European Fiscal Crisis Dragging Down Business Travel Growth in U.S., GBTA Reports

Economic uncertainty in Europe will dramatically slow the growth of business travel in the United States through the end of the year, according to the latest Global Business Travel Association BTI Outlook – United States, released July 10 and sponsored by Visa Inc.

Ongoing concern in the U.S. economy, including low job growth, falling consumer confidence and retail sales, and slowing corporate profits, have created significant headwinds for business travel in the near term, according to the GBTA. Finally, there is increasing evidence that businesses may be entering into a holding pattern as they wait for the economic environment to solidify.

GBTA has significantly downgraded its outlook for U.S.-initiated business travel since last quarter. Growth will moderate for the remainder of the year despite the higher prices and relatively strong demand that led to solid growth in business travel spend in the last few quarters. GBTA now expects total business travel spending to grow just 2.2% for 2012, reaching $256.5 billion by the end of the year. This represents a downgrade of 1.4% since last quarter, when GBTA estimated growth would be 3.6%.

“Earlier this year, we created a number of shock scenarios modeling the potential impact of the European debt crisis on business travel here in the United States,” said Michael W. McCormick, GBTA executive director and COO. “In our Moderate Shock Scenario we predicted that a prolonged recession in Europe would result in a flattening of business travel spending in the U.S. Unfortunately, it now seems that this shock scenario is becoming a reality.”

“We’re entering a period of time in which many companies could overact and make significant changes to their travel budgets,” he added. “Our research has shown that businesses that slash their travel budgets end up weakening their competitive position, particularly when the economy improves.”

“Despite projected slowdowns in business travel, there is still reason to be optimistic,” said Tad Fordyce, head of global commercial solutions at Visa Inc. “U.S. travelers increased international tourism spending on their Visa accounts by 9% in Q1 2012 with Americans increasing travel purchases on their Visa accounts by 31% in China. Whether for business or pleasure, Visa supports global travelers with the most widely accepted card in the world and is working with lead banks to provide consistency across card products globally.”

Looking ahead to 2013, GBTA research suggests a slight drop (-0.7%) to 435 million total person trips. On the other hand, business travel spend for 2013 is forecast to grow 4.7% to $268.5 billion. GBTA forecasts 3.6% growth in transient spend, 5.1% growth in group spend, and 7.2% growth in international outbound spend for 2013. However, if the situation in Europe worsens further, the forecast for 2013 will necessarily be downgraded, as detailed in our European Shock Scenario from earlier this year.

Avoiding the Mistakes of the Past

“In a challenging economy, companies may look to cut their travel spending,” McCormick continued. “But GBTA research shows that that is the exact opposite of what they should be doing. In addition to the damage that slashing travel spending will do to a company’s bottom line, cuts to travel budgets could make a bad economic situation significantly worse due to business travel’s impact on the overall economy.”

CONTINUED:  European Fiscal Crisis Dragging Down Business Travel Growth in U.S., GBTA Reports
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