US companies are forecast to spend five per cent more on travel in 2011 than they did last year — a sign of confidence in the economy that is giving a boost to airlines, hotels and rental-car companies. That’s double the growth rate from 2010, which followed two years of decline, according to The Associated Press.
Last year’s bump in business travel – companies spent an estimated US$228 billion – helped US airlines post their first collective profit in three years. And profits are rising at hotel chains like Marriott and Hyatt and rental-car companies like Avis and Hertz.
Perhaps the most telling sign of a rebound, industry officials say, is the return of corporate retreats. They had all but vanished during the recession, part of an effort by businesses to avoid the appearance of extravagance at a time of government bailouts and rising unemployment.
Executives sending their workers back on the road say travel is critical to their companies’ success.
“You need to have to face time,” says Robert Genco, vice president of operations for Synopsis, a Silicon Valley company that makes software for microchip manufacturers. Synopsis cut its travel budget by about 60 percent during the recession. Now it’s nearly back to a pre-recession level, with salesmen and top executives visiting old and new clients in China, India and Japan.
Elyria Foundry, an Ohio manufacturer of metal parts for the wind turbine, natural gas and mining industries, has been sending engineers and salesmen on the road again to let customers know they are important.
“If you look at the younger generation, they seem addicted to text messages,” says CEO Bruce Smith. “When you are there in person, the quality of information you transmit goes up dramatically.”
US economic output returned to its pre-recession level in the fourth quarter of 2010, and the economy is forecast to grow faster in 2011. But spending on business travel isn’t expected to return to its pre-recession level until the middle of 2013, says Michael McCormick, executive director of the Global Business Travel Association. That’s partly because companies are asking employees to travel frugally.
The average cost per trip in the first quarter is forecast to be $538, six per cent below the same period in 2008, according to the business travel association.
Corporate travel managers are asking employees to spend fewer nights on the road, stay at less expensive hotels, rent smaller cars and, in some cases, book cheaper flights that aren’t nonstop.
The companies are also asking more of their travel providers. For example, travel managers are asking hotels to throw in free breakfast, internet, parking and gym use, says Best Western CEO David Kong.
The extra miles business travelers are racking up are a boon to an industry that suffered badly during the downturn.
In 2009, business travelers spent $222.7 billion, the lowest level since 2003, according to the business travel group. That year, the largest US airlines lost a combined $3.4 billion.
The travel industry’s success has always been tied closely to the economy and corporate spending. By and large, business travelers are more concerned with convenience than price, making plans at the last minute. That’s in contrast with leisure travelers, who try to book far in advance to secure the best deal.
Now that the business traveler is back, the industry is reaping the benefits.
The average price of a domestic round-trip ticket before taxes climbed to $350 last year, 12 percent higher than in 2009. Over the same period, the number of fliers on US airlines rose about 4 per cent.
Hotel occupancy climbed nearly 8 per cent last year, according to hotel research firm STR Global. However, average nightly rates have remained flat at around $98 because more rooms are available than needed, the result of overbuilding during the boom years.
Rental-car demand grew by nearly 2 per cent in first three quarters of 2010, the most recent period for which data are available. That allowed Hertz, Avis Budget Group and Dollar Thrifty Automotive Group to earn a combined $179 million during that period, compared with a loss of $39 million the year before.
The ultimate business-travel bellwether might just be the return of the corporate junket.
This spending virtually dried up after companies bailed out by the government were accused of wasting taxpayer money on lavish retreats. Even companies with no ties to the bailout refused to meet. The handful that did met “in an airport location in the dark of night,” says Scott Berman, who leads the US hospitality and leisure practice for accounting and consulting firm PwC.
Four Seasons Hotels and Resorts expects the number of corporate events in 2011 to climb to just short of the 2007 level. That comes after a 31 per cent drop in bookings from 2007 to 2009.
Still, groups are staying fewer nights, and agendas are more business focused, says Susan Helstab, executive vice president of marketing for Four Seasons.
The next challenge, she says, is to get companies to extend their stays and once again spring for rounds of golf, massages and expensive bottles of wine.
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