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U.S business travel is expected to continue its surge in 2014 despite a record-breaking, seemingly endless winter where the effects of the polar vortex and multiple snowstorms halted travel across much of the country. Despite all of this, for the second quarter in a row, we are increasing our business travel spending forecast for this year in our latest report just released yesterday.
The latest forecast projects U.S. business travel spending to rise 7.1 percent in 2014 to $293.3 billion and total person-trip volume to increase 2 percent to 464.7 million trips.
What is driving this growth?
Healthy corporate profits, rising management confidence and increased job development are all behind it – a very positive sign for the U.S. economy. Business travel growth is a leading indicator of job growth and the private sector has finally regained all of the jobs lost during the recession. Of course, this doesn’t mean all of the same level jobs are back, but today’s forecast suggests this steady improvement should continue.
Strong investment in international outbound travel spending will also fuel the forecast upgrade with expectations for a 12.9 percent increase up to $37.2 billion. GBTA’s outlook for group travel was also revised upward to increase 7 percent in 2014 to $126 billion.
The spring thaw is in full swing and so are U.S. businesses, confidently investing in business travel in 2014.
The White House recently released its proposed fiscal year 2015 Federal Budget. Although there is no chance that Congress will pass the budget in its current form, it does provide us with a sense of the President’s travel-related priorities. But more importantly, it is a cautionary tale about the future without a comprehensive, long-term national travel policy.
Photo Credit: Mark Skrobola
Despite a few bright spots, the proposed budget raises a number of serious concerns. If enacted, some of the proposed measures would actually hamper business growth and thus hinder the overall economy. Specifically, the proposed budget continues an assault on the wallets of road warriors. The President proposes surcharges for air traffic control that undoubtedly will be passed on to business travelers. The proposed budget authorizes airports to impose passenger facility charges of $8.00 per segment – up from the current $4.50 level. Even worse, the budget calls for an increase in the TSA fee, which was just doubled. In total, air travelers would face a 26 percent increase in taxes and fees on a tax burden that already reaches 30 percent of every travel transaction! These increases are clearly meant to solve other budget problems unrelated to travel, since the budget acknowledges cost savings in the hundreds of millions of dollars from efficiencies relating to risk-based security.
There is no doubt that the country’s infrastructure needs updating, and such improvement requires additional resources. Traditional sources of funding are no longer adequate. The Obama budget projects these additional travel-related taxes and fees will raise $4.2 billion, roughly half of which will come from business travelers.
The overarching dilemma is clear. Although we need new sources of funding to pay for these investments, it cannot come from overburdening an already overtaxed travel industry. Travel is already taxed higher than industries such as alcohol, tobacco and firearms. The repercussions on the economy will be significant if we tax more, but also if we cut budgets for needed travel-related investments.
In 2012 alone, U.S. businesses spent $384 billion to send travelers on 452 million business trips. This travel was responsible for about 3 percent ($491 billion) of U.S. GDP. For every 1 percent increase in business travel spending, the U.S. economy gains an additional 71,000 jobs, nearly $5 billion in GDP, $3 billion in wages, and $1.2 billion in tax collections. Business travel is the single most effective form of investment in any economy.
The proposed tax and fee increases would have significant negative effects on this travel. A recent study on demand elasticity in the hospitality industry shows that the proposed 26 percent increase would reduce trip demand by $4.5 billion – and therefore reduce the total federal tax revenue by $1.7 billion. The reduced travel demand would also lead to 86,000 job losses and a $5.8 billion decrease in GDP.
While the overall effect of the President’s budget is negative, there are some positive aspects to highlight. For example, the budget calls for re-investments in Trusted Traveler programs such as Pre-Check. It presses for improvements in the wait times for visa processing and international arrivals. It contains new operational procedures for NextGen, improvements to Amtrak’s heavily traveled Northeast Corridor and a commitment to increased funding for the nation’s infrastructure. These are all positive indicators that the Administration does want business travelers out on the road generating economic opportunities, but these proposed actions do not offer significant, lasting support.
Business travel is critical to the health of the broader economy. We need Congress and the Administration to draft and implement policies to shore up the nation’s transportation infrastructure without placing undue burden on the business travel industry. Asking the industry to bear the burden that is currently proposed ultimately will harm the economy more than it will help by dampening the demand for travel and thus suppressing business growth – the most important part of any economic engine. Our elected leaders are more than capable of crafting a better budget, and GBTA and the entire business travel industry are willing to assist in that process.
Nîn håo! I’m writing this post from Shanghai as we kickoff our 2nd annual GBTA China Conference 2014. The conference promises to offer both local and international participants the opportunity to learn more about the Chinese business travel market – a market that continues to grow at impressive levels according to our latest forecast.
