The latest round of earnings reports from corporate travel distributors reflect the beginnings of a long-awaited rebound in corporate travel, signaling to buyers that a market shift is on the horizon. Yet, recession-style management for vendors is far from gone.
Thanks in part to "a notable improvement in the traditional travel and entertainment category," American Express Travel Related Services last month reported record third-quarter net income of $606 million on 8 percent higher year-over-year revenues. A slight rise in the average merchant payment "reflects the relative strengthening of corporate T&E spending during the quarter," said Amex's announcement. "U.S.-billed business was up 14 percent, reflecting growth of 15 percent within the consumer card business, a 20 percent increase in small business activity and a 7 percent improvement in corporate services volume."
T&E spending rose 8 percent, "reflecting improved growth among all T&E industries. U.S. airline-related volume, which represented approximately 12 percent of total volumes during the quarter, increased 10 percent on 5 percent growth in transaction volume and a 5 percent increase in the average airline charge." Travel commissions and fees rose 2 percent, the company said.
"The notable improvement is still pretty small," said Partnership Travel Consulting president Earl Foster. "We are seeing some return, but what does that mean? It's still not a seller's market, so I'd take this as a message that says, 'You have to start preparing for the future again.' In negotiations, the vendors are not yet confident and no one is changing their negotiation strategies, but some are saying they're seeing an improvement and that the way it is can't go on forever."
Indeed, the industry already appears to be past its spring 2003 trough.
Navigant International announced 1.7 percent lower revenues and a slight year-over-year drop in net earnings for the quarter ending in September, but said transaction levels are again approaching those seen in 2002. Navigant officials said the volume recovery continued into October. At Cendant Corp., which owns Travelport and its Galileo global distribution system, "Trends in the travel business continued to stabilize or improve," said chairman and CEO Henry Silverman. "We do expect the travel distribution division to be up next year versus 2003, assuming no geo-political risk event."
Sabre Holdings chairman and CEO Bill Hannigan referred to "several record days for corporate travel transactions in the past several weeks" when Sabre announced earnings on Oct. 23. Even though the company is anticipating further upside on corporate demand for the services of GetThere, now being integrated into Travelocity Business, the weak economy and vendor pressure on distribution costs have taken a toll. The company last month said it would lay off about 500 employees, or about 8 percent of the workforce, as it moves forward on the integration. Also related, Sabre will close its Fort Worth headquarters for Travelocity and a GetThere office in Irving, Texas. The layoffs and other cost-cutting moves are expected to save Sabre about $80 million in 2004.
Some argue more people will be needed soon enough. "If I was a corporate travel buyer, I'd be thinking about getting more people," said BTI UK managing director Mike Platt. "Travel counselors save four times their salaries, on average." In terms of vendor relationships, he said, "You need to have long-term partnerships because the market fluctuates."
Foster agreed. "This is one of the most cyclical industries, and we have to get beyond the buyer-seller mentality and get on with business to business," he said. "We need to create new models that accommodate what the buyers need but at the same time allow a profit for the sellers, because what we have is broken. Unfortunately, there's still a feeling that once it rebounds, it will be business as usual."