In a report released this week, the Global Business Travel Association said that 2016 would bring moderate price inflation, steady trip volume, and “the most stable U.S. business travel market” in years. The overall outlook for business travel might be business as usual, but dig a bit deeper into the GBTA report and you’ll find some notable trends.
Spending Slowdown in 2015
The stable conditions predicted for 2016 are a continuation from 2015. Rocketrip found some pretty remarkable savings by business travelers last year, but industry-wide, the picture looked less interesting. That’s not necessarily a bad thing: despite economic headwinds, the number of U.S. business trips increased slightly, while plummeting energy prices meant cheaper airfare and lower than-expected travel price growth. Sometimes no news is good news, and the GBTA Business Travel Index Outlook found that prices were only .3% higher in 2015 than in 2014.
That essentially flat headline figure was the result of two counteracting factors:
- Cheaper airfare - Inflation adjusted airfare actually fell by 2.8%, continuing a downward trend that began in 2012. That’s great news for business travelers, though they could be forgiven if they hoped for just a bit more price relief: average domestic fare is still 17% above the post-recession low it reached in 2009, and the proliferation of ancillary fees for everything from checked bags to early boarding means that the total cost of flying has actually gone up in some cases.
- More expensive hotels - Business travelers spent less to get to their destinations in 2015, but they had to spend more on accommodations once they arrived. The average daily rate for hotels increased 5.2% from 2014, according to the GBTA report. Rising hotel rates are a lagging result of the freeze on new hotel construction that occurred when the travel market bottomed out more than five years ago. Supply has slowly been catching up to revitalized demand, but occupancy rates remain near record levels. Expect prices to remain elevated in 2016.
Global Economic Uncertainty Weighs on Business Travel
Travel prices depend on industry-specific dynamics such as fuel costs and hotel construction, but also on macroeconomic fundamentals. It should come as no surprise that businesses spend more on travel when the economy is healthy. The GBTA cites U.S. real GDP growth of 2.4% in 2015, the same year-over-year figure projected for 2016. Other predictors of business travel spending, such corporate profits and producer confidence indexes, also look strong. These factors together help explain why the volume of U.S. business trips increased .6% in 2015, and why it’s expected to rise again in 2016 by a healthy 3.1%.
The economic outlook for the rest of the world is less encouraging, and that will depress demand for international business travel in 2016. Growth remains anemic in the Eurozone, while plummeting commodity prices have hit emerging economies in Latin America, Africa, and the Middle East especially hard. The most severe reversal might very well occur in China, which had accounted for much of the recent growth in global travel spending and which is still projected to officially surpass the U.S. as the largest business travel market in 2016. The GBTA quotes global GDP growth of only 2.5% for 2015. That’s the worst annual performance since the world economy contracted .7% in 2009, and a reason why international business travel spending for U.S. companies was essentially flat this past year.
Putting It All Together
The net effect of changes in travel prices and trip volume was solid, though unspectacular growth for business travel. Last year $290.7 billion dollars was spent on business trips originating in the U.S, a 2.5% increase from 2014.
So what should we expect in 2016? More of the same (more or less). The GBTA projects U.S. business travel spending will grow another 3.2%, to $299.9 billion. That’s a huge number, and one that should be taken with a proportionately large grain of salt. Keep in mind that the GBTA’s figure for business travel spending in 2015 was nearly $20 billion less than what was projected at the beginning of the year.
But despite the uncertainty, it’s possible to see the following big picture developments on the business travel horizon.
- Airfare is likely to get cheaper and hotel rates are not.
- Domestic business travel spending will continue its modest growth in line with the broader U.S. economy.
- The once booming international business travel market will grow more slowly, and in some regions contract.
If you’d like to read more from Rocketrip on how business travel is changing, check out the blog posts below, and get in touch to schedule a travel analysis for your company.