Editorial: A Little Light In The Darkness Of A Downturn
Business travel buyers recently have found themselves in a buyer's market, but the same forces that led to this change in their negotiating positions at the bargaining table have reduced the extent to which they can take advantage of their improved seating.
The near economic collapse of the United States and a worldwide economic downturn that have nearly frozen credit and sparked increasing layoffs have triggered a huge drop in both leisure and business travel demand. While corporate travelers are traveling less, locking down corporate deals has become more important to travel suppliers in the face of reduced leisure activity.
The first indication of a shift in industry fortunes came when the bottom fell out of soaring fuel prices. The airlines had become so used to fuel price escalation that most were caught off guard in their efforts to hedge. Even so, the airlines could make considerable gains in profitability this year as a result of lower fuel prices and their already-instituted capacity cutbacks, in addition to other initiatives.
While that has given buyers some latitude in negotiating airfares, buyers in the past few months also have witnessed a marked change in their negotiations with hotel companies. After several years of a strong seller's market, hoteliers recently found themselves in the position of reaching for modest rate increases and having to settle for hardly any, if not actual rate reductions in some locations.
In fact, pricing has fallen not just in the two biggest areas of corporate travel spending, but across the board. The U.S. Bureau of Labor Statistics reported last month that wholesale prices declined nearly 1 percent last year compared with a 6.7 percent increase in 2007.
Buyers may have an opportunity to negotiate better pricing, but corporate budgetary cutbacks in many cases also are reducing bargaining clout. Corporate spending controls and the development of more sophisticated videoconferencing technology have driven many buyers to manage demand, particularly for non-client-facing interactions. As companies begin to tally the savings from such efforts, many may be reluctant to have their employees return to the road for internal meetings once the economic cycle turns again.
Where the bottom of this recession will fall is still anyone's guess, although some fear that fuel prices will start to climb again before the economy reaches anywhere near a recovery.
While companies look for signs of light from the end of this dark economic tunnel, their travel buyers need to make the most of this moment to shine.