Yesterday, the GBTA Foundation released its latest semi-annual China business travel forecast report, and we project China’s total business travel spend to grow 16.5 percent in 2014. That is more than double the rate of China’s GDP growth – just astounding. China’s business travel market represents roughly 20 percent of the global business travel market, up from 5.1 percent in 2000.
China’s recent announcement of 2013Q4 and full year GDP growth at 7.7 percent paints a picture of slow (by China standards), but steady economic growth. Throughout 2015, GBTA expects business travel spending to continue to pick up the pace, expanding 17.8 percent to $309 billion USD.
As we have said time and again, China is poised to overtake the U.S. as the number one business travel market in the world. Given our current projected growth in business travel in the two markets, this could happen as early as next year.
The surge in Chinese business travel spending is driven by both domestic and international outbound travel with domestic being the main driver though, making up nearly 95 percent of the spending on Chinese business travel. Despite China’s ever-emerging presence as a global commerce juggernaut, domestic business travel will likely continue to pick up ground on international outbound as China grows its middle class, which is likely to spur domestic consumption.
The domestic business travel growth continues even as domestic meetings and events have faced some headwinds of late, however, due to restrictions on spending in the public sector. According to Chinese news sources, spending on conferences by the Ministry of Public Security has fallen 80.9 percent from a year ago. Additionally, these mandates are forcing smaller conference sizes as events with more than 1,000 participants were down 75 percent between 2010 and 2012. Fortunately, this impact has been more than offset by the growth in transient domestic travel as well as expanding private sector meeting and events.
International outbound also shows some promising signs of growth thanks to China’s improving export performance and improved economic performance among China’s key trading partners – the U.S. and Europe.
Another positive we saw in the report is the continuing breakneck speed of infrastructure growth. Over the last decade China’s largest airports have doubled in size and the construction of additional airports continues including Beijing’s second international airport, slated to begin this year and open in 2018. It will house half a dozen civilian runways – double the number at Beijing’s current airport relieving a tremendous amount of pressure on Beijing Capital International Airport, currently the second busiest airport in the world (ranked by passenger volume). In addition to airports, the latest available data from Lodging Econometrics (2013Q2) shows China had 1,695 hotel projects in the pipeline amounting to 435,000 additional rooms, hitting another historical peak.
The principles of inertia tell us an object in motion tends to stay in motion. The unprecedented growth in China’s economy continues to propel the nation’s business travel market, and it will not be surprising when China takes its place as the number one business travel spend market in the world.
Earlier this week, GBTA filed comments with the Department of Transportation (DOT) asking for a ban on cell phone voice calls during flights. Aside from the safety and security implications, you must consider the practical concerns if this were allowed. I can just imagine sitting in a middle seat while a loud talker to my left shared all her business dealings and the man on my right argued with a family member.
Our comments were a reflection of the overwhelmingly negative feedback from our GBTA membership. The consensus was the use of mobile wireless devices for voice is detrimental to business travelers and should be banned between the time the aircraft door is closed and the aircraft lands.
The DOT should not add to plight of the business traveler. After all, silence is golden.
Yesterday the GBTA Foundation released a study showing the economic impact of business travel on the U.S. economy. The numbers speak for themselves demonstrating that business travel is in fact a major economic driver.
Of course the value of business travel comes as no surprise to us and I am guessing, you. There really is no substitute for face-to-face and hand-shake interactions when it comes to getting business done, and while road warriors are out on the road they are spending hundreds of billions on hotels, airports and restaurants.
According to the study, business travel was responsible for about 3 percent of U.S. GDP in 2012 ($491 billion), and for every 1 percent increase in business travel spending, the U.S. economy gains an additional 71,000 jobs, nearly $5 billion in GDP, $3 billion in wages and $1.2 billion in tax collections.
The Co-Chairs of the Congressional Travel and Tourism Caucus agree on the importance of business travel to the economy:
“Business travel is an important aspect of travel and tourism,” said Rep. Gus Bilirakis (R-FL). “As the Global Business Travel Association’s study notes, nearly $500 billion was contributed to the U.S. economy by business travel alone in 2012. That same year, Florida’s tourism industry supported over one million employees and contributed over $51 billion to Florida’s economy. Business travel and the tourism industries are a crux of economic vitality across the country, and especially in states like Florida. The bottom line is that both international travel to the United States and domestic travel within our nation create jobs. As Co-Chair of the Congressional Travel and Tourism Caucus, I will continue to work to foster an economic climate that promotes travel and economic vitality.”
“Electronic communication is important to our economy but it cannot completely replace the personal connection formed by meeting face to face,” said Rep. Sam Farr, D-Calif. and co-chair of the Congressional Travel and Tourism Caucus. “Business travelers play an important role in building our economy beyond just the deals they strike with a hand shake. Their time on the road supports the entire travel industry; injecting needed dollars into local businesses and creating jobs in every community across the United States.”
