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It is hard to find a business travel supplier not bullish on 2010 trends. Overall volume easily is surpassing the dismal 2009, and still is down from 2007 and 2008 levels, but growth is back--driven by late-booking travelers, some strength in premium-class reservations and resurgent group business.
Speaking in late April, American Airlines CFO Tom Horton noted "a pretty significant inflection point" in corporate demand as companies are "loosening restrictive travel policies and increasing travel spending to stimulate their own business activity."
In the lodging sector, "The pent-up demand that we hoped for has materialized, and, as the economy picks up steam, more businesses are shifting from cost cutting to growing the top line, which means resetting travel and expense budgets and shifting gears to getting back on the road after 18 months of dormancy," said Starwood Hotels & Resorts CEO Frits van Paasschen.
Such observations are backed by travel volumes reported by ARC and corporate travel management companies. As a group, "mega" travel agencies (including the likes of American Express Business Travel, BCD Travel and Carlson Wagonlit Travel) in March processed 22 percent more transactions through ARC than a year earlier, marking the largest growth in the current string of five consecutive positive months.
At Amex, global corporate travel sales in the March quarter regained 21 percent of volume from a year earlier--the first such increase since mid-2008--to $5.1 billion. That still was down substantially from the $6.6 billion the company reported in the March 2008 quarter. Average basic Amex cardmember spending (covering all purchases) rose 23 percent, to $3,012.
Gross bookings dollar volume at corporate travel agency Egencia rose 47 percent, to $471 million, in the March quarter, compared with a year earlier, nearly doubling the pace of leisure growth for parent Expedia and representing the largest Egencia quarterly dollar volume ever reported by Expedia. Orbitz for Business enjoyed 25 percent year-over-year transaction growth in the quarter.
At travel and expense system provider Concur, "travel transactions in Q2 were ahead of our expectations and are clearly trending back towards the waterline," said CEO Steve Singh, but, "based on recovery periods from prior recessions, it will likely take until late 2011 before travel spend fully recovers to pre-recession levels."
All business travel supplier categories benefit from a corporate travel rebound, but perhaps none needs it more than airlines, many of which can't turn profits without relying on high-yielding business passengers.
During April conference calls with analysts and journalists, airline executives pointed to enormous increases in corporate travel demand. At Delta, the world's largest airline, total corporate revenue in mid-April was up 61 percent year over year, and corporate tickets jumped 46 percent. Noting corporate travel demand improvements "across almost all geographies," president Ed Bastian said corporate travel revenues should "be close to 2008 levels probably by the end of the year." He also noted "fairly significant traction with respect to net pricing" as corporate revenue outpaces volume.
At Continental, quarterly corporate revenue rose 20 percent (but still was down 17 percent versus 2008) thanks in part to "a pick up" in bookings inside 14 days.
Addressing a question on the long-term outlook for business travel after announcing the United-Continental merger, United CEO Glenn Tilton said, "Whether on the East Coast, mid-continent or West Coast, those companies--whether its HP or Time Warner or financial services or Caterpillar--have to compete just as we do in a global economy. That's the core proposition, and I wouldn't worry about the cyclicality of that business."
Hotel Recovery 'Faster Than Anticipated'
Though the lodging sector--unlike the airlines--continues to see pricing decline, executives expect that rebounding occupancies powered by returning business travelers soon would reverse that trend.
"Hotel demand seems to have turned the corner, especially in the business travel segment," according to Pegasus Solutions, which reported a 7 percent increase in March reservations processed through the global distribution systems (described by the company as "mostly corporate"). "Future bookings through the global distribution system channel are up for five of the next six months compared to 2009."
On an individual company level, Marriott International for the 12 weeks through March 26 sold 16 percent more room nights to corporate travelers than in a year earlier and 21 percent more in the month of March. "The recovery is clearly occurring faster than we anticipated," according to president Arne Sorenson speaking in late April. He said the March overall occupancy of 73 percent represented "good numbers, but it takes a number of months of having that kind of strength before we are back to peak occupancy levels."
Said Marriott CFO Carl Berquist, "Even transient bookings, which are very short term, suggest further demand strengthening in the next few weeks. The improving market should continue to improve pricing through the rest of the year."
Sorenson also noted "outstanding results" in the luxury segment, including an increase in the number of bookings for club-level rooms and suites, and group bookings at Ritz-Carlton properties. For the Marriott brand, overall group room nights during the March quarter increased 1 percent compared with 2009, but jumped10 percent during March. Association meeting attendance was particularly strong, increasing 15 percent during the quarter and 50 percent in March.
At Starwood Hotels & Resorts, business transient room nights during the March quarter were up 14 percent, and group nights were up 5 percent. Van Paasschen said strong demand for “in-the-quarter-for-the-quarter group bookings" was "consistent with our good-case scenario, which anticipated that as the business environment improved, companies would scramble to set up meetings and events."
At Host Hotels and Resorts, business transient room nights during the March quarter increased 12 percent--"at least back to where we were in 2007," according to CEO W. Edward Walter--and room nights from "special corporate business" increased 28 percent. In the luxury segment, special corporate business demand increased 50 percent and corporate group business increased 18 percent year over year, suggesting that "companies are feeling somewhat less concerned about the potential political ramifications of booking business at higher-end properties," Walter said. "Improvement is still relying on the strength of the economy, but we are optimistic that businesses are beginning to loosen their travel budgets."
Rental Customers 'Need More Cars'
Avis Budget Group has tracked sequential improvements in domestic commercial volumes, from a 13 percent year-over-year drop in January to less than 4 percent in March. "Our top 150 commercial accounts' volumes were flat in March despite the fact that we lost some commercial days this year due to the timing of Easter," said CEO Ron Nelson. "Many of our million-dollar accounts are indicating to us that they will need more cars in the coming months, and we are seeing more late bookings, which is a good indicator that corporate travelers are returning."
To accommodate business travel demand, Avis Budget "will be judiciously expanding the fleet as the second quarter progresses," Nelson added.
Hertz Global Holdings posted a 10 percent March-quarter increase in U.S. car rental revenue, driven partly by higher pricing, ancillary revenues and "business travel." Compared to 2007 levels, "total rental car revenues in the U.S. from commercial accounts at the airports is down $337 million," said CEO Mark Frissora. "The good news is we're on our way. Commercial airport revenues improved 7 percent in the first quarter and that includes a 17 percent volume increase in March."
~ with reporting by Lauren Darson
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