Although Covid-19 did not fully gain a foothold in North America until mid-March 2020, business travel spending in the region’s major metropolitan areas was marked by the pandemic earlier in the year, and price levels in major U.S. markets fell during the year first quarter when companies stopped traveling to these areas – even if the virus was largely confined to Asia and Europe.
Canaries in the coal mine
In markets like Boston, Chicago, and Philadelphia, where prices fell 15 to 19 percent compared to the final quarter of 2019, average hotel prices fell sharply in the first quarter of 2020. The New York hotel sector was even more difficult to see a 35 percent drop in prices over the same period.
Given these cities ‘status as major business travel destinations, as well as the “hot zones” of initial infection in the early stages of the virus’ arrival in North America, it is no surprise that they served as canaries in the proverbial coal mine, heralding more price cuts across the region than that Virus spread.
More North American markets should certainly follow soon as the true extent of the pandemic set in. Almost all other major metropolitan areas in the United States and Canada saw a double-digit decline in hotel prices in the second quarter of 2020.
Smaller markets in particular, which had escaped the price problems in the first quarter, suffered devastating delay effects in the second quarter. For example, Anaheim, whose hotel prices actually rose 4 percent in the first quarter, came back to earth with a 48 percent decline in the second quarter. A similar pattern emerged in Austin, Phoenix, and several Florida markets, all of which were driven by higher winter prices in the first quarter, as well as Albany, Columbus, Ottawa, and White Plains, among others. The major cities, which had borne the brunt of the demand shock in the early phases of the pandemic, were largely spared further substantial damage in the second quarter.
For the remainder of 2020, hotel prices across North America remained depressed as business travel stalled.
On the other hand, rental car prices have proven to be quite resilient despite the pandemic. Restrictions on supply and increased demand from leisure travelers unwilling to fly in the face of the pandemic were among the factors supporting price stability in this sector throughout 2020, observers noted.
“Rental car volume has declined, but by a much smaller extent than it has been in the air,” said David Reimer, executive vice president, global clients and general manager, America, American Express Global Business Travel. “Businesses and travelers see cars as a relatively safe transportation option that limits exposure and provides more privacy than other modes of transport.”
Overall, however, the downward impact of Covid-19 on business travel spending in North America was massive. In its BTI Outlook 2021 report, the Global Business Travel Association calculated a 60 percent year-over-year decrease in spending on business travel in North America in 2020 – the largest decrease in any region, surpassing the 58 percent decrease in Western Europe. The numbers are even more astonishing if you only look at the last three quarters of the year. From April 1 to year-end, North American business travel spending fell nearly 80 percent, according to GBTA.
Data from the American Hotel & Lodging Association offers a more in-depth look at how far the pandemic has halted business travel. In a survey commissioned by the hotel industry group in January 2021, 62 percent of US business travelers surveyed said they had made an average of more than four business trips per year before Covid. In 2020 that number fell sharply to 27 percent. In addition, 73 percent said they had taken fewer than three business trips in 2020 – and 26 percent had taken no trips at all – even in the first quarter before the outbreak officially hit North America.
As the latest report from AH & LA on the state of the hotel industry made clear, US business travel was “essentially suspended” in 2020.
Cost (ly) consistency
Amid the unprecedented upheaval in the industry, there was at least one area of normality for business travel in 2020: Expensive markets remained forever. Of the 15 cities with the highest daily rate for combined hotel, rental car and meal costs in 2019, nine were also among the top 15 according to 2020 data.
Despite the sharp drop in hotel prices in New York in the first quarter, the Big Apple was the most expensive city in North America for the year – albeit at a daily rate of $ 120 lower than in 2019 when it took third place. San Francisco, which took the top spot in 2019, dropped to third in 2020, largely due to a nearly $ 165 year-over-year decline in average nightly hotel costs – a decline even steeper than New York’s.
