05 February 2008

Softening business travel demand, says PKF

A business travel trend in the first half of this year: a softening of corporate and group travel.

One reason: when economic activity slows and corporate profits tumble, one of the first expense items to get attention is a company's travel budget.

"Historically, we have observed a softening of corporate and group travel as the most immediate reaction to the threat of a recession. We believe this trend will repeat itself in the first half of 2008," said Mark Woodworth, president of PKF Hospitality Research.

But declining US hotel occupancy levels should be more than offset by rising room rates this year, according to PKF.

While a slowdown in Gross Domestic Product (GDP) growth may lead to moderation of increased demand for hotel rooms, a surge in inflation should allow hotel managers to boost their room rates.

"Leisure travel, on the other hand, tends to remain fairly constant. People may alter their personal travel plans in search of more modest accommodations, but they still want to take their vacations," Mr Woodworth added.

Despite the resilience of leisure travel, overall, he said he expected an occupancy decline this year and in 2009.

According to Moody's Economy.com's forecast last month, the pace of GDP growth is expected to slow down to a 2.2% annual rate in 2008, but the Consumer Price Index (CPI) forecast has been adjusted upward to a 2.6% annual rate.

"If the nation's economy does fall into a recession, then history says that we could experience an actual decline in lodging demand. If this occurs, then the resulting competitive market conditions could force hoteliers to discount, or even cut, their room rates," according to Mr Woodworth.

Report by David Wilkening