"Times are bad but they are a lot worse than we think," said Citigroup analyst Mark Mahaney during a November PhoCusWright conference. The latest business travel forecast agrees.
Although economic recovery around the globe "is inevitable and looks to be pretty strong in 2010 and especially 2011"--and a recovery in the United States is expected to begin in 2009--domestic business trips will decline in each of the next four years, according to a forecast by Global Insight using data from D.K. Shifflet & Associates. Business travel spending, on the other hand, is expected to rise each year through 2012.
Presenting the data Wednesday during a National Business Travel Association-sponsored webcast, Global Insight executive vice president and executive managing director for travel and tourism services Kenneth McGill teased "glass half full types" with the positive general economic expectations. But he said the travel industry has little to be optimistic about aside from long-term declines in inflation growth, and even that won't stop annual increases for domestic business trip costs. The firm's prognosis extends to 2012, when the average business trip cost will hit $560, up from $495 in 2008, compared with also-rising leisure travel expectations to $430 per trip in 2012 from $385 this year.
Although it expects leisure trip volume to return to annual increases beginning in 2010, Global Insight forecast business person trips to fall 3.8 percent this year after dropping 1.1 percent last year, and then to decline again by 1 percent in 2009, 0.8 percent in 2010, 0.4 percent in 2011 and 0.2 percent in 2012.
The forecast is based largely on D.K. Shifflet's 50,000 monthly household surveys regarding "how much they traveled, where they went, what they spent and what the trip purpose was," said McGill. The most recent results were collected at the end of September.
"Relative to growth in business revenue, there's a secular downward trend, however small, in the amount of travel needed to support that business revenue," McGill told Management.travel. "Any business has a production recipe--materials and labor requirements. It outsources some and hires others, but the bottom line is, when you look at the mix of inputs required, travel volume has been slowly moving down and we see that continuing. Business travel in our model is driven largely by profits and cash flow. Those are the factors that most heavily influence it. We see those as being slower to recover than other portions of the economy."
Business travel, McGill continued, "is that controllable expense when times get tough. Firms don't want to lay people off. This may explain some of the secular trend. Also, there are increasingly more and better alternatives to business travel."
Global Insight is predicting an overall drop in domestic U.S. business travel volume of 7 percent between 2006 and 2012, to 472 million trips.
The Travel Industry Association previously announced a prognosis for a similar 2008 decline (3.6 percent), but a worse 2009 reduction of 2.7 percent and then a rebound with 2 percent growth in 2010. The forecast from NBTA, meanwhile, was more optimisticwith business travel "expected to continue growing in 2009," though at a slower rate than 2008. According to NBTA's forecast, the "slowdown in growth is a continuation of a trend that began in 2008, in which business travel grew slower than in the previous four years." Shifflet's numbers actually showed declines between 2006 and 2008.
Noting that NBTA's prediction of business trip growth in 2009 is "in contrast" to the Global Insight forecast, NBTA spokesman Caleb Tiller said, "One of the differences may be that the data [Shifflet] was providing was based on all households surveyed, including all business travel (both managed and unmanaged), and what we're looking at is NBTA members, so these are travel managers and we'd be looking specifically at managed travel programs."
Taken together, Tiller suggested, "What you're seeing is a real flattening of the growth curve in the number of business trips."
NBTA's prognosis was included in a late October TIA presentation, but TIA spokeswoman Cathy Keefe said TIA's volume forecast is not based on the NBTA poll which found that 61 percent of direct members were "optimistic about the growth of business travel." TIA's forecast is based "on a variety of sources," Keefe said.
Although TIA has also incorporated Shifflet data in the recent past, Keefe said the use of different models might explain why TIA is predicting a turnaround for business travel volume in 2010 while Global Insight's forecast includes annual reductions through 2012. TIA's business and leisure travel forecast was announced just a few weeks ago, but Keefe said TIA is considering "whether to revise it."
Other forecasters including American Express Business Travel, BCD Travel's Advito and Carlson Wagonlit Travel during the past three months pegged business travel in 2009 as "weaker" to "down." Travelport last month said booked segment volume was trending as much as 20 percent lower than 2007. The Airlines Reporting Corp. said agency transactions fell 15 percent in October.
Meanwhile, according to Global Insight, business trips (versus leisure) comprise 24 percent of total U.S. domestic volume and about 30 percent of domestic travel spending--numbers which are not expected to change dramatically by 2012.