Procurement Practices 2010: Evaluating 2010's Travel Outlook

The majority of procurement professionals expect travel spending to increase or stay the same this year compared with last, as fewer than one-quarter of Procurement Practices survey respondents said they would further reduce travel spending in 2010.

The survey also shows a net increase in the number of trips anticipated for 2010, and on average, companies responding to the survey said travelers would take 16 percent more trips this year.

However, the prospects for a sweeping corporate travel recovery remain uncertain for 2010.

"The volumes are coming back, but they're not springing back to what you would normally see at this point in the cycle. People are probably traveling smarter," said former Association of Corporate Travel Executives president and Bank of America travel buyer Greeley Koch, now director of strategic development at management consulting firm Acquis Consulting Group. "You hear conflicting views: Some say this is just a first-quarter bubble and there was so much pent-up demand that people had to get out there, but then I hear some CEOs say, 'We need to go out there and meet with our customers. It's going to cost us money, so let's just be smart about it.' "

Though the scarcity of corporate travel in the first quarter of 2009 makes first-quarter 2010 comparisons slightly rosier for corporate travel volume trends, which in many ways had nowhere to go but up, the improvements in volumes already are materializing in airline figures, UBS aviation analyst Kevin Crissey said.

Corporate volume on U.S. legacy carriers in February was up around 15 percent year over year, according to UBS calculations, while corporate fares grew by only 5 percent. Though Crissey stressed that corporate air travel has not recovered, he said those volumes last month grew at an even faster rate than in January.

"We're seeing that things have certainly improved," Crissey said. "Volumes started to be up year over year in January and meaningfully up in February. After that comes fares. Fares are lagging, which is typical, but you need the volumes in order for the revenue and pricing departments to figure out that they should hold some seats back because there's actually someone to fill those seats."

Despite the year-over-year improvement in corporate fares and volume, Crissey said airline revenues derived from corporate travelers remain down 17 percent from two years ago.

Wall Street expects corporations to spend 13 percent more this year on air travel, Crissey said. "You may not realize it, but you're already running ahead of this pace," he told a crowd of corporate travel buyers said at last month's Strategic Travel Symposium, staged by Business Travel News and the National Business Travel Association. "Maybe not your individual organizations, but collectively, you're running ahead of this pace."

On the other hand, the industry had banked on pent-up travel demand returning at a much faster rate, said American Express vice chairman Ed Gilligan. "I don't see it coming back in robust ways that we can hope for," he said. "I don't think we should plan on robust recovery. We can be hopeful for it, but we have to plan on more sluggish growth."

Last June, American Express corporate client spending hit the bottom and started to increase each month, showing a "classic V-shape recession and recovery," a view not seen from the consumer side.

"Coming out of this recession now, it is looking more like a consumer-led recovery on a number of fronts, which is very different than what we've seen before," Gilligan said. "In previous downturns, it was business spending that led into the decline in business."

He added, "In a sluggish economy, all the companies that we work for are going to be working incredibly hard to grow the top line. They've been able to manage the bottom line to some extent by cost-cutting, but that's not sustainable over time. There is only so much cost you can cut out of the business and the process. You continue to reengineer, but it has to be about growing the top line, and critical to growing the top line is the role that business travel plays. It's hard to imagine a successful large company that doesn't invest in travel to grow the top line."

Meanwhile, New York University Tisch Center associate professor Bjorn Hanson, who followed Gilligan in speaking at the Strategic Travel Symposium, told attendees that hotel occupancies would increase in the next two years, but not by much.

"Availability will stay sustainable for travel," he said. "Room rates will decrease in 2010, be flatter in 2011 and not recover to 2007 levels for at least three years."

Upper-tier properties will see the largest rate decreases, Hanson said, as they fight with the midprice tiers to retain demand.

Even as corporate travel volumes stabilize, with companies facing lower room night volumes than in the past, many are consolidating either with fewer properties or across their transient and group travel.

Buyers should have one hotel per 500 to 700 room nights coming into a city, said Carlson Wagonlit Travel Solutions Group global project manager of hotel consulting Monica Eiden. When they are spread thinner than that, they lose significant negotiating leverage, she said. "If they're not seeing room nights and revenue coming in, they're not going to give anything back to you," she said.

Johnson & Johnson director of global travel and meeting services Maria Chevalier that her company in recent years has become more effective at consolidating group and transient hotel spend. Part of that has been due to getting a better handle on group data, but hotels also have made their sales staff more amenable to the strategy, she said.

"Some of the larger hotel chains have restructured their sales organization to support that effort," Chevalier said. "We have one individual supporting our account who is able to look at us holistically."

As hotels seek to boost occupancy, they become more receptive to agreements that allow corporations to use transient rates for group travel, Eiden said. "When the event comes up, they always have the option to say that they don't have the capacity to take on the meeting, but that puts the hotel a step above another hotel that refuses," she said. "If a transient program is going to be overflowing into the meetings program, being in that transient program is a huge benefit to the hoteliers."