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Companies Pay Higher Prices to Keep Travelers on the RoadJuly 12, 2011 By: George Dooley Travel Agent
Business travel spending and volume remained steady in Q2 2011 despite headwinds facing the economic recovery, reaching an estimated $62.2 billion in spending. Year over year, this represented growth of 6.3 percent compared to Q2 2010. The forecast for total business travel spending growth in 2011 also remains strong at 6.9 percent according to the latest Business Travel Quarterly Outlook – United States from the Global Business Travel Association Foundation, the education and research arm of the Global Business Travel Association (GBTA), sponsored by Visa.
Continued business travel spending suggests the U.S. economic recovery will march on and resist a backslide or double-dip recession despite setbacks this year including rising oil prices, natural disasters, slowing global growth, and shaky consumer confidence, the new report says. Travel prices are also on the rise, with growing demand providing suppliers with the ammunition needed to boost rates.
“By the end of 2010, it looked like the light at the end of the ‘recession tunnel’ was becoming brighter as the economy overall and business travel specifically were gathering positive momentum. We’ve now hit a soft patch in the economic revival, but business travel spend levels tell us the recovery should continue as companies invest in driving future growth,” said Michael W. McCormick, GBTA executive director and COO. “Now is the time when companies will absolutely call upon their strategic travel programs to help offset rising costs and keep travelers doing business.”
The GBTA Business Travel Index (BTI) will continue its growth trajectory. Currently at 112 for the first quarter, the BTI is estimated to have reached 114 in Q2 2011 – compared with 108 in Q2 2010. The BTI provides a way to distill market performance and the outlook for business travel into a single metric that can be tracked over time.
In fact, although the economy slowed in Q1 2011, the BTI is now expected to reach its pre-recession peak of 120 a quarter sooner than expected – in Q2 2012. Part of this increase is driven by a higher projection for travel price increases, which will contribute to pushing spending higher over the forecast horizon.
‘Real Spending’ Increases
Travel prices are on the rise, with increases expected to continue throughout the rest of 2011, but at a more moderate pace than earlier in the year. Airfares have swelled due to rising energy prices, constrained capacity and relatively strong demand. Higher lodging rates are also driving increases in company travel costs while corporate demand also continues to grow, particularly for luxury hotel rooms. As a result, business travel prices are expected to increase by 4.5 percent to 5 percent in 2011.
While higher rates contribute to the rising cost of each trip, the Business Travel Quarterly also revealed that in 2010 companies actually spent 1.4 percent more per trip than in 2009 when adjusted for price increases. So far in 2011, it is estimated that when adjusted for price increases, spending on business trips will remain relatively flat. This means that companies will keep putting their travelers on the road at a similar pace to 2010 – but paying more per trip due to higher rates, GBTA reports.
International Travel Is Key
As international trade continues to drive global growth, U.S. companies are upping their investment in international travel. Total spend on trips abroad is estimated to hit $31.8 billion in 2011, a 9.1 percent increase over 2010 and a substantially higher rate of increase than total spending growth.
The same market forces that are causing travel prices to rise and generating higher spending for transient business travel are also forecasted to push group travel spending to $107.2 billion for 2011, an increase of 6.8 percent over 2010.
McCormick concluded: “Corporate and management confidence remains high, which is why we’re still seeing companies put employees on the road. We think there is good reason to maintain measured optimism about the growth of the economy.”