Meanwhile, Santa Barbara rose from eighth in 2019 to second on the 2020 list, thanks to robust hotel prices, as well as rising rental car and meal prices, which together increased the city’s daily rate by about $ 14. The only other markets in the top 15 of 2020 where the average daily rate rose over the past year were Phoenix, Sacramento, and Providence.
Uneven recovery
As 2020 came to an end amid resurgent infection rates and troubling news of more contagious virus variants, there was also reason to be optimistic – particularly the launch of long-awaited Covid-19 vaccines.
Recovery from business travel is expected to be slow, however, and the vaccine is just one of the most important steps the industry needs to get back to health, according to Observers. Limit values for entry to the borders, the changing dynamics of supply and – perhaps most critically – the trust of companies and travelers are still some of the critical challenges that have yet to be overcome.
“Consistent with the current landscape of travel restrictions, the trend in corporate demand in North America is largely domestic with very little international travel,” said Reimer of American Express GBT. “We see that most customers continue to have only business-critical travel policies and management approval is required,” he added.
Industries that are leading the way back to the road and to heaven include healthcare, education, natural resources, and transportation. Reimer said the SMB segment is recovering “a little faster” than large corporations – and that uneven recovery has resulted in a shift in demand patterns, he said.
“On domestic flights, airlines have significantly reduced capacity in traditional markets for strong corporations such as New York, Chicago and Boston, which have struggled with the slow recovery of financial and professional services,” Reimer said. “In comparison, airlines are moving planes and seats to non-traditional corporate markets.”
In the first quarter of 2021, airlines shrunk capacity on traditional main routes like Boston to New York and Chicago to New York by up to 90 percent year-over-year, with routes to and from secondary markets gaining share, Reimer said.
“Who would have thought that Chicago after Louisville and Louisville after Philadelphia would be in the top 15 corporate markets right now, given that certain industries like transportation, education, and health are recovering faster than others?” said Reimer.
In view of shifts in demand, hotel providers are taking a wait-and-see approach to pricing strategies, says Reimer. The increased demand from business travel buyers for dual rate load models with fixed and dynamic prices for each property has resulted in a significant reduction in booked prices, he noted.
“Almost 90 percent of GBT customers used the dual rate load model for the 2021 contract year, Reimer said.” Given the process efficiency of this new approach coupled with the ongoing uncertainty in business travel demand, we expect customers to request the same or similar approach in 2021 for the 2022 contract year. “
And it’s not just about pricing models. Companies are re-evaluating almost every other aspect of travel expenses – including the overall budget. In a Fall 2020 study by Flight Center Travel Management, T&E was the most frequently cited area of planned cost reduction for 2021.
In the meantime, the dramatic increase in corporate due diligence post-Covid will lead to another review of the cost-benefit analysis of a given trip, as many observers predict, putting further pressure on travel expenses.
Long-term forecast
With significant advances in vaccine rollout in North America and around the world, sentiment is rising that travel will resume in earnest in 2021. Among the frequent business travelers surveyed in the AH & LA study, 29 percent expected their first business conference in the first half of 2021, while 36 percent expected the second half of the year.
However, a full recovery to pre-Covid business travel levels remains years away – and may not return at all in North America. GBTA believes the region is feeling the lingering impact of the pandemic on business travel spending longer than any other. North American spending is projected to decline 5.7 percent by 2024, outperforming Western Europe’s 4.3 percent decline over the same period.
In addition to continued advances in vaccination, public and economic decisions by the newly appointed Biden administration will play a critical role in fueling the business travel recovery in North America and beyond.
In the GBTA report, the liberal trade and immigration policies expected under Biden were cited as the main drivers for increased business travel activity. The Industry Group also highlighted the importance of implementing a coherent public strategy to instill the confidence in businesses and their employees that is needed to resume travel.
GBT’s Reimer emphasized the importance of concerted, collaborative action by the private-public sector.
“The Biden government and governments around the world must work together, airlines, airports and TMCs to find solutions to safely open the international trade routes that are so important to global recovery.”
