Business travel recovery looks bumpy, with Covid-19 cases on the rise in many geographies, international travel still lagging and many companies postponing their return to the office. One recovery element that has remained consistent, however, is that small- and midsize companies jump-started the return to travel after March 2020.
Airlines, hotels, car rental suppliers and travel management companies have indicated they've seen SME business pick up faster than larger enterprises.
"Small business demand, which was roughly 17 percent of our system revenue, has been improving steadily as vaccination rates have increased and as markets reopen," said American Airlines president Robert Isom during a first-quarter earnings call.
Echoing that sentiment: "Small- and medium-sized enterprise volumes continued to outperform corporates by 10 points and are now 50 percent recovered," said Delta Air Lines president Glen Hauenstein during a July second-quarter earnings call.
IHG Hotels & Resorts has seen growth in its SME-focused Business Edge program, with a little more than 50,000 registered accounts as of early August. "We had doubled accounts in 2020, and on top of that larger base, we've grown another 25 percent year-to-date [compared to the same period in 2020]," IHG SVP of global sales Derek DeCross said. He added that though SME travel was still down, it was down 15 to 25 percentage points less than large managed corporate travel.
Best Western also is seeing growth in its SME program Business Advantage. While volumes were down in 2020, "the amount was less when compared with the rest of business travel," said Best Western VP of worldwide sales Wendy Ferrill. Program membership was up about 2 percent over 2019 year-to-date as of late July. Room nights were up about 7 percent for the same period, she said.
"At Avis Budget Group, we have seen an increase in travel of SMEs versus larger corporations, especially when comparing global corporations that tend to have more international travel restrictions," said Avis Budget Group SVP of sales Beth Kinerk, adding that current enrollment in the company's business program is now back to pre-pandemic 2019 levels on a per-day basis and is on pace to exceed the number of accounts in 2019.
Likewise, Enterprise Holdings has seen nearly a full recovery of its "home city" business, which is through the company's Enterprise Rent-A-Car brand and generated from locations not affiliated with airports. "Our home city business is back to where it was pre-pandemic, close to 2019," said Enterprise SVP of global sales Donald Moore. "And that business is mostly SME customers. That business came back relatively quickly compared to large global corporates." The company's airport business is at 28 percent of pre-pandemic levels, Moore added.
"We continue to see the SME segment lead the return to travel, and more clients are accelerating their return to travel," said American Express Global Business Travel VP and general manager for the U.S. SME market Maria Haggarty. "In July, 76 percent of SME clients have either restarted or are actively planning to restart travel, up from 54 percent in June." In April, clients were estimating that by the end of 2021, volumes would be between 30 percent to 40 percent of 2019 volumes. By July, they were estimating year-end recovery at 40 percent to 50 percent per quarter.
More Flexibility, Less Bureaucracy
Reasons why SMEs led the recovery vary. Many of the first movers were essential industries: health care, construction, manufacturing, logistics. They also might have needed to be on the road to keep their businesses running.
"Especially if you are a medium- size business in an arena with large-size competitors, you don't have the luxury to stay at home," said Acquis Consulting practice lead for corporate travel Hansini Sharma. "You might not have the same safety net to fall back on."
With the rollout of vaccines, other industries started to pick up their pace of return to travel, and smaller enterprises started to return faster to the office than larger corporations.
"As we got through May, SME accounts started moving faster on their return to offices and putting people back on the road," said Marriott International VP for U.S. and Canada account sales and national group sales Alice Harrington-Caravello. "We started to see more consulting agencies, law, accounting, retail move back into the mix. It speaks to some of the uptick in volume we've seen from May to June to July."
Travel management company Corporate Traveler has seen similar trends. "Based on industry, construction, heath care and pharmaceuticals are definitely still good," said VP of customer success Ben Hobbs. "[Then] travel and entertainment started to pick up. More recently, in the February timeframe, we started to see more finance and banking picking up. In terms of numbers, in the beginning we were down in the single digits compared with pre-Covid travel, then we hovered around 10 percent to 12 percent for some time. Now we're back up to 40 percent of pre-Covid volume."
SMEs also tend to have fewer corporate layers than global corporations when it comes to travel policies and risk, especially as they are more likely to be privately held.
"A lot of SME companies don't even have travel management support, so they have less controls in place," said Craig Fichtelberg, president and founder of Amtrav, which focuses on the SME market. "The larger the company, the more bureaucracy you hear about. But smaller companies are more flexible and nimble. … They also have a need to drive revenue and see this as a competitive advantage, a first-mover advantage. With smaller companies, the relationships with their customers are also more personal."
