After slow end to 2022, the business travel outlook is turning more positive for 2023
There is a growing sense that lower levels of business flying are here to stay, with many still expecting top executives to set corporate flying reduction targets, driven by cost savings, changing travel habits and sustainability needs.
Messaging regarding the recovery of the business travel segment remains mixed.
Since the onset of the COVID-19 pandemic, a number of the industry's leading voices have claimed that business travel will never fully recover due to changing working habits - namely, remote working and digital nomadism; company cost reduction; and a growing awareness of environmental issues.
Indeed, international business travel has been recovering at a much slower rate than leisure tourism.
- Recovery in business travel slowed in 2H2022, but a rapid recovery is expected for 2023.
- Confidence in business travel has nearly fully recovered to pre-pandemic levels.
- Suppliers are highly optimistic about the outlook for business travel, with expectations of increased spending by corporate customers.
- Customer meetings and new business prospects are expected to drive business travel investment.
- The recovery in US business travel spending has been driven by increased prices for airfares, car rentals, and accommodation.
- COVID-19 has brought changes to the demand for business travel, including hybrid and remote working arrangements, additional layers of corporate travel approvals, and sustainability considerations.
Summary
- Recovery in business travel slowed in 2H2022...but rapid recovery is expected for 2023.
- Confidence in business travel nearly fully recovered to the levels from before the COVID-19 pandemic.
- Suppliers are highly optimistic about the outlook for business travel; higher spend trend echoed by travel buyers and procurement professionals.
- Customer meetings and new business prospects to hold weight of business travel investment.
- A large part of the recovery in US business travel spending has been due to the growth of prices - such as for airfares, car rentals and accommodation.
- COVID-19 has produced a range of changes that have modified the landscape of demand for business travel globally.
- Hybrid and remote working arrangements have persisted for a large proportion of workforces globally.
- Additional layers of corporate travel approvals and duty of care arrangements introduced during the pandemic have proved stubborn to remove.
- Sustainability considerations are also weighing much more heavily on travel activity.
Recovery in business travel slowed in 2H2022...
The global recovery in business travel experienced a pause over much of 2H2022.
After a rapid bounce-back of business travel during 1H2022, the expectation had largely been that the sector would have a continued, if steady, recovery over the second half of the year.
However, in the face of rising travel costs due to inflationary pressures, airline operational chaos across multiple regions, and wider concerns about the macroeconomic outlook - businesses revised their plans and travel and budgets were largely static.
This was clearly evident when listening to comments from some of the leading airlines in the US, where business travel recovery had been strong.
In early Dec-2022 United Airlines CEO Scott Kirby stated that business travel had "plateaued" in late 2022, adding that this was "indicative of pre-recessionary behaviour". Delta Air Lines President Glen Hauenstein reported at the start of Jan-2023 that corporate travel demand had been "steady" over 4Q2022, with domestic corporate sales recovering to 80% of 4Q2019 levels.
Alaska Airlines CEO Ben Minicucci reported that large Silicon Valley technology companies had largely "turned off" business travel in late 2022.
Airlines Reporting Corporation: US corporate and leisure ticket bookings (percentage vs 2019), 2021-2023
...but rapid recovery expected for 2023
Despite the recent slowing performance, there is an increasing undercurrent of positive expectations for business travel for 2023.
Airlines, corporate travel management organisations, travel agencies and business travel associations are now pointing to a rapid recovery for 2023, particularly when it comes to business spending.
Global forward-ticketing data from Forward Keys indicates that after a slowing in business ticket sales over 2H2022, forward sales indicate that corporate air travel is due to accelerate through the early part of 2023.
ForwardKeys: forward business and leisure air ticket data, 2022-2023
The Global Business Travel Association (GNTA) projects global business travel spending of just under USD1.2 trillion in 2023.
While this is still down, around USD273 billion down on 2019 levels (-19.1%), the outlook is for overall spending to increase 24.2% year-on-year for 2023.
GBTA: business travel spending outlook, 2019-2026
Confidence in business travel nearly fully recovered to levels before the pandemic
GBTA's Business Travel Outlook Poll for 1Q2023 found expectations for business travel in 2023, with confidence nearly fully recovered to levels before the COVID pandemic.
Of travel buyers - 91% reported that they feel that employees at their company are now either 'somewhat willing' or 'very willing' to travel for work in the current environment.
This is up from just 64% of reported workers who were willing to travel in Feb-2022, and 86% in Oct-2022.
According to GBTA's polling, 78% travel managers globally expect their companies will engage in more business travel in 2023.
Expectations about travel volumes increases are almost uniform between the North America, Latin America, Europe and the Asia Pacific regions.
Just 7% of travel managers expect reduced travel.
Reduced travel expectations are lowest with travel managers in North America (6%) and the Asia Pacific (7%), and higher with managers in Europe (10%) and Latin America (13%).
