Recovery + Recession = Rising Rates

That’s the global corporate travel forecast for 2023 in a nutshell. Here are the details.

For the past two years, corporate travel has been talking about the R word: recovery. Unfortunately, another R word now is stalking the corporate travel sector and the global economy at large: recession.

The World Bank has said central banks around the world have been raising interest rates this year with a degree of synchronicity not seen in the past five decades and that “the world may be edging toward a global recession in 2023.”

Some indicators show consumer confidence in similar or sharper declines than in previous global recessions and some growth projections look weak, despite emerging from the pandemic. 

In October, the International Monetary Fund in its biannual World Economic Outlook said that the global economy was experiencing “a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades.” It forecast growth to slow from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. The war in Ukraine and the consequent choking off of energy supplies largely is to blame.

Post-Covid economic recovery could be patchy. Saudi Arabia will lead the pack with growth of 9.9 percent in 2022 and 6 percent in 2023, according to the Organisation for Economic Co-operation and Development. India, Indonesia, China and Turkey also are projected to beat the global average in these years. At the bottom of the table will be economies like the U.S., Italy, the U.K., Germany and sanctions-hit Russia.

While the Fund says this growth profile is weak, it is not as gloomy as the outlook after the 2008 global financial crisis, the acute phase of Covid and the 9/11 attacks. Global inflation will peak at 8.8 percent in 2022, it said.

In the fall, amid these economic reports, many organizations in the corporate travel sector released their forecasts for the year ahead.

Business Travel Volumes

Business travel is back. In a June survey of 179 North American and European travel and procurement managers released in September by HRS and the Global Business Travel Association indicated 54 percent said business travel had rebounded faster than expected.

In a September GBTA poll of buyer opinion, buyers reported domestic business travel bookings were at around 63 percent of pre-pandemic levels with international bookings about 50 percent.

In the same poll, two-thirds of buyers anticipated levels of business travel, both for meeting clients and internal reasons, would be up in 2023 compared with 2022.

Concern about recession does not seem to worry buyers at this point, with three-quarters of organizations indicating they do not expect to limit business travel because of economic concerns.

“We are seeing people think more about where to invest their travel dollars so that it drives the revenues of their organization, drives attraction and retention of staff and to be a good corporate citizen,” said CWT Solutions Group global head Richard Johnson. 

Covid has not disappeared although vaccination programs have helped the world live with it.

“A lot of countries have adopted a new way of living with Covid,” said Shawn DuBravac of the Avrio Institute at GBTA’s annual convention in August in a session on the future of business travel. “They will plan meetings, and if some majority can’t attend, then they will cancel or go virtual. ... We are going to live in that environment for a number of years.”

Tara Colpitts, senior director for market management at Expedia, said the company has been cautiously watching the return of business travel in the past year.

“People started to think that maybe it wouldn’t return with people working from home, but we are seeing it return to normal,” she said, citing Expedia’s Traveler Value Index, released in November. “Seventy-six percent of business travelers are planning to make full use of their business travel, with many doing the bleisure thing.”

Airfares

In its annual review, published in June, International Air Transport Association director general Willie Walsh said “by the end of 2023, most regions will be at—or exceeding—pre-pandemic levels of demand.”

This inevitably will see airfares track higher, particularly as airlines are keeping capacity in check as they try to rebuild their balance sheets after many had to take government support during the pandemic.

The GBTA/CWT 2023 Global Business Travel Forecast, which is based on a growth scenario somewhere between those of the IMF and OECD, projects average global airfares to rise 8.4 percent year over year in 2023, compared with a jump of 48.5 percent in 2022 from 2021 Covid lows.

Business travel airfares in North America are projected to surpass pre-pandemic levels by the end of 2022, “driven in part by a strong recovery in consumer demand,” the organizations said.

The cost of jet fuel is just one driver of this fare increase. At the time of writing, jet fuel was 48 percent more expensive on average than a year ago, but the pain of higher jet fuel prices is not being felt equally around the world—in Asia, the increases are 34.4 percent compared with 55 percent in Europe with differing cost pressures for carriers in those regions. 

Domestic capacity has recovered more quickly than international as the chart above from OAG’s travel recovery tracker shows.

John Grant, chief analyst of OAG told BTN airline capacity, in terms of total number of available seats, plateaued in October and November. 

“There are a number of factors for this, including fewer resources being available, not just crew but getting some aircraft back in to the sky, as well as slower deliveries of outstanding aircraft orders, the price of fuel and recession,” he said. “We think there is a much more cautious sentiment in the market from a supply side through to the end of March 2023.”

He added, “Corporate travel has not come back as strongly as leisure, it is 15 to 20 percent behind where we would want it to be. It’s extremely expensive to travel at the moment, and we are seeing increasing interest in premium economy and people moving back down the plane.”

The aviation sector in Europe also must deal with the closure of Russian airspace.

“Flights that took 10 hours to Asia are now taking 13 hours,” said Grant. “Fuel burns are higher, [segment] lengths are longer and scheduling has to change to accommodate those extra six hours for a round-trip. It will dampen the appetite for some of the European airlines to return to same level of capacity to northeast Asia and China.”

Across the Atlantic, JetBlue has brought in additional competition, and a new Belfast-based carrier, Fly Atlantic, plans to offer transatlantic service from 2024. This could help brake fare hikes.

“JetBlue have been quite successful and the Airbus 321 XLR will give others a chance to try some things,” Grant said. “But even JetBlue is treading cautiously in the market although they have announced Paris and will announce another route soon.” 

