Leisure demand will mean higher prices and less supply for business travelers

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Donna M. Airoldi, Transportation Editor, BTN

As leisure travel is in full swing, business travel and meetings zigzag with new twists, and return-to-office delays continue, suppliers are beginning to envision a world where the traveler’s value of business has changed. They make planning decisions that could negatively affect travel managers and their travelers, at least in the short term.

Less supply, higher prices

The rental car shortage reported a year ago continues. Reservations are still hard to come by. The choices are fewer. Additionally, the average daily rental rate in the United States in December 2019 was $46; in December 2021, it was $81, according to travel agency Kayak.

“Car rental companies are definitely discretionary in what they accept,” said an industry consultant. “They want longer rentals, they don’t like one-way trips, and right now they don’t have to accept them.” Business travelers should book a car before getting a flight, they recommend, adding: “It’s a lot more serious than what the market is talking about. Business travelers are very frustrated.”

Airlines have also made schedule changes and route reductions, particularly to secondary and tertiary markets – markets that were generally supported by business travelers – in favor of more leisure destinations.

Many carriers have noted that small and medium-sized businesses are leading the return of business travel, but they are the ones who will feel the coming supply shortages and lower prices the most. Overall, with fewer options and increased demand as business travel is expected to return significantly in 2022, we are likely to see higher prices before airlines resume their schedules and routes. This is Economics 101.

While hotels are in a somewhat different situation as they have more supply, they have managed to retain price integrity during the recovery more than from past crises. The average daily rate continued to improve in 2021. In December, it had increased by 6.7% compared to December 2019. Prices are expected to continue their recovery through 2022. STR this week forecast ADR to reach $134 in 2022. In 2019 it was around $131. .

Catering to leisure travelers

During American Airlines’ recent fourth quarter earnings call, new CEO Robert Isom said the company is working on a plan to build an airline that can be profitable even without the full return of managed business travel. Its chief revenue officer, Vasu Raja, noted that leisure travelers were buying business-style products. Sales of upscale cabins were stronger in the Caribbean and leisure destinations than in typical business locations.

“It’s going to lead to a lot of things,” Raja said. “That’s why we’ve done a lot of things where we’re increasingly rewarding travel, which is not just for how often people travel, but just for spending on our credit cards or the whole airline. And we believe there is still more to be done.”

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

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

“With the decline in business travel volume, traditional loyalty programs no longer make sense,” according to the American Hotel & Lodging Association’s 2022 State of the Hospitality Industry Report, which called 2022 as the “year of the ‘new’ traveler,” stating that customers 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 point accumulation will be increasingly irrelevant. The imperative now is programs for people who travel less and for the purpose of Hobbies.”

Effect on buyers

What does all this mean for the travel buyer? On the one hand, it could mean dissatisfied travelers. It could also make it harder for them to save money, especially if they have to add other preferred suppliers. For example, if a company 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 before. It could work the same way for cars and hotels.

Travel Managers also need to educate their travelers, whether they’re returning travelers about the changes they’re about to experience or new hires over the past couple of years who haven’t yet made their first business trip. Additionally, 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 travellers.

Buyers may also need to revise travel policies and increase travel budgets, not only because of rising supplier costs, but also because the duty of care liability is greater, said a second adviser. Given that the volume of business travel is still expected to be lower this year than in 2019, total spending may not increase, but the price per traveler will likely increase.

Doesn’t that increase the value of the business traveler to suppliers? Perhaps, if there was more volume of business. But providers are heeding tailwinds that say the balance between business and leisure is shifting. The trick will be to make sure they don’t alienate business partners and short-term travelers, because even if they don’t look alike, business travel will return, as it always does.

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