Client demand was the reason a midsize financial company started to travel again by late May of 2020. "It's been based on the client or supplier, on business need," said the company's travel buyer, who added it's mostly been domestic until recently. "At first, it was very slim, because few clients were able to meet with us. There's been no internal travel."
The company's C-suite made the decision that at first there would be essential travel only, and essential meant client need, but also depended on market restrictions, which were fluid. "We color-coded states and then managed through the different restrictions every state had," said the buyer. "For example, if you wanted to go to New York, you had to fill out a declaration. Going to California was non-existent."
As vaccine distribution expanded, "we saw a little bit more light at the end of the tunnel," said the buyer. The company's air spend from January through July was about 18 percent of 2019 for the period, which was $13.6 million. In the beginning, they didn't want people making air reservations more than seven days out because there were so many changes happening. Then the airlines did away with change fees. Today, the company has used 98 percent of the unused tickets that were available when Covid hit, "which is why air spend doesn't look like a lot."
Not all midsize companies, however, have seen their travel surge this year. Global Canadian-headquartered Ritchie Bros. Auctioneers, which specializes in holding auctions for heavy industrial equipment and trucks, took a more cautious approach to their return to the road, especially as travel restrictions lingered within Canadian provinces and for cross-border travel with the United States, which just recently reopened.
Total travel spend is only at about 10 percent of 2019 levels for the company, said travel administration manager Michelle Grant. "We're still very far away, but when comparing to 2020 [numbers], it looks amazing." About 300 of the company's 3,000 employees are considered regular travelers.
Roughly 50 percent of the company's travel is related to auctions, which shut down, Grant said. Like others, Ritchie Bros. allowed only essential travel for most of last year—such as for conducting appraisals, which can be difficult to do remotely—and that had to be approved at the executive level. (As of a few months ago, managers can now approve travel.) To keep business operating, they moved to 100 percent virtual auctions and built studios in their auctioneers' homes so they could call an auction for anywhere in the world. There were needs for the tech and sound personnel, and some equipment had to get moved around, Grant added.
Into 2021, travel remained flat, then it started to pick up, Grant said. However, when the case load surged again in California, they cancelled some planned meetings. "We decided to be cautious," she said. "It's just not worth the risk."
Industry Focus on SMEs
The importance of this market segment has not been lost on business travel companies, and there seems to be a focus on going after SME business, especially in the domestic U.S. market. Last September, Australia's CTM agreed to purchase the U.S. TMC Travel and Transport, which counted a good portion of SMEs in its client base.
"We knew we needed the scale in North America," said CTM COO for North America Maureen Brady. "The SME [factor] did appeal. That fit so well into the CTM service model. Between what Travel and Transport had and their technology and our complementary technology, it will be a big value to that marketplace. … What is important about the SME market is the ability to deliver not only service but to understand the reason why they travel, and that is to grow their business."
Brady added that CTM had a record sales year for fiscal 2021, which ended June 30. "Over 60 percent of new businesses were SMEs," she said.
In May, Amex GBT announced it had agreed to buy Egencia, Expedia Group's corporate travel arm, a move that will increase GBT's exposure to SME clients. The TMC next introduced its SME-focused expense and management tool Neo1 from the U.K. into the U.S. market.
"SMEs play such a role in the backbone of the economy; when they thrive, it assures a country can thrive," GBT's Haggarty said. "We see jobs, growth, innovations. All TMCs continue to play a role to make sure SMEs can travel and conduct business in the most effective and efficient way possible."
Corporate Traveler's Hobbs thinks SMEs have always had higher margins, but it's been harder to scale. "With automation and advancements in technology, [it's] been a very attractive market for the TMCs," he said. "When we think of the large market with more contracts with vendors, there are lower margins and it's more of a volume game. In the SME space, it's the opposite, with fewer negotiated rates and contracts, and TMCs can benefit from that."
Acquis Consulting's Sharma sees many reasons for the targeted focus. "SMEs, particularly midsize companies, there is so much opportunity to transform their travel programs in so many amazing ways," she said. "To be more personalized, state of the art, focused on duty of care—all the things we are hearing. It's difficult to move a large ship and easier to move a midsize yacht. It's also easier to change fewer people's minds, and easier to train fewer people."