We will be distributing this message on Capitol Hill. I hope you will join us!
Last week I participated in the White House Business Council briefing on travel and tourism in the U.S. Administration officials gave an update on the economy and discussed how the U.S. Department of Homeland Security and other Agencies work to promote travel and tourism from, to and within the United States. The meeting was an opportunity for the industry to be face to face with administration officials (business travel professionals understand how important that is!) and share encouragement and concerns on policies effecting travel.
The day started in typical DC fashion - with no parking available near the White House - I called a cab. It was late and therefore I was behind schedule. One day I will remember what my friends who work for the limousine association tell me – call for a black car! Arriving late for a meeting at the White House/Old Executive Building is not a good feeling. To make matters worse the security process is complicated and a little confusing even to a pro. Waiting in line to check our badges and ID, I went to the first officer that was available. He told me he couldn't help me. Confused I stepped back in line. He then called me back up and said I had to say “Go Blue.” I realized I was wearing my Ohio State tie since they were playing at noon, and he was clearly a fan of my school’s biggest rival. I said absolutely not, he jokingly said he would arrest me and then waived me through.
The meeting began with a briefing from David Langdon, Senior Policy Advisor for Economics and Statistics, Department of Commerce. He covered the impact travel has had on the economy. U.S travel and tourism generated $1.5 trillion in economic output and created 7.8 million jobs. It is heartening to know that Administration officials acknowledge the impact travel has on the overall economy. The next speakers were those of most interest to me, Department of Homeland Security Deputy Secretary Alejandro Mayorkas, Transportation Security Administration Administrator John Pistole and Acting Deputy Commissioner Kevin McAleenan of Customs and Border Protection.
Photo Credit: Business Forward
The Deputy Secretary vowed to make DHS more open, engaged and transparent. He proposed DHS utilize industry knowledge through the “Shared Executive” program. This prompted the audience to come up with several ideas from marketing, to line management to better interaction with incoming travelers.
Administrator Pistole spoke at length on TSA’s PreCheck program. This was prompted by the moderator saying he had just learned of it, enrolled and loved it. I am still astounded that a DC insider is just finding out about the program. DHS clearly needs private industry marketing advice! Administrator Pistole said that 100,000 people have signed up with the PreCheck Application and more than 90 million travelers have gone through some sort of expedited screening. However, he knows that isn't enough and is pushing his team to expand and do better.
The question on our minds, which we asked because we are concerned it is hurting the PreCheck enrollment, was how long will managed inclusion continue (the practice of observing travelers behavior and allowing those who appear to not be a threat into the PreCheck lanes ). The Administrator was a little cagey in the response, but the answer seems to be that as enrollment for PreCheck increases, then managed inclusion will decrease.
Acting Deputy Commissioner McAleenan discussed the expansion of pre-screening facilities as a way to facilitate greater in bound travel. He also discussed the use of “trusted traveler” programs, including Global Entry. I raised the issue of lack of clarity on how travelers can take advantage of the reciprocal agreements as well as the status of the APEC Card. He said an update on APEC will be coming soon! And we are setting a meeting to further discuss the usage of other countries expedited screening programs and vice versa.
The meeting continued from there with discussions on travel promotion, infrastructure and national parks. The meeting was encouraging in that very smart, powerful people understand and appreciate the impact travel has on the United States and the world. They are just looking to us as an industry to help provide the answers. And we are just the ones to do it!
First Business News reported today on the growing economy and rising business travel. They talked about the fact that even in an age where technology allows us to stay more connected than ever, there is really no replacement for the handshake and face-to-face interaction. They also interviewed GBTA Foundation’s Vice President of Research Joe Bates, and referenced our latest U.S. BTI forecast showing business travel is on the rise. Check out the full interview below.
By Peter Greenberg, Travel Editor, CBS News
It's one thing to look for a needle in the haystack. But the crash and disappearance of Malaysian Air flight 370 is confronting investigators with an even more difficult task -- they first have to find the haystack, and that may take many more days. The lack of a widespread debris field leads me to believe two things: the plane did NOT break up in flight and then hit the water intact; and the plane may have flown longer -- and further -- than initially thought. Translation: the investigators may have first looked in the wrong area and will now have to widen their search. As a result, we may have to wait much longer to discover the exact location of the aircraft. And, then, whenever they find the wreckage, that's when the investigation gets to start in earnest. Then, and ONLY then, can investigators begin to systematically rule things out, one by one, and slowly begin to form a credible and supportable theory as to the probable cause. For the moment, the search continues, and we all wait.
Image: Malaysia Airlines (YouTube)
But this is what investigators are looking at while we wait:
1. The entire service and maintenance records of this particular 777. Both Boeing and Malaysia are looking for any chronic problems, and in particular any airframe problems or reports of pressurization failures.
