Bill Gates’s prediction that over 50% of business travel would disappear after the Covid-19 pandemic, doesn’t look so farfetched according to new research from Morgan Stanley.
Around 44% of corporate travel managers think that travel volume will shift to virtual in 2021, up from 34% when the financial services company last ran the survey in October.
This is only for 2021, the expectations are a bit more optimistic for 2022, showing only 27% expecting the shift up from 22%.
All this matters because of the high reliance in the hotel industry for business travel revenue, which Morgan Stanley puts at around two-thirds. If it takes longer to return to the same level or if it doesn’t reach that level again, the hotel industry will have to find a way to transform itself.
The same survey also found that hotel travel budgets are also expected to be greatly reduced for 2021, down around 46% versus 2019.
Morgan Stanley’s survey involved around 200 corporate travel managers based in the United States, Europe and Asia, who represent around $7 billion of typical annual travel spend.. Its bleak assessment on the industry is not shared by everyone, however.
In their recent earnings updates many of the big hotel groups pointed to either an uptick in corporate travel bookings or expressed confidence that they would come back.
Stephanie Linnartz, president of Marriott International, said last month that the company was starting to see “green shoots” on the “business travel side”.
“[W]hen we look at the bookings from our corporate accounts further out, we're seeing them tick up each week, particularly from accounting and consulting firms and technology companies,” she said,
Linnartz’s view was shared by IHG CEO Keith Barr, who said that “the death of business travel has been exaggerated by a number of pundits out there.”
“I think the vast majority of business travel is going to come back but it is going to be a measured recovery over a number of years,” Barr said.
“It is not all going to come back at once because some of these things take years of planning for conventions, conferences and big groups. Travel budgets will gradually increase as people have more and more confidence to travel. I am confident in the long-term.”
Interestingly, Barr sees some of the medium-term travel trends actually benefiting the hotel industry.
One of the biggest shifts of the pandemic has been enforced remote working for millions of people across much of the world. It seems unlikely that everyone will want to go back to commuting five days a week, prompting companies to reduce their office footprints. This, according to Barr, could benefit companies in two ways.
The first is that bigger and longer trips could replace shorter commutes. Then there’s the potential need for more meeting space.
“[P]eople are talking about having smaller offices and less meeting space as well so they are going to have to use hotels as gathering places to do things that in the past they have done in their offices, Barr said.
There's also good news coming from other sectors. Air New Zealand recently said business travel had returned to 90 per cent of pre-pandemic levels. New Zealand had been much more successful at managing the Covid-19 pandemic than other countries and perhaps something similar could happen in other countries when they return to normality.
Insight Comment
These survey results will make unhappy reading for the hotel industry and may come as a surprise to many execs who will have been hoping that the vaccine-effect would help bring things back to normality much sooner. The worry is now that this business is simply gone forever. The days of the single meeting business trip could very well be numbered. The question is how is the hospitality industry planning to replace this lost revenue – if it is indeed lost? IHG’s CEO might be on to something when he talks up flexible working spaces etc.