Business Travel Cuts Bottoming

Many companies expect to increase travel spending next year from what is expected to remain a craterous 2009, but some industry players are convinced it will be a matter of years before they resume pre-recession levels, according to speakers at last month's National Business Travel Association International Convention in San Diego, conversations with industry buyers and suppliers and recent surveys of corporate travel managers.

The industry consensus is that the recession's bottom has been reached, but that it likely will be a long slog out—particularly as corporate travel this year has continued to lag other major travel segments in showing signs of recovery.

"We want to be optimistic about some of the upward trends we're seeing," said Sabre Holdings chairman and CEO Sam Gilliland, "although what we could be experiencing is just bumping along the bottom. Considering where we've been, bouncing along the bottom isn't such a bad thing, frankly. We are beginning to be encouraged."

According to a UBS survey of 61 large-market travel buyers released last month, the median air spend this year has fallen between 30 percent and 40 percent—leaving a deep hole from which the corporate travel industry must climb.

Continental CEO Larry Kellner during a general session at the NBTA convention, which also featured Southwest CEO Gary Kelly, said he has seen the impact. "Our business travel's been down in the 30 percent level the last couple months," Kellner said. "It's a little better than where it was in April and May. I would tell you that a couple of points don't make a trend yet, but we do feel some sense that things have stabilized."

According to a research note by UBS airline analyst Kevin Crissey, "More firms expect their air spend to increase rather than decrease in the remainder of the year, but most think the trend will remain the same." In fact, 72 percent of respondents to the UBS survey said air spend would keep its sluggish pace for the remainder of 2009. Similarly, in a Topaz International survey of 260 travel buyers released last month, only 28 percent expected business travel spend for "the balance of 2009" to increase.

"It's very typical in a recessionary environment to see a drop in business travel. We've definitely experienced that," said Southwest's Kelly. "We've seen some markets off as much as 25 percent to 30 percent. We're not seeing that much of a return in the business travel market yet, but at least things aren't getting worse overall."

Kellner said Continental—like other carriers—is treading with caution into the fall shoulder season, awaiting a better read on whether business travelers come back in any meaningful way.

"Business travel has traditionally started up about the second week in September, so we're just getting to the point where we're seeing the bookings for that business travel," Kellner told conference attendees. "We're very interested to see what happens in the middle of September and in October."

Asked when they expect their firm to "spend meaningfully more on air travel," 35 percent of the respondents to the UBS survey answered that there is "no pickup in sight," though 33 percent said it would occur in the first half of 2010.

Most corporate travel buyers expect their company's travel spending to increase or stay the same next year compared with 2009, according to the Topaz International survey. Of the respondents, 49 percent said their companies would spend more on business travel in 2010, while 41 percent expect spending next year to be about the same as in 2009 (see chart, page 1).

"I think it's too soon to call it a turnaround, and I know everybody is talking it up and hoping Q3 will show some growth," said Travelport GDS president and CEO Gordon Wilson. "It doesn't seem to be getting any worse, so perhaps it's plateaued, but I think it's too soon to say that it's turned."

Wilson, speaking with Business Travel News during the NBTA conference, said that as the year progressed, the trends have stabilized. While Travelport GDS bookings in North America were down 16 percent in the first quarter year over year, Wilson said bookings were down 11 percent in the second quarter. Wilson said booking trends suggest the industry is "on the bottom, with a marginal pickup."

Still, like the airlines, Wilson noted that leisure travelers are the primary reason the decline in bookings has been stanched. "Corporate travel in America—the big travel management companies—remain the largest in year-over-year declines," Wilson said. "It seems to be stabilizing, but hasn't turned the corner yet. The big regionals are doing a bit better from a volume perspective, which you kind of expect because the bigger corporates have been much more draconian in cutting costs."

Several travel management companies said that for the most part the bleeding stopped over the summer months. Yet, except for isolated cases, their clients are cautious about strongly increasing their travel and will remain so until at least budgets are set for the upcoming year.

Carlson Wagonlit Travel president Jack O'Neill said transaction deterioration started to level off in March, yet there hasn't been much of a steady move upward as most clients indicate no travel growth in 2009. "In June and July, we saw transactions in our U.S. commercial business increase a little, but I don't know if I would get all excited about it. In terms of internal business planning, we're not expecting it to come back until the second half of 2010."

Orbitz for Business president Frank Petito said things "are thawing a little bit with signs of improvement. It's going to be a bit of a rough year. Even if the switch was flipped and the recession was behind us, people would still be cautious. It's a little bit better, but I don't know if we are ready to start breaking out the champagne yet."

For HRG North America, the positive signs first seen in the spring have not come without speed bumps. TMC president Tom Gleason said that for every few weeks of increases comes a week of transaction softness.

Egencia's business is down 20 percent, year over year, according to senior vice president of North America Pam Keenan Fritz. While the TMC has seen increases in its meetings and incentives business with bookings for 2010 and 2011 rising, its transient business provides a less clear picture. "A lot of CFOs and CEOs will spend early fall going through the financial planning process, and until the results of that are done and the plans are set for 2010, people are still nervous about traveling," she said. "Once businesses set their objectives for next year, it will be very clear to travel managers and travelers what is on the table and what's not."

Though the industry has seen a few positive indicators, executives are quick to note that comparisons get more difficult as the year moves on, as the year-over-year trends begin to lap the abysmal corporate travel declines that began late in 2008.

"You do have to do quite a bit of work to ferret out the noise of the year-over-year comparisons, but a couple of months don't make a year," Gilliland said. "We'll remain hopeful, but in the meantime we have to remain realistic that, particularly for corporate travel, it will be a long time before it comes back to the levels it was at. I see more gradual improvement over the next couple of years. It may be five or six years, but it will come back."

Travel management editor Seth Harris contributed to this report.