preferential rates – and then lock them in. Understand purchasing patterns of corporate travellers, use online travel management tools to secure savings and use data to draw insights on where best to negotiate savings with suppliers.”

American Express Business Travel’s director of advisory services-Japan, Asia-Pacific, Australia, Carl Jones, agreed. “Demand-side factors still look good for the (Asian) corporate travel market overall. But it has become more crucial than ever for firms to establish the systems and processes in place to track and manage expenses, including travel, to secure long-term growth in the midst of uncertainty,” he said.

This article was first published in TTG Asia, July 27 – August 9, 2012 on page 9. To read more, please view our digital edition or click here to subscribe.

Additional reporting from Linda Haden

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