2. A complete psychiatric postmortem, if you will, of the cockpit crew. Did either of the pilots have family or marital problems? A recent financial loss? Had either of them been disciplined for any procedural infractions that might impact their long-term career path?
3. The mysterious disengagement of the airplane's transponder. Any aircraft that flies under air traffic control must have an operational altitude encoding transponder. That piece of equipment continuously signals to air traffic controllers that ID of the specific aircraft, its position and its altitude. It's the transponder that allows the controllers on the ground to separate aircraft in the air, track them and clear them to different altitudes and routes along their way. There are only two ways for a transponder to be turned off: 1) intentionally and manually by one of the cockpit crew, or 2) as a result of a sudden loss of electrical power. One path investigators are following is the notion that if it wasn't the result of loss of power, then whoever was in control of the plane made a conscious decision to disengage that transponder, and in doing so the plane essentially became an unidentified flying object. And, very difficult to track. If this was an act of terrorism, what is also puzzling is that no terror group has yet claimed responsibility for the act.
4. Could there have been a sudden and catastrophic structural failure of the airplane itself at altitude? If so, there would certainly be a widespread debris field. For example, when Pan Am 103 was blown up over Lockerbie, Scotland in 1988, it was flying at 31,000 feet, and the debris field was more than 800 square miles. But no widespread debris field has been found.
5. Could there have been a loss of pressurization in the cockpit (as was the case in the loss of golfer Paine Stewart on his plane), rendering the pilots unconscious? In the Stewart case, the plane flew on for a number of hours on autopilot before it ran out of fuel and crashed. But this scenario can't explain how the transponder was turned off.
6. Pilot suicide. As frightening as this scenario sounds, it has not been ruled out. It might explain why the transponder was turned off. But again, everything at this point is educated speculation. Until the investigators can specifically and confidently rule things out, they cannot reasonably rule anything in. And one of the biggest mysteries in the history of commercial aviation continues.
Today, GBTA released our latest GBTA BTI™ Outlook – Western Europe report, a semi-annual analysis of the five most critical business travel markets in Europe: Germany, the UK, France, Italy and Spain. These five markets together form the lion’s share of business travel in the region acting as a good barometer of the health of the entire European business travel market.
Things are looking up for the region. For the first time since 2010, we are projecting increases in business travel spend in all five markets. This is a big step. While the North – South divide still exists, and Germany and the UK will again lead the way in business travel spending for the rest of the region, France, Italy and Spain now appear to be showing solid signs of recovery.
In what will be a transition year for the European economy, business travel spending is expected to grow 5.1 percent in 2014 followed by an additional 6.5 percent increase in 2015 reaching $198.6 billion USD. Finally, it appears that the 2012-2013 recession is over and Europe’s economy is on more solid ground. Of course there are still risks to the recovery including the sovereign debt crisis, oil prices and emerging markets currency risk, but with rising GDP, improving corporate profits and increasing business confidence things are looking up for business travel growth.
United Airlines’ Jeff Smisek was a featured speaker on the “Sunday Night Live” welcome session at GBTA’s 2011 Convention in Denver fresh off United’s merger with Continental, making it the world’s largest airline at the time. Jeff told us about his plans for United to not just be the world’s largest airline, but to become the world’s leading airline.
During his interview, he said that the new United would operate under the same two principles his mother raised him on: Treat other people as you would like to be treated -and- never tell a lie. Dignity and respect along with direct, open and honest communication would become the basis of the new company’s culture. He talked about $550 million in planned investments in refurbishing the existing fleet as well as new aircraft purchases, all aimed at creating an airline that customers want to fly and an airline that investors want to invest in.
Three years later, we have the opportunity to bring Jeff back on Center Stage and find out where he thinks United stands now. The recent US Airways and American Airlines merger takes the top spot for world’s largest airline. In 2011, Jeff told us it was more important to be the leading airline than the largest. Does he still feel this way? After everything he has learned in the years since the merger, would he have done anything differently?
During my Q&A with Jeff in 2011, we also talked about industry challenges like the critical lack of support the airline industry receives from Washington. Jeff said the U.S. lacks an aviation policy. He said the industry was taxed more than alcohol, tobacco and firearms, and brutally over-regulated – often with regulations that have very little consumer benefit. This trend does not appear to be changing.
GBTA is a strong advocate for fair taxation and fees. Business travelers are not bottomless piggy banks, yet governments often insist on treating them like ATMs. Punishing a key driver of economic growth is the wrong approach though, and we all pay when governments take a short-sighted approach that raises the costs for business travel. I’ll be interested to find out how Jeff thinks the U.S. government is doing today in its support of the aviation industry and what he thinks still needs to change.
It is going to be a great session and one you won’t want to miss.