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25 May, 2009

European Business Travel Faces Tough Times

European business travel is expected to take the hardest hit as a result of the ongoing financial crisis, according to a market intelligence report issued by the European Travel Commission (ETC) last week.

Although Europe is world’s biggest inbound/outbound travel region, the report painted a bleak picture of the industry prospects, pointing to sharp declines in intra-Europe travel as well as arrivals from the key markets of China, India and Japan.

Said the report, “Air passenger demand continues to fall. In the last three weeks of March, demand was 10% lower than a year earlier. And indicators from the European hotel sector confirm this story, as occupancy rates were 10% lower in January and February compared with the same months last year.

“ So far, only eleven countries in Europe have reported figures for arrivals or nights in the first two months of the year. But of these, only one (Austria) reports an increase. The others all report declines – often in double digits.”

According to the report, “Leisure travel will be constrained by job losses and weak consumer confidence, compounding the huge losses in wealth over the past year. But the majority of Europeans still have their jobs and some are benefiting from low interest rates reducing their monthly mortgage payments. Most households will still travel but their trips will be marked by a shorter length of stay, shorter distances and bargain hunting. Domestic tourism may benefit at the expense of international trips.”

It added, “Business travel will continue to be the hardest-hit sector. Corporate profits will remain weak into 2010, but in addition to the need to cut costs, corporations are increasingly sensitive to public criticism of companies that have been bailed out, yet continue to send their staff on what are often seen as ‘junkets’. So incentive travel is well down, as is demand for conferences and meetings of all kinds. The pressures on business travel are expected to have a growing impact on airlines’ and hotels’ premium rate business.”

The report noted that “when profits languish, business travel has historically responded severely, and recent surveys substantiate this – as well as trends from airlines, whose premium-class bookings have dropped sharply. According to a December 2008 survey by Orbitz, 55% of business travellers anticipate travelling less in 2009 and 41% are tightening travel policies.

“ In addition, company research into corporate travel bookings in the first quarter of 2008 showed that about 40% of air ticket spending was for internal meetings. But in the last six months, the amount has been cut nearly in half. In a December survey by Rearden Commerce, 71% of corporate travel managers reported a decline in the overall number of business trips. Another 88% said business travel approval requirements have skyrocketed in recent months.”

The report expressed optimism that low fuel prices, industry price discounts and strong government responses may help business travel demand begin to stabilise by the third quarter. “In addition, consumer confidence has time to rebound before the peak leisure travel season.”

It quoted another study by Tourism Economics as predicting that visits to/arrivals in European destinations will decline by 3.8% this year. “The recovery will be modest, it believes, with an increase of just 1.7% forecast for 2010 – implying a two-year recovery period to get back to 2008 levels. This assumes, of course, that the swine flu epidemic does not have a severe and prolonged impact on world tourism.”

Overall, the report says, “the outlook for tourism is sombre. The best that can be hoped for is that, in the end, with a relatively rapid recovery in the corporate sector, the consumer experience will be moderately severe rather than catastrophic. But is seems certain to be prolonged.”

The ETC quoted an Association of European Airlines (AEA) report showing declines in revenue-passenger kilometres flown by its members of 3.5% in December 2008, 3.9% in January and 8.8% in February. And because domestic and short-haul traffic from Europe has been particularly badly affected, passenger numbers declined even more strongly, by 8.0%, 8.6% and 11.0%, in those three months.

It added, “According to a recent UBS Investment Research report, France, Germany, Italy, the Netherlands, Spain and the UK have all experienced declining capacity on intra-European and intercontinental routes. British Airways and Alitalia have trimmed intercontinental capacity most noticeably for early 2009 and, along with SAS, have cut intra-European available seats by double-digit percentages, compared with the same season in 2008.

The region’s long- and short-haul capacity reductions are occurring “for the first time since the Gulf War in 2003”, according to UBS.

The accommodation sector is also being affected. “In 2008, according to MKG Hospitality, Europe’s hotel industry recorded a 1.4% decline in revenue per available room (revPAR), reflecting a clear change in the hotel cycle. Hotel demand began declining in June. Average daily room rates (ADR) also experienced a progressive decline, with a slowdown in growth during the summer.”

“ With a 12.2% drop in revPAR, November 2008 will go down as one of the worst months of the decade.”

The full report can be downloaded free: http://www.etc-corporate.org/resources/uploads/ETC_European_Tourism_2009_05_05_09.doc

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