Editorial: Business Travel Forecast: What's In Store For 2004

I'm a writer and a journalist—I'm no seer—so when it comes to forecasting, for me, rhyme is probably as good a basis for an outlook as reason. It worked for former Hyatt CEO Daryl Hartley Leonard in the aftermath of the first Gulf war when he said the name of the game was to stay alive until '95. So I can't do much better than to modify his mantra: Our industry won't thrive until 2005.

The year ahead seems to promise a modest recovery as long as there is no terrorism in America. Unfortunately, with Osama bin Laden and Saddam Hussein still on the loose, a major act of terrorism in the United States cannot be ruled out as a possibility. I am not a pessimist, but when people are ready to kill themselves to kill others, it is very hard to stop them. I would like to think we can, and so my outlook is based on the assumption that terrorists will not succeed on our soil.

Even so, I suspect the Bush Administration will step up the alerts in the coming months, but that they will continue to have a decreasing negative impact on business travel.

The fact that it's an election year probably bodes well for our economy and our domestic industry in the short term.

Exactly how things play out remains to be seen, but of a few things, I am certain:

There will be an acceleration of consolidation among key travel suppliers and less government resistance to it as further bailouts are unlikely. Meanwhile, there will be further internal consolidation of travel expense management by companies with small, midmarket and large travel spending volumes as the benefits have become undeniably clear to senior management when it comes to cost control and for tracking the whereabouts of traveling employees.

Corporate travel managers and travel suppliers will deploy further tools that automate travel processes, driving efficiencies and eliminating agent headcount and back-office jobs. A growing number of agency call center functions will be exported to such places as India.

Multinational companies will seek to further their leverage with suppliers on a companywide basis and government policies will continue to restrict suppliers seeking to work on a global basis.

More companies will begin to leverage transient and meetings spending—a move for which many have laid the groundwork this year.

Travel will not be replaced by remote conferencing. There will continue to be less travel than in Y2K, and more of it will be on nonrefundable and discounted tickets traditionally counted as leisure.

In the next year, cost control still will be king, but consistent quality service delivery will emerge in importance as businesses begin to send more people on the road.

Beyond that, there are several things that I expect, but of which I am less sure:

One is that buyers smart enough to realize that the current buyer's market is likely to weaken in the face of recovering demand in another year or two will begin negotiating longer term contracts.

I expect a slight uptick in ARC-accredited Corporate Travel Departments and more significant growth in use of online booking, touchless transactions and remote call centers.

There will be continued softness in many markets, particularly the transatlantic and transpacific, but gradually growing traffic and yields. Corporate restraints substantially have reduced the universe of customers for premium class products, and the battle to win a greater share of those travelers once again will be focused on product enhancements. In the back of the plane, transoceanic carriers have real hope for a degree of pricing power in 2004 that they haven't enjoyed in several years. Domestically, plans by airlines to add capacity next year sound hopeful, but also recklessly premature from this vantage point.

GDS rules that have been in development will be scrapped and the process begun over and not resolved before year-end 2004. That said, I do expect some form of GDS deregulation eventually, possibly in 2005.

Meanwhile, the European Union and U.S. soon will reach an agreement on traveler data requirements for security purposes and new Open Skies agreements by next summer.

When it comes to business travel spending, the bloodletting has been intense, with the 100 companies with the largest travel budgets cutting an average 27 percent of their volume since 2001. My guess is that the preliminary 2003 Corporate Travel 100 numbers next spring will show a more modest percentage decline. If things go well, 2004 numbers should show a slight upturn.

So far, travel managers generally say travel spending will be flat, but I think it will rise slightly with the economy.

Industry sources can't agree on whether negotiated airfares will rise or fall next year. Deutsche Bank forecasted a 4 percent growth in revenue per available seat miles based on expectations of rising demand. Low-cost carrier competition and legacy carrier desperation should keep fares low in many markets, and overall airfares should not rise more than slightly.

Hotel chains recently announced they are raising consortia rates by 2 percent to 5 percent, but experts expect negotiated rates to rise by 1 percent to 3 percent. Efforts to win hotel business after the negotiating season during the past two years, however, suggest that opportunities remain to negotiate room rate reductions. Still, analysts expect enough demand growth to yield a 4.5 percent rise in revenue per available room in 2004.

Car rental and chauffeured limousine services will try for 3 percent to 4 percent increases, but aggressive competition will thwart efforts to get more than modest increases. Changes in ownership at some of the major car rental companies in the past year, however, will lead to an era of greater discipline, and negotiating with them could get a lot tougher for travel managers by next fall.

Despite competition from online agencies, traditional agency costs look to stay flat into next year.

As economic recovery makes more capital available for investment, it could set the stage next year for a new wave of consolidation. To some extent, this will come as part of the emergence we are now witnessing of a new generation of travel distribution titans, as American Express, Cendant, Sabre, InterActiveCorp—owner of Expedia—and BCD Holdings—owner of WorldTravel, BTI and TRX—bulk up for the brave new world.

During this next consolidation wave, I expect we'll see one less GDS, at least one major agency merger or acquisition and, quite possibly, one less major airline. The government seems more amenable to allowing mergers at this point than to extend further bailouts. While the government rejected a previously proposed merger between United and US Airways, it did allow for the pseudo combo known around the BTN offices as NorthDeltaNental.

Meanwhile, it appears that meaningful competition for corporate accounts, including negotiating discounts, by transatlantic alliances may take flight by summer, with Sky Team getting into position to compete with Star Alliance.

Domestically, travel buyers will use more low-cost carrier services and will adjust their lowest logical airfare policies to include them. My guess is that one major airline will surprise us and succeed with its low-cost carrier within a carrier from a competitive viewpoint.

I also think at least one major hotel company will be bought or merged next year.

On a separate note, several hotel companies will follow Marriott's lead toward pricing reform, which will resolve buyer concerns about Internet discounts and keep merchant model providers from undercutting chain negotiated rates.

The next turn of the economic cycle is just ahead and buyers need to be prepared. The buyer's market we now are enjoying is unlikely to last well beyond next year. That's why buyers need to be proactive in developing partnerships and approaching their business strategically.

Despite gains by purchasing and procurement organizations and strategic sourcing initiatives to take control of travel, most companies have come to recognize that there is a limit to how much travel can be treated as a commodity. Travel managers need to realize that strategic sourcing can be a runaway train unless they can figure out how to get their hands on the throttle. Meanwhile, they need to keep the focus on the productivity of the traveler and the delivery of high-quality service to assure the success of the business mission. To that end, I foresee an increase in the spread of service level agreements and the focus on effective complaint resolution. These improvements will come from seeking stronger industry partnerships and practices rather than the lowest possible costs.

Corporate focus on cost control has made this a heyday for many strategically savvy travel buyers, who now have senior management and employee backing to track every traveler and reduce all costs. Management changes at many companies make not just selling but the constant reselling of the travel program essential to success.

As business travel begins to rise again, it will be much more controlled and managed than ever before. It could be the start of the Golden Age of Travel Management. Sure, things just as easily could get a lot worse. Yet, the potential exists for travel buyers to deal directly with suppliers, insource or outsource travel functions, access and control data and buy price-conscious, yet value-filled, offerings that deliver the whole spectrum of business travel needs.

While many factors are out of the buyer's control, it is up to the buyer to vigilantly safeguard corporate travel spending data, to ensure the level of service quality and to maximize the return on the travel investment. Through proper analysis of the data and repeated communication of company priorities, performance and travel policies, the buyer has the power to shape the future.