Morgan Stanley: Long-term shift to virtual meetings?

Morgan Stanley research surveyed corporate travel managers and found they now expect a 27% long-term shift to virtual meetings (versus ~22%/19% prior two surveys). US RevPAR tracked better in January/February, but this survey offsets that recent outperformance, and the EU remains weak, suggesting a continued long path to recovery.

Morgan Stanley conducted an online survey of ~200 corporate travel managers between March 3-15, who represent >$7 billion of typical annual travel spend. Approximately 60% are headquartered in the US, ~20% in Europe, and ~15% in Asia/Other, and their travel budgets are allocated similarly. In general, corporate travel generates around two-thirds of hotel industry revenue. While Morgan Stanley expects final business travel decisions to be influenced by real-time business needs, it said these managers focus on the travel industry and have seen firsthand how their companies have responded to COVID.

Key findings of the survey:

Expected higher shift to virtual meetings long-term. A weighted average of corporate travel managers’ responses implies that they expect to shift 44%/27% of travel volume to virtual meetings in 2021/2022, up from 34%/22% in our October 2020 survey and 31%/19% in our July 2020 survey. These more bearish results are somewhat surprising given that our prior surveys were conducted before proven vaccine efficacy and rollout, and U.S. corporate hotel bookings have been improving from a very low base. However, virtual meetings are likely working effectively so planners have more confidence in their continuation and companies have seen the money they can save by cutting travel.

The majority of respondents (63%) expect to shift >50% of travel volume to virtual meetings in 2021 and 46% expect to shift 11% to 30% in 2022 (i.e., long-term). Given that corporate travel is approximately two-thirds of hotel revenue, the 27% expected shift to virtual suggests an 18% potential revenue drop relative to pre-COVID levels long-term (versus 15% in our October survey/13% in our Jul survey). There is still some uncertainty about how prevalent virtual meetings will be, but less so than prior surveys: 16% were unsure on 2022 versus 23% in their October survey/41% in July.

Near-term travel budgets still expected to be down sharply. 2H21 travel budgets are expected to be down ~45% versus 2H19 and 2021 hotel budgets are expected to be down ~46% versus 2019, while 2022 travel budgets are expected to be down ~15% versus 2019 and hotel budgets down ~18% versus 2019. The hotel spend results are worse than our U.S./Europe RevPAR forecasts, as we expect 2021 U.S. RevPAR to be 31% below 2019 and 2022 RevPAR 17% below 2019. However, the Morgan Stanley forecasts reflect both leisure and corporate demand and it expects leisure to recover more quickly, supported by the results of its recent Consumer Pulse surveys.

According to the corporate travel manager survey results, travel managers expect to cut hotel room volumes by ~39% in 2021 versus 2019, but room rates to be only ~7% lower in 2021 versus 2019, suggesting lack of demand as opposed to lower pricing. As for 2022, corporate travel managers expect hotel room volumes to be ~18% below 2019, but room rates to be ~0.5% above.

Making no changes to long-term estimates given recent outperformance offset by more tepid outlook. January/February U.S. RevPAR declined 48%/45% year-over-year versus prior MSe 54%/53%. Morgan Stanley raises its near-term estimates slightly and now forecast 1H21 RevPAR 41% below 1H19 versus prior 45% below. Recent RevPAR outperformance suggests that as more people are vaccinated there will be pent-up demand for travel, especially on the leisure side, so Morgan Stanley continues to be optimistic that 3Q21 can outperform, looking for RevPAR to be just 18% below 3Q19. However, Morgan Stanley is concerned that 4Q21, which is more reliant on corporate versus leisure travel, and 2022 will disappoint because of the corporate shift to virtual meetings. As a result, Morgan Stanley’s 4Q21 forecast is for U.S. RevPAR to be 24% below 4Q19 (versus 21% before) and 2022 to be 17% below 2019 (unchanged).

Data in Europe remains weak (January/February -81%/-78% year-over-year, March to date -78% versus 2019), and the slower vaccine roll-out and signs of a third wave will likely cause Europe to continue to lag the U.S.

Return to pre-COVID travel levels. 4% of respondents expect to return to pre-COVID travel levels by YE21, 40% in 2022, 28% in 2023, and 27% in 2024 or later (these percentages exclude the 22% who said they were not sure). Notably, these results are significantly more bearish than Morgan Stanley’s July-20 survey results, which revealed that only 12%/5% of respondents expected a recovery in 2023/2024 or later. However, they are still more optimistic than Morgan Stanley’s forecasts, as it has U.S./Europe RevPAR recovering back to 2019 levels only in 2026/2025 respectively, longer than the 44/62 months it took post-9/11 and the financial crisis given the larger RevPAR decline and greater shift to virtual this time around.

Conference outlook uncertain but more promising, a potential positive for Las Vegas and Orlando-exposed companies. 48% of corporates will host in-person conferences and 69% will allow employees to attend in 2H21. In terms of 2022, of those that gave conclusive responses, 93% said they would host in-person conferences and 99% said they would allow their employees to attend (but note there was significant uncertainty about 2022, with 37/40% saying they were not sure about hosting/attending). 

Alternative accommodations. Post-COVID, 15% of corporate travel managers expect to use alternative accommodations more, 28% expect to use them about the same, and 15% expect to use them less frequently (42% didn’t use alternative accommodations in the first place). These results are less constructive for hotels than Morgan Stanley’s July-20 survey results, which found that 7% of corporate travel managers expect to use alternative accommodations more, 27% expect to use them about the same, and 24% expect to use them less frequently.