Hotel Hikes on Supply Issues

Hotel rates are only going in one direction in 2023, driven upwards by returning demand but also by pressure on key inputs. “Talent is scarce, hindering the drive by hotels to re-scale operations and welcome back guests … and prices are increasing for key inputs including staff, energy, and food and beverage,” according to American Express Global Business Travel’s Hotel Prices 2023 report.

Hotel rates fell sharply in 2020 and 2021 because of the pandemic but the reopening of borders and the return of business travel will mean global rate increases of 18.5 percent in 2022 and a further 8.2 percent in 2023, pushing room rates above pre-pandemic levels by the end of 2023 globally, according to the GBTA and CWT forecast.

Some destinations have already recovered. North America is way ahead of the pack. Occupancy already is higher than in 2019, pushing up rates, which is being made more challenging for hotel room buyers by inflationary pressures. Rates in the region are projected to rise 22 percent in 2022, and a further 11 percent in 2023, according to GBTA and CWT.

“We are seeing people think more about where to invest their travel dollars so that it drives the revenues of their organization, drives attraction and retention of staff and to be a good corporate citizen.” 

— Richard Johnson, CWT

Consultant PwC in its November U.S. Hospitality Directions report predicted a less sharp increase—a 19.3 percent rise in 2022 and 4.5 percent in 2023 as the Fed begins to gain control over inflation.

Europe likely will see an uneven recovery in hotel rates. U.K. prices are set to rise by 31.8 percent in 2022, surpassing 2019 levels. Rates in Germany and France are unlikely to rise above 2019 levels due to the war in Ukraine. Parts of the Middle East, the UAE in particular, are seeing strong increases in hotel rates as occupancy rates climb.

Looking at specific business destinations, Amex GBT is predicting increases of 30 percent in Buenos Aires due to very high inflation in Argentina, 10 percent in Paris, where many hotels took the opportunity to renovate up a tier during Covid, 9 percent in business travel-reliant Stockholm, 8.2 percent in New York, 7.7 percent in São Paulo, 7.5 percent in Seattle and Frankfurt and 7.3 percent in San Francisco. 

In its report, Amex GBT noted that non-last room available policies are rising as a proportion of bids as hotels try and increase revenues. Increasingly, big chains are promoting dynamic pricing over static corporate negotiated rates.

Hotel cancellation policies are still under scrutiny, said Expedia’s Colpitts. “At this point, cancellation rates have settled to what we would consider pre-pandemic times and we are talking to our partners about refundability—it is still a predominant need of travelers to make sure they have bought that flexibility.” 

Car Rental Crisis

According to the CWT/GBTA report, global car rental prices will rise by 7.3 percent in 2022 and a further 6.8 percent in 2023.

Despite that global picture, in Asia-Pacific rates are set to moderate in 2022 and 2023, CWT said, with China’s strict zero-Covid policy limiting rentals in the country.

The rising demand for electric vehicles may be stymied because of the significantly longer turnaround time for required for recharging compared to refueling with gas, according to the report.

Supply chain issues are a particular cause for concern and have driven rates higher.

CWT’s Johnson said, “[British carmaker] Jaguar is to slowing down production due to cost of raw materials and one would expect other manufacturers to have similar challenges in terms of getting new fleet on the lots. We already know that car rental companies have taken strategic measures, e.g. keeping existing fleet for longer, diversifying the brands they use or having higher mileage cars and that is the smart play. If we see demand start to tail off from the leisure sector that might help reduce rates,” he said.

Speaking at the GBTA convention, DuBravac said, “Rental agencies cut their fleet sizes significantly when we went into the pandemic and sold off their used cars and didn’t replenish their fleets. That has artificially constrained some of the supply. As demand has come back, it has put pressure on prices.”

More Meetings, Higher Prices

Virtual and hybrid were the in-thing during Covid but the appetite is falling off as Covid wanes and in-person is coming back. CWT Meetings & Events said in-person meetings jumped 65 percent in 2022 from 2021 while virtual and hybrid meetings decreased by 70 percent.

Some hotels and venues in key markets are now fully booked for large groups until 2024 and prices are likely to increase more, barring further major geopolitical shocks. 

As a result of the increased demand, CWT forecasts average cost per attendee in 2022 to be around 25 percent higher than 2019 levels, with a further rise of 7 percent in 2023.

According to Amex GBT’s 2023 Global Meetings and Events Forecast, there has been a six-fold jump in working from home compared to pre-pandemic and in-person meetings and events “have proven to be the most effective way to drive employee wellness and retention, instill company culture and corporate values, improve team bonding and increase professional development.”

The company predicts overall 2023 meeting spend globally to increase 3.1 percent year over year on average, the same increase as in 2022. Broken down by region, 12 percent of respondents in both North America and Europe expect their budget to increase by at least 11 percent.

In a BCD Meetings & Events report, managing director for North America Charlene Rabideau, said, “Concerns around staffing and inflation are top of mind. Turnover and increasing salaries are driving conversations and influencing how and with what speed teams that downsized during the pandemic can scale back up to execute a full program of events.”

The Three Rs

So we have come through recovery and are now worried about recession. In a recent GBTA Business of Travel podcast, DuBravac said a major concern was that business leaders are talking the world into a recession.

What is certain is that whatever happens to the global economy in 2023, there will certainly be another R, driven by inflation, supply chain issues, recruitment concerns, energy costs and the price of jet fuel. That R, clearly, is rising rates.