February 02, 2022

Leisure Demand Will Mean Higher Prices Less Supply for Biz Travelers

With leisure travel plowing full steam ahead and business travel and meetings zig-zagging with new variants and ongoing return-to-office delays, suppliers are beginning to envision a world where the value of the business traveler has changed. They're making planning decisions that could negatively affect travel managers and their travelers—at least for the short-term.

Less Supply, Higher Prices

The car rental shortage reported a year ago continues. Bookings are still difficult to come by. Choices are fewer. In addition, the average daily rental rate in the United States in December 2019 was $46; by December 2021 it was $81, according to travel company Kayak.

"Car rental companies are definitely being discretionary in terms of what they'll accept," said one industry consultant. "They want longer rentals, they don’t like one-way, and right now they don't have to accept them." Business travelers should book a car prior to securing a flight, they recommend, adding, "It's much more severe than what is being talked about in the market. Corporate travelers are very frustrated."

Airlines, too, have made schedule changes and route cuts, particularly to secondary and tertiary markets—markets that typically were supported by business travelers—in favor of more leisure destinations.

Many carriers have noted that small and midsize enterprises are leading the return of business travel, but they will feel the upcoming supply shortage and price pinch the most. Overall, with fewer options and increased demand as business travel is expected to meaningfully return in 2022, we'll likely see higher prices first before airlines resume their schedules and routes. It's Economics 101.

While hotels are in a somewhat different situation as they have more supply, they've managed to retain their price integrity during the recovery more so than when compared with past crises. Average daily rate continued to improve during 2021. By December, it was up 6.7 percent compared with December 2019. Prices are expected to continue their recovery into 2022. STR this week anticipated ADR will reach $134 in 2022. In 2019, it was about $131.

Catering to Leisure Travelers

On American Airlines' recent Q4 earnings call, incoming CEO Robert Isom said the company was working on a plan to build an airline that can be profitable even without the full return of managed corporate travel. Its head of revenue Vasu Raja noted that leisure travelers were buying business-style products. Premium cabin sales were more robust in Caribbean and leisure destinations than typical business locations.

"That's going to lead to a lot of things," Raja said. "That's why we have done a lot of things where we are increasingly rewarding travel, which is not just for how frequently people fly, but for simply spending on our credit cards or spending all across the airline. And we think there is even more to do."

Does that mean there will be fewer business class or premium seats available for the corporate traveler as leisure travelers can more easily claim rewards? That remains to be seen. The industry consultant, however, said wholesalers and tour operators were offering discounted business and premium seats, and as with rental cars, business travelers need to book much further out to secure them.

What is clear is that loyalty programs will be in transition, for both airlines and hotel companies, with efforts focused on leisure travelers.

"With high-volume business travel down, traditional loyalty programs no longer make sense," according to the 2022 State of the Hotel Industry report from the American Hotel & Lodging Association, which labeled 2022 as "the year of the 'new' traveler," stating guests are increasingly likely to be leisure or "bleisure" travelers, or digital nomads. "Loyalty programs that target the needs of business travelers and are based primarily on accruing points will be increasingly less relevant. The imperative now is programs for people who travel less and for leisure purposes."

Effect on Buyers

What does all this mean for travel buyer? For one, it could mean dissatisfied travelers. It also could make it harder for them to secure savings, especially if they need to add other preferred suppliers. For example, if a corporation had an exclusive airline, but now needed a second partner to meet coverage needs, the first carrier might not be willing to give as good a discount as previously. It could work the same for cars and hotels.

Travel managers also need to educate their travelers—both former road warriors as to the changes they are about to experience, as well as new hires during the past two years who have yet to go on their first business trip. In addition, there are employees who may have worked in an office and are now remote but need to meet with their team quarterly. They, too, are new business travelers.

Buyers also might need to revisit travel policies and increase trip budgets, not only because of rising supplier costs, but also because there is a bigger responsibility for duty of care, said a second consultant. Because business travel volume is expected still to be lower this year than in 2019, total spend may not go up, but the price-per-traveler likely will increase.

Doesn't that increase the value of the business traveler to suppliers? Perhaps, if there was more business volume. But suppliers are heeding tailwinds that say the balance between business and leisure is changing. The trick will be to make sure they don't alienate their corporate partners and travelers in the short-term, because though it may not look the same, business travel will come back, as it always does.

Copyright 2022 Northstar Travel Media, LLC. All rights reserved. From https://www.businesstravelnews.com. By Donna M. Airoldi.

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