TravelMole Guest Comment: Business travel’s slow and painful recovery

Business travel faced hard times over 2008-2009 due to the global economic downturn which forced companies to reduce non-essential travel and implement cost-cutting measures. Euromonitor International’s Nadejda Popova, Travel and Tourism Analyst, reviews the current performance of this hard-hit segment.

Downsizing first class

The latest figures from IATA point to a revival of business travel with an increase of 18.7 per cent in premium passenger growth for the month of May 2010 year on year.

Although this marks an improvement, the severity of the economic crisis severely impacted the performance of this segment, and as a result, the current level of premium traffic is almost 10 per cent lower than it stood pre-crisis.

During the crisis, demand for business travel changed dramatically. Many airlines were forced to embrace different initiatives in order to boost capacity, but without the necessary large capital expenditure.

One such initiative was the move towards the “de-premiumisation” of long-haul fleet by the likes of such as Qantas, BA and Lufthansa, with the aim to boost the share of premium economy seats in order to seek higher margins from travellers trading down from first class.

Open for business

The largest sources of international business travellers are Germany, the US, China, Hong Kong, Italy and China, accounting for 30 per cent of business departures according to Euromonitor International.

All these countries have a large economy, are significant exporters, and/or play the role of a business hub in their region.

According to Euromonitor International, the regions showing the strongest increase in business travel are Asia Pacific and the Middle East.

The fast-growing economies of China and India in terms of real GDP provide the solid groundwork for growth in business travel, as their rapid expansion has boosted growth in employment.

The Asia-Pacific region will continue to present the greatest opportunities for business travel, accounting for an increasingly larger share of the economically active population.

Middle East growth, on the other hand, was boosted by continued investments in infrastructure, varied and high quality hotel offerings and an emerging reputation as a hub for international business and long haul travel.

The region is well-placed to emerge from its current slowdown, with routes to and from this region recording growth in premium traffic ranging from 7-22 per cent  in May 2010 according to IATA.

Last but not least

Lagging behind are Europe and North America. Europe is expected to register -1.5 per cent year on year growth for the 2010 in terms of business arrivals, while business departures are expected to record -1.3 per cent year on year growth for the same period according Euromonitor International.

Europe is in the midst of a sovereign debt crisis, strikes and social unrest along with low consumer confidence that will prolong the recovery period for business travel in the region.

Overall the recovery in developed markets remains weak and unemployment continues to rise, while currency fluctuations persist.

The recovery from the current recession is expected to be slow, and supply will continue to exceed demand, creating intense price competition and adding further pressure to prices across the wider travel industry.