Send a summary and link to this article To Email Your Name Your Email

Printable Version

Exposing the 'New Normal' Experts are saying once again the latest downturn will create a permanent change in travel patterns. Here’s what some are saying. Monday, October 05, 2009 Glenn Haussman

bookmark this On Twitter @hotelinteractiv

There’s been a lot of talk about a so-called “new normal” when it comes to the travel business. Meaning, the precipitous drop in travel during the last year – especially business travel – will never return to previous levels.

It was a phenomenon seen during the last two industry downturns and it was especially talked about after the 2001 terrorist attacks. At that time it seemed as if everyone was totally convinced people would never travel again. For leisure travel, they’d prefer to stay within driving distance of their homes or choose to not travel at all. And when it came to business travel, all of a sudden meeting face-to face would be rendered irrelevant to business.

Of course, panic eventually subsided as business not only returned to a normal “normal” but then exploded, creating a run of the most profitable years the hotel industry has ever seen. So the big question is, “What’s going to happen this time?”

While it is expected that leisure travel will continue to bolster industry profits, the real concern is on business travel. Deep cuts made by companies trying to trim travel costs are getting them to rethink the entire concept of why business travel takes place and if it’s financially worth it.

“As the world begins to show signs of emerging from the recession, businesses are adapting to a fundamental shift in thinking, focused on proving the value of travel and every employee connection,” said Hervé Sedky, vice president and general manager, American Express Business Travel (AEBT). “Heading into 2010, companies will need to consider the impact of these changes in mindset, particularly as projected rate increases in key travel categories gain momentum.”

Sedky said that 2009 has been a change of focus for a lot of companies, AEBT advises. Sedky said this downturn is showing different characteristics than others in relation to business travel, because his clients that have previously talked about travel cost reduction are actually creating new policies with a level of detail he’s never seen before.

“There is a lasting effect of the recession moving forward and we believe this is the new normal. Companies are becoming more focused on the ROI in travel. So in 2010, while we see the economy is improving, the improvement in business travel will be small. Companies will remain smarter buyers when it comes to travel. They are looking at less cost, but an area that needs to be measured like any investment,” said Sedky.

Charles Petrucelli, president of American Express Global Travel Services, said companies have been on an extreme balancing act to lower costs, and travel is a natural place to pull back. “We have seen a definite change in behavior in the ways companies look at travel spend. New solutions are becoming an essential part of options companies have when they want to optimize connections around the world,” said Petrucelli.

Those new technologies include telepresence and teleconference technologies, which have come a long way since the last industry downturn. In fact, the exposure we’ve had to this technology is downright frightening because it’s so realistic it’s almost easy to forget you’re not in the same room as the people you’re talking to.

According to AEBT, companies will have more formal oversight of their meeting planning and meetings spending in 2010.  However, companies are expected to loosen the purse-strings when it comes to sending individuals to events and conferences, even as travel category managers adopt strategic meeting management programs.

“Companies investing in the right kind of travel for the right reasons are critical to not only the bottom line but to the economic recovery,” said Frank Schnur, VP Global Advisory Services, with AEBT.

At the Lodging Conference held last month in Phoenix, hoteliers were abuzz about the same issue. One dour prediction came from Thomas Magnuson, CEO/Principal of Magnuson Hotels. He said he sees a massive sea change ahead for the hotel business. “We all want to believe there are cycles, but what we see is a massive fundamental shift, a complete reset,” said Magnuson.

While we’ll take a more in-depth look at the 2010 global business travel market tomorrow, here in the United States business travel growth is predicted to be up one percent for the U.S. and 15 percent for Canada in 2010. Route and capacity reductions made in the region in an effort to equalize the decrease in demand in 2009 are expected to force airfare prices up in North America in 2010, higher than most other regions.

Hotel rates are expected to remain on the decline in North America as a whole, as hoteliers fight to attract both business and consumer travelers back. Car rental rates will likely increase slightly as the cost of vehicles is expected to rise following decreases in capacity in 2009 and car manufacturer consolidation driving up the cost of replacing relatively old fleets.