Travel buyer/procurement: professional expectations for 2023 business travel volumes
More travel suppliers expect increased spending on travel by their corporate customers
Further to this, GBTA's data shows that 86% of travel suppliers expect spending on travel by their corporate customers will increase in 2023 - up from 80% in the association's Oct-2022 survey.
This confidence is high, regardless of region - all travel suppliers surveys in the Asia Pacific expect spending to be somewhat or much higher than it was in 2022, followed by 91% in Latin America, 90% in Europe and 85% in North America.
Just 1% expect reduced spending by corporate customers.
Travel supplier/travel management company: expectations for 2023 business travel spending
Suppliers are also highly optimistic about the outlook for business travel.
According to GBTA polling, 24% report feeling 'very optimistic' about the industry's path to recovery, and 65% are optimistic. Just 3% report they are pessimistic about the outlook.
Travel suppliers expectations about higher spend are echoed by travel buyers and procurement professionals. Of those polled, 46% expect a higher budget for travel programmes for 2023 when compared to 2022, while 41% expect budgets will be about the same as the previous year.
Customer meetings and new business prospects to hold weight of business travel investment
The key area for business travel spending in 2023 is expected to be for trips for sales staff or account managers to meet with customers or new business prospects.
On average, travel managers estimate that their companies will allocate 28% of their travel spend for these purposes in 2023. This is followed by spending on trips for internal company meetings (19%) and spending on attending conferences, trade shows and other industry events (18%).
North American business travel to return to close to normal in 2023
The US Travel Association (USTA) project that the volume of business travel by air will recover to around 98% of pre-pandemic levels in 2023, with recovery back above 100% in 2024.
Domestic travel is at or above pre-pandemic levels, but international arrivals are still in recovery mode.
For 2022, inbound arrivals by foreign nationals into the US were down 24% compared to 2109. This was chiefly due to the slow rebound of traffic from the Asia Pacific, as well as some sluggishness in the early part of the year in Europe and parts of Latin America.
As of the start of Feb-2023, arrivals from mainland China were down 97% when compared to 2019, and arrivals from Hong Kong were still down by 80%.
Inbound travel from Japan was down 41.6%, and from Australia it was down 30.4%.
From Europe, UK arrivals were down 18.5%, while arrivals from Italy were still 14.2% below pre-pandemic levels and German arrivals were down 7%. Of the main Latin American markets, arrivals from Brazil were still a third below 2019 levels.
USTA estimates for Dec-2022 were that US business travel spending would be USD97 billion, which was an increase of 3% compared to pre-pandemic levels.
US business travel forecast: volume, percentage of 2019 levels, 2019-2026
A large part of the recovery in US business travel spending has been due to the growth of prices, such as for airfares, car rentals and accommodation.
According to the USTA, airfares rose 28.5% year-on-year for the full year 2022.
US Bureau of Transport Statistics data shows US domestic fares averaged USD384 in 3Q2022. This is up from an (inflation adjusted) average domestic fare of USD279 in 3Q2020, an increase of 37.4% over the two-year period, and up 12.8% over the past 12 months.
US average domestic round trip airfares, by quarter, 1Q2019- 3Q2022
Data from the corporate travel solutions provider Emburse shows that average spend per round trip domestic business travel by air for 4Q2022 was USD548, putting it just ahead of 4Q2019 levels.
Spend per round trip on international business travel was significantly higher: USD2113 in 4Q2022, vs USD1804 in 4Q2019 (an increase of 17.1%).
Domestic and international air travel: average spend per round trip, 4Q2019-4Q2022
New hope for full recovery in 2023
COVID-19 has produced a range of changes that have altered the landscape of demand for business travel globally - some of which have slowed the recovery, and others that are contributing to business travel coming back, albeit in modified form or with higher spending.
Hybrid and remote working arrangements have persisted for a large proportion of workforces globally, cutting into historical business travel volumes, while at the same time creating greater demand for 'bleisure' travel.
Although video conferencing technology became ubiquitous during the pandemic, enterprises continue to report strong demand for face-to-face meetings, particularly given the uncertainties in global supply chains and the need to train new staff working from remote locations.
Additional layers of corporate travel approvals and duty of care arrangements introduced during the pandemic have proved stubborn to remove - particularly in large corporations. The response has been to consolidate multiple smaller business trips into larger - and often more costly - single trips.
In this same vein, sustainability considerations are also weighing much more heavily on travel activity, but businesses have also shown greater willingness to spend money to be good corporate citizens and offset the impact of their travel.
Despite the structural trends and concerns about an economic slowdown in developed economies, business travel has renewed its upwards trend.
Although the recovery is happening more slowly than expected, and is still well below where most airlines would like it to be, there is renewed confidence in the recovery outlook for 2023.