Business Travel’s Rebound Is Being Hit by a Slowing Economy
Business travel came back this year more strongly than most industry analysts had predicted in the depths of the pandemic, with domestic travel rebounding by this fall to about two-thirds of the 2019 level.
But in recent weeks, it appears to have hit a new hurdle — companies tightening their spending in a slowing economy.
Henry Harteveldt, a travel industry analyst for Atmosphere Research, said that corporate travel managers have told him in the last few weeks that companies have started to ban nonessential business travel and increase the number of executives needed to approve employee trips. He said he was now predicting that corporate travel would soften slightly for the rest of the year and probably remain tepid into the first quarter of 2023.
Mr. Harteveldt also said his conversations led him to believe that business travel would “come in below the levels airline executives discussed in their third-quarter earnings calls.”
Airlines were bullish on those earnings calls, a little over a month ago. Delta Air Lines, for one, said 90 percent of its corporate accounts “expect their travel to stay the same or increase” in the fourth quarter. United Airlines, too, said its strong third-quarter results suggested “durable trends for air travel demand that are more than fully offsetting any economic headwinds.”
Hotels, too, were optimistic. Christopher J. Nassetta, president and chief executive of Hilton, said on his earnings call that overall occupancy rates had reached more than 73 percent in the third quarter, with business travel showing growing strength.
The change in mood has come as the economy has more visibly slowed. Technology companies, in particular, have been announcing significant layoffs. Housing lenders have also been reducing staff, as rising mortgage rates cut into their business.
The travel industry has long relied on business travel for both its consistency and profitability, with companies often willing to spend more than leisure travelers. When the pandemic almost completely halted business travel in 2020, people were forced to meet via teleconference, and many analysts predicted that the industry would never fully recover.
But business travel did come back. As the economy reopened, companies realized that in-person meetings serve a purpose. In a survey taken in late September by the Global Business Travel Association, a trade group, corporate travel managers estimated that their employers’ business travel volume in their home countries was back up to 63 percent of prepandemic levels, and international business travel was at 50 percent of those levels.
One reason international business travel has not come back as strongly, Mr. Harteveldt said, is that some employers have imposed restrictions on high-priced business-class airline tickets for long-haul flights. He said employers are instead requiring travelers to take a cheaper connecting flight or to fly nonstop in premium economy or regular economy class.
The State of Jobs in the United States
Economists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.
- October Jobs Report: U.S. employers continued to hire at a fast clip, adding 261,000 jobs in the 10th month of the year despite the Fed’s push to cool the economy.
- A Self-Fulfilling Prophecy?: Employees seeking wage increases to cover their costs of living amid rising prices could set off a cycle in which fast inflation today begets fast inflation tomorrow.
- Disabled Workers: With Covid prompting more employers to consider remote arrangements, employment has soared among adults with disabilities.
- A Feast or Famine Career: America’s port truck drivers are a nearly-invisible yet crucial part of the global supply chain. And they are sinking into desperation.
“Travelers are telling managers they won’t fly long-haul in economy if they have to go directly to a meeting when they arrive,” Mr. Harteveldt said.
What will business travel look like in the next year?
Pandemic travel restrictions will probably play less of a role. A survey by Tourism Economics, U.S. Travel Association and J.D. Power released in October found that 42 percent of corporate executives had policies in place restricting business travel because of the pandemic, down from 50 percent in the second quarter. Over half expected pandemic-related business travel policies to be re-evaluated in the first half of 2023.
With Americans able to work remotely, many are combining professional and leisure travel, airline and hotel executives said on recent earnings calls. That was a big reason travel did not drop off in September, when the peak vacation period ended, as it used to in years past.
Jan Freitag, national director for hospitality market analytics at CoStar Group, said hotel occupancy by business travelers currently varies by market, with occupancies high in markets like Nashville, Miami and Tampa, Fla. — places where business travelers may well be taking “bleisure” trips. But hotel occupancies by business travelers are low in markets like Minneapolis, San Francisco and Houston.
