NEW YORK (Reuters) - It’s not quite the death of the salesman, but growth in business travel will likely slow down significantly in 2009 as cash-strapped U.S. companies cut back on unnecessary trips by executives.
The trend has worrying implications for U.S. airlines, hotel and car hire companies, as well as the other industries that rely on the business traveller.
The National Business Travel Association (NBTA) remains reasonably optimistic, predicting that the number of business trips will continue to expand next year -- but at a slower pace than the annual growth from 2004 through 2007.
“This year we saw a slowdown in the growth of business travel -- in 2009. We will see a continuation of that slowdown,” said NBTA CEO Kevin Maguire.
“In some companies, we are already seeing major cutbacks in travel, while other companies have higher travel budgets in place for 2009,” said Maguire.
The NBTA said the tough economic conditions are forcing companies to change the way they think about business travel.
One big change is that travelling on behalf of a company will no longer be seen as a perk, Maguire said in an interview.
“Business is business -- do you send people on trips for purposes other than accomplishing business goals? Not any more,” said Maguire.
“The economy is tough -- bottom lines are very, very important and the perk issue is really not a factor any more,” Maguire said.
MEANER BEAN COUNTERS
The NBTA expects corporate bean counters to become even meaner in 2009.
Its research predicts company travel managers will step up cost-containment strategies by reducing nonessential travel and using data that allows them to access automated hotel information that flags out-of-policy spending.
Other companies will simply stop sending executives to meetings that involve travel costs.
“We are already starting to see companies cancel meetings and cancel participation in conferences,” said Maguire. “You will see more companies go to webcasting and teleconferencing and videoconference. You can do a conference for much less than sending bodies to a meeting.”
Some companies in the travel industry have already positioned themselves to limit their overall exposure to the slowing domestic economy.
U.S. airlines have increasingly been turning to international routes, which can often be more profitable. Delta Air Lines Inc is to add 15 new routes between the United States and what it called the world’s fastest growing economies in Asia, Africa, Europe and the Middle East.
Starwood Hotels & Resorts Worldwide Inc, operator of the W, Sheraton, and St. Regis brands, last month reported lower quarterly profit and said it would slash costs and jobs and scale back capital spending.
However, Starwood was quick to stress that it derives about 55 percent of its management and franchise fees and 45 percent of its owned hotel earnings from outside the United States, positioning it better than some rivals.
For hotel companies that do rely mostly on the United States, it could be a tough 2009.
Consulting firm PricewaterhouseCoopers expects that a key measure of the U.S. hotel industry’s health, revenue per available room (RevPAR), will fall 5.8 percent next year, following this year’s estimated 0.8 percent decline.
That would be the industry’s first back-to-back decline in the widely watched measure since 2001-2002.
PwC said demand for hotels in 2009 is forecast to fall by 2 percent which, when coupled with an increase in supply, is expected to reduce occupancy levels to 58.6 percent, the lowest rate of occupancy since 1971.
What’s more, the slowdown could put pressure on the corporate rates that hotel companies can charge for 2009.
Many corporate rates in hotels are negotiated a year in advance, so some companies may feel they are paying too much right now with prices negotiated when the economy was stronger.
That means current negotiations for 2009 corporate hotel rates have been tough, said hotel industry veteran Bjorn Hanson of New York University.
“Some (corporate) travel managers were saying, ‘We paid too much in 2008, we want some of it back in 2009,’ and others were saying ‘2008 is behind us, but we just want a very small increase for 2009.’”
Either way, it doesn’t bode well.
Reporting by Mark McSherry; editing by Richard Chang
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