Spending on corporate travel looks to be following an upbeat track with +8.9% spending projected for the second half of 2023 and 2024, a recent Morgan Stanley survey revealed.
There will be a marginal slowdown and consensus expectations for LSD RevPAR growth seem to be much above expectations, the survey said. Based on an online survey of 92 corporate travel managers with an aggregate travel expenditure of around $55 billion and a global spread of operations, travel budgets are projected to be +9.4% YOY in H2 and +8.4% in 2024. The loss to virtual meetings will likely moderate marginally from 18% of pre-pandemic nights in 2023 to 14-15% in 2024-25.
Overall, the survey was more positive than expected and suggested travel expenditure above consensus RevPAR expectations.
TRAVEL BUDGETS
Respondents said they expect their 1H23 travel budgets to be +10.9% YOY, which will be +9.4% in 2H23 and +8.4% in 2024. Considering that Omicron affected 1H22, the modest slowdown likely in H2 is welcoming, and the expectation for a 100bps slowdown in 2024 comes as a surprise amid the prevailing economic uncertainties and slowing inflation.
According to the study, 8.4% was the strongest figure in a decade of their surveys barring the post-pandemic return.
The 8-9% growth is above consensus projections for low single-digit RevPAR growth. While some of the increases in travel budgets may be reflected in other categories like air travel, and consensus may be taking into account decreased leisure travel, this is still a substantial outcome.
Morgan Stanley’s survey in 2022 had said 1H22 travel budgets were -25% compared to 2019, indicating enough room for budgets to recover against pre-pandemic levels.
VIRTUAL MEETINGS
This year, -18% of the meetings that would have been physical before the pandemic will shift to virtual, in line with Morgan Stanley’s earlier surveys. Looking ahead, expect this figure to dip slightly to 14-15% in 2024-25, suggesting a small tailwind to budgets.
Travel budgets for bigger firms are expanding in tandem with those of smaller firms, according to Morgan Stanley’s October 2022 survey. Travel budgets were expected to be -11% for bigger companies versus +6% for smaller companies in 2023.
However, if corporate travel comprises 50-70% of room nights, a mid-teen loss will mean a permanent loss of demand of around 10%.
TRADING DOWN
The volume of corporates expecting to use lesser upper-tier hotels to lower costs has jumped to 37% compared to 27% in the October 2022 survey and 15% in the October 2021 survey.
Macroeconomic uncertainty and elevated room rates were both cited as factors. While negative for some of the companies listed in the U.S., which skew to higher chain scales (like Marriott, Hyatt and Hilton), it is positive for some of the Europe-based companies, which skew midscale/economy (like Whitbread and IHG).