Categorized | Etcetera

Business Travel has returned, rebound has a long way to go…

Posted on 29 April 2010

Business travelers are taking to the road and skies again after going AWOL last year, some airlines and hotels say, in another sign the U.S. economy is bouncing back from a deep recession.

But corporate travel budgets remain well short of the levels they soared to in late 2007 and early 2008, before the economic downturn forced companies to pare back on business trips.

On Thursday, Starwood Hotels & Resorts Worldwide boosted its outlook for the year based on what chief financial officer Vasant Prabhu called “unanticipated late-breaking corporate business” that has been especially apparent the last two months. His comments follow a string of major airlines and hotel companies noting an upturn in business travel.

“Business travelers are clearly back,” said Richard Anderson, Delta Air Lines’ chief executive, on a recent conference call. Delta said its corporate-contract revenue in April was up about 50% from a year ago.

AMR Corp.’s American Airlines said its corporate domestic revenue rose roughly 30% in March from a year earlier. “We are seeing a pretty significant inflection point,” Tom Horton, American’s chief financial officer, told investors last week.

At US Airways Group Inc., where first-quarter revenue rose 7.9% from a year earlier, the upturn “was driven largely by improving business demand,” said President Scott Kirby on Tuesday. Booked corporate revenue soared 35% in the period, he added, though, “remarkably,” it’s still down 6% from 2008.

Echoing the optimism, Glenn Tilton, UAL Corp.’s chief executive, said Tuesday, “We are encouraged to see early signs of recovery in business and premium demand.”

Marriott International Inc. said demand from business travelers is roughly 16% higher at its hotels in the U.S. and Canada thus far in 2010 from a year earlier, including a 21% jump in March. With that bounce-back extending into April, and 70% of Marriott’s business coming from business travelers, the company last week boosted its 2010 revenue outlook.

Frank Dulce, global travel manager at OSI Systems, said travel spending at his Hawthorne, Calif., company has jumped more than 30% so far this year over last year, as the sales force capitalizes on growing demand for its electronic health care and security systems.

The U.S. Travel Association estimated in January that domestic travel spending by businesses would rise 5.3% in 2010 to $226 billion, but Roger Dow, the trade group’s head, now believes the increase could be “a couple percentage points higher than that.” Still, such a rebound wouldn’t be enough to make up for last year’s 12.2% fall in business travel spending.

“You’re not going to get a sharp V. We’re going to get a slower rise,” Mr. Dow said.

Indeed, many in the travel industry say it’s premature to declare victory. Fewer business people are traveling now than before the recession, as many companies remain nervous about spending amid a still-uncertain economic recovery.

More businesses are turning to videoconferencing and other alternatives to keep costs down. According to a recent survey by American Express Business Travel, 27% of companies own or rent broadband equipment for virtual conferencing and another 15% are considering such an investment.

Mr. Dulce of OSI Systems says his company plans to keep a tight lid on travel that doesn’t involve seeing customers and videoconferencing has become more common.

Deltek Inc., a software applications provider in Herndon, Va., with more than $250 million in annual sales, slashed its travel budget 30% last year. Now, it expects to expand travel spending by less than 10% in 2010. Employees who used to fly to the London office for internal meetings now hook up via videoconferencing equipment purchased late last year.

Even some clients have asked the company to scale back onsite visits to keep billing costs down, added Karoline Mayr, who oversees Deltek’s global travel procurement. Deltek also plans to stick with a new policy implemented last year requiring employees to book cheaper seats at the back of the plane for any flights shorter than 10 hours. “Unless you’re going to the Philippines or Australia, you’re flying coach,” said Ms. Mayr.

When companies do send employees on trips, many now restrict them to the cheaper economy-class seats to save money. Carlson Wagonlit Travel, which specializes in travel services for corporations, estimates U.S. business air travel rose 15% in the first quarter, but that it’s still 15% below 2007 or 2008 levels. “It’s really too early to tell” if business travel spending will bounce back all the way, said Jack O’Neill, Carlson’s North American president.

While leisure travel is “beyond recovery and on to expansion” for Southwest Airlines Co., business travel remains below pre-recession levels for the airline, Chief Executive Gary Kelly said in an interview. “We’re not back,” he said.

Delta acknowledges its corporate travel business is unlikely to reach pre-recession levels before the end of the year. Others think the rebound could take longer.

The rebound is patchy at U.S. hotels. Revenue per available room on weekdays fell 18.3% in 2009 and was still down 2.4% in the first quarter in year-on-year terms, according to Smith Travel Research, which tracks data for the hotel industry. Weekday data are seen as a good proxy for business travelers.

Revenue per available room for Starwood’s W brand in the first quarter increased around 20% over the year prior, while St. Regis grew 8.3%, not accounting for fluctuations in exchange rates. Growth was lower as measured by constant dollars.

At Hilton Worldwide, chief executive Christopher Nassetta said demand from business travelers is increasing. But he doesn’t anticipate it getting high enough in most cities this year to be able to raise prices without losing business to the competition. “The pricing integrity is still very weak,” Mr. Nassetta said in an interview.

Smith Travel recently ratcheted up its 2010 hotel industry forecast, but still expects revenue per available room overall to slip 0.5% this year.

Source: WSJ

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