Mr. Freitag said the lower hotel occupancies in some cities may reflect a lower return-to-office rate in those places, which reduces the ability to have in-person business meetings.
Mr. Freitag said he was “very bullish on group travel, trips for meetings, association events, to build internal culture.” Those trips will recover more quickly, he predicted, than individual business travel.
“It’s all about building relationships,” he said. “It’s very hard to do that online.”
On the other hand, short business meetings and employee training sessions may continue to be conducted online, which is less expensive than in person, said Grant Caplan, president of Procurigence, a consulting firm in Houston that advises companies on their spending for business travel, meetings and events.
Even as business travel has resumed, hotels, airlines and airports still have inadequate staffing. A survey of hoteliers by the American Hotel and Lodging Association, a trade group, released in October found that 87 percent of respondents were experiencing staffing shortages. Although that was an improvement over May, when 97 percent of respondents said they were short-staffed, the current findings do not bode well for smooth hotel stays.
Disruptions in flying, particularly in the United States and Europe — because of weather delays, inadequate flight crews or air traffic control and security issues at airports — have been notoriously high, particularly earlier this year.
Although “we can’t say that these disruptions have discouraged business travel, they have clearly complicated” the experience for travelers, said Kathy Bedell, senior vice president of the Americas and affiliate program for BCD Travel, a travel management company.
Kellie Kessler, a pharmaceutical clinical researcher in Raleigh, N.C., said the travel disruptions she faced this year were too much. She changed jobs recently to take one that requires her to travel on business 10 percent of the time, compared with 80 percent in her previous position.
“The reason I took a nontravel position is that I can count on one hand the number of on-time flights I had this year,” she said.
And flight disruptions have led to a decline in some road warriors’ loyalty to airlines, even those who have accrued elite status in the carriers’ frequent-flier programs.
“The disruptions overall have caused me to be less loyal to any one airline,” said Trey Thriffiley, chief executive of QIS Aviation Group a consulting company in Savannah, Ga., that advises individuals and companies about their use of private jets. He is also an elite member of the loyalty programs at Delta, United and American Airlines. “Instead of searching by preferred airline or even cheapest price,” he said, “I search for direct flights or connecting flights to cities closest to where I live that I can drive home from if I need to.”
Airlines’ bullish forecasts notwithstanding, some experts find prospects for business travel this fall and next year extremely murky.
They say they cannot accurately predict how strong business travel will be and what airfares and hotel room rates will look like because of many unknowns, including the duration of the war in Ukraine and its impact on the European and global economies; increasing gasoline and jet fuel prices; and rising inflation, recession fears and political uncertainty.
Mr. Harteveldt, the travel industry analyst, said the recovery of business travel varies by geographic region, with the United States rebounding faster than Europe.
He said the Chinese government could be using its reopening strategy “in a geopolitical way,” adding, “If a country is more friendly, China will grant access to that country’s business and leisure travelers rather than to travelers from countries with which China has greater political differences.”
He predicted that 2023 would be a “difficult year” for business travel unless the war in Ukraine “comes to an abrupt end and there is more certainty about oil and the price of jet fuel.” Also a factor, he said, could be decisions by companies that may have added too much staff during the pandemic to save money by reducing business travel rather than by laying people off.
“If there’s a symbol that can be used to describe the outlook for business travel in 2023, it’s a question mark,” he said. “No airline, travel management company or travel manager can be 100 percent certain what 2023 will bring right now. It’s one of the most confounding, confusing times to be in business travel, perhaps in decades.”
In a report issued in August, Mike Eggleton, director of research and intelligence at BCD Travel, had a similar take on the immediate future for business travel. “Producing a credible travel pricing forecast in the current environment is incredibly difficult,” he wrote. “The near-term travel outlook is more uncertain than ever. Volatility has never been so high and seems likely to persist. There’s vast variation in market performance and outlook.”
Going forward, Ms. Bedell said, perhaps the overriding question about business travel will be whether the trip is necessary.
“Client-facing and revenue-generating travel is taking a priority over internal meetings,” she said.