Still, Amtrav's Fichtelberg said that a lot of SMEs have stayed away from travel management because some mainstay TMCs have made it difficult for companies to go from an unmanaged environment to a managed one. "I'm not sure these acquisitions are addressing that because they're not really lowering the barriers and hurdles," he said. "Let's talk about eliminating long-term contracts. The burden is on us to provide good support, not have a three-year binding contract. Barriers to entry need to be torn down to make it easier for SMEs to get the support I think they need now more than ever. Also, a number of technology companies have tried to come into the space, but they've underplayed and underestimated the value of the personal support side. Travelers on the road still want to speak to someone when they run into trouble."
Program Change Opportunity
Sharma also has seen a lot of companies take the opportunity to implement all new TMCs, expense solutions, online booking tool solutions, or to rework the solutions already in place. "They're retraining people on policy or rewriting their policies all together," she said. "This is a time where people are exploring nontraditional ideas, like maybe we don't need to source a whole program. Maybe we can leverage API connections with third-party content providers so travelers feel like they have more freedom and flexibility. There's a push toward less mandated programs and introducing more optionality. … It's a great time to take a step back and realign on program goals for cost savings, procurement and people engagement."
CTM's Brady said she's seen some large companies that significantly reduced their travel take advantage of some SME opportunities. "It's about having a really honest dialogue with those customers and talk about how they can conduct business and operate successfully if they don't see themselves returning to pre-pandemic levels for several years," she said. "That is where we engage and say let's talk about some programs with various travel vendors that will still bring you value for the next several years. Airlines, hotels love it, because they don't want to lose all their business if [a customer] doesn't have enough volume to warrant a discount. Also, a lot of vendors are extending things."
Hotels rolling over rates is one example. Marriott's Harrington-Caravello said that 94 percent of the company's SME accounts rolled over their rates from 2020 into 2021. "We received tremendous feedback from customers because they felt supported, especially in this space," she said. "This is something we are continuing into 2022, because volume on special corporate looks different for this year, and a lot are still unsure of what 2022 will look like. There are so many unknowns, we were getting asked by customers if we would consider rolling over again and we are going down that path."
IHG is doing the same with its Business Edge discounts, DeCross said. "It's huge to have this global discount applied across 5,800 participating hotels," he said. "We see demand continue to grow and don't think that it's going to show any signs of slowing down."
With an increased focus on duty of care, SMEs are taking their travel programs a lot more seriously, Best Western's Ferrill said. "They need to know where their people are staying and have confidence in the cleaning [protocols]." She added that they're also seeing growth in this market through TMCs and can tell people are migrating to a "semi-light managed program." As a result, the company has grown its SME sales staff "because of the opportunity that is in front of all of us there."
Corporate Traveler's Hobbs agreed and added that he is seeing companies be more lenient toward traveling in a higher cabin, for example. Likewise, "some companies would require shared rooms before, now everyone has separate rooms," he said.
Enterprise's Moore noted that business has grown because before the pandemic, four people would share a vehicle. Now, because of social distancing, each person gets their own car. Both Moore and Avis Budget's Kinerk noted that they've seen SMEs shift from short-haul flights to rental cars. "Customers are driving further than they used to drive," Moore said. "The rental length has increased."
New Programs for SMEs
To continue to capture more of the SME market, suppliers are enhancing or creating new programs for this segment.
Without going into detail, Kinerk said Avis Budget would launch a new product by the fourth quarter of 2021 to benefit small business owners who were hit hard due to the pandemic. IHG is looking into how to better integrate the meetings and event side into the Business Edge program, DeCross said, "to provide a soup-to-nuts experience for these customers." Amtrav also is developing an "intuitive meetings platform," Fichtelberg said. "We anticipate there being a lot more company meetings with [more] remote users than ever before."
Vital Communications
Many sources said during the pandemic it was paramount to stay connected with each other in the industry. Suppliers noted their efforts in communicating their new cleanliness programs and safety protocols to customers and reaching out to clients simply to keep in touch, even if there wasn't much business happening.
Buyers supported those statements.
Ritchie Bros.'s Grant said that all her suppliers kept in touch with her. "It was lots of updates in the beginning," she said. "There were no demands or expectations, more checking in and trying to get updates on what was happening with the travel program. We were fortunate to have those great relationships with suppliers."
The travel buyer from the financial company scheduled monthly supplier meetings, "and it made us closer," they said. "They constantly say how much they appreciated it. If you're a good salesperson, you want to make sure that communications stay pretty tight."
The buyer also noted their appreciation for all the master classes and webinars held by many industry organizations. "All the information I was able to learn and community involvement that took place in the last year," they said. "I'm now connected to so many travel managers across the country who I can ask questions. I wouldn't have had that before."