Outlining the Contours of Recovery

Pandemic conventional wisdom has held that corporate transient travel would be the second industry sector to recover, behind leisure travel. But that view isn’t unanimous. Scott Berman, principal and industry leader for PwC’s hospitality division, for one, predicts business transient will be fourth in line for recovery. 

Multiple hotel companies during their fourth-quarter 2020 earnings calls reported an uptick in small corporate meetings and events, and that is the segment Berman projects will be the second to recover. Hyatt Hotels Corp. CEO Mark Hoplamazian during the company’s most recent earnings call hinted that that would be the case as well.

“I really believe the small corporate meeting will come back quickly,” Berman told BTN. “We’re already starting to see signs of that in terms of the fall bookings. These are not necessarily large corporate retreats, but meetings of 150 people or less looking to get back to socializing, sharing and creating. I think that small-meeting segment offsets some of the losses in corporate transient.”

Berman said he believes leisure travel will recover first, followed by small corporate meetings; groups, conferences and small conventions; and then corporate transient, in that order.

Several factors will contribute to whether this will be borne out, and Berman, along with other hospitality analysts interviewed by BTN, noted that whenever business travel returns, whether transient or meetings, it won’t be the same as it was in 2019, nor will it reach those levels for quite some time.

I’m really encouraged by the vaccines, and I’m even more encouraged if the CDC continues to communicate. … I think corporate America is following that very carefully and adhering to it.”

– PwC’s Scott Berman

A Permanent Loss? 

Bill Gates’ prediction that business travel will be reduced by more than 50 percent was at the extreme end of projections of future business travel losses, but it’s really anybody’s guess. “The percentage decline is up in the air, but it is unquestionable that there will be a structural decline in business travel. Whether it’s 5 percent, 10 percent or 15 percent, there is no consensus on that,” said EY hospitality advisory leader Umar Riaz. 

About 47 percent of those voting during a Jan. 29 EY webinar on business travel’s future with about 800 attendees projected that the long-term effects of Covid-19 would trigger up to a 25 percent reduction in business travel, Riaz said, and about 37 percent said the reduction would be larger.

Most at risk is travel for internal purposes, followed by attendance at conferences and events, Riaz said, adding that the need for travel to maintain contact with clients and customers likely would be less affected. “There is a re-evaluation going on about travel and how [it] drives business objectives,” he said.

Berman agreed. “The internal business meeting where nobody can point to a revenue increase or some sort of business gain is going to get cut,” he said. “It has been cut and likely is cut for good. But client-facing and [travel] that serves the commerce of the day, that is going to come back.”

When business travel returns, another potential change will be the length of stay, with potentially longer trips. “When people do travel, they’ll look for multiple reasons to travel and not just one reason,” Riaz said. 

Those longer stays may have tax implications, particularly for extended stays that go beyond 30 days. “This depends on a state’s guidelines around a length of stay, but over a certain timeframe, it doesn’t become a nightly stay, it becomes a long-term stay, and the lodging tax decreases or disappears,” said Pam Knudsen, senior director of compliance in the lodging tax division for Avalara, a company that handles transactional taxes. “A lot of states have a 30-day window, but I think you’ll see more and more states increase that window to 60 or 90 days. [Total hotel costs] may be different because a jurisdiction has changed those rules, because they are facing a shortfall from the taxes in their budget because no one planned for what happened in 2020.”

Travel managers will be putting in more procedures and rules in terms of when travel is allowed and when it is not.”

– EY’s Umar Riaz

Factors Facilitating Travel’s Return

Key to the return of business travel will be when corporations allow employees back in the office. “The openness to business travel is going to be highly correlated to the reopening of offices,” said Deloitte Consulting principal and U.S. hospitality sector lead Ramya Murali. “As we have conversations with our clients, that is the first step in their ‘return to normal.’ “

Murali noted that some industries have seen a reduction in virtual meetings as they open up local offices, and “as those offices emerge, they are more open to conducting business travel,” she said. 

The next step is assessing employees’ willingness to travel for business. “We’ve seen data where about 50 percent would be willing to travel, but some, a smaller percentage, were unwilling to travel for the foreseeable future,” Murali said. “That highlights that in the near term, there might be a need for more flexibility in travel policies given employees’ comfort levels.”

One dilemma, however, regarding the return to business travel, Berman noted, is that if office protocols allow employees more options to work remotely, the opportunity for face-to-face meetings decreases. “Given the choice of a webcast meeting in a week or a face-to-face meeting in 30 days, you’ll likely take that Zoom meeting in 10 days versus waiting [a month],” he said. “There is no science to this yet, but we could see more deceleration of that corporate transient.”

We’ve seen data where about 50 percent would be willing to travel, but some, a smaller percentage, were unwilling to travel for the foreseeable future.”

– Deloitte Consulting’s Ramya Murali

Vaccines to the Rescue

The rollout of Covid-19 vaccines is another important element to how comfortable travelers will feel getting back on the road. About 53 percent of vaccinated respondents to a Deloitte Jan. 22-27 survey of more than 1,000 American consumers planned to spend on travel in the following four weeks, compared with 30 percent for the general population. Of vaccinated respondents, about 70 percent felt safe staying in a hotel and 54 percent felt safe flying versus 46 percent and 34 percent, respectively, of the overall population. 

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“I think we’ll see [a higher] comfort level and willingness to explore business travel as more of the population is vaccinated,” Murali said. “The key insight is how highly correlated the willingness to fly and stay in a hotel, and some things considered riskier, like cruises or international flights, [is with] their vaccine status.”

The U.S. Centers for Disease Control and Prevention’s new guidance for domestic travel, issued April 2, likely will contribute to traveler confidence. The CDC noted that fully vaccinated individuals in the United States can travel safely domestically without quarantine or pre-travel Covid-19 testing.

“I’m really encouraged by the vaccines, and I’m even more encouraged if the CDC continues to communicate,” Berman said. He spoke with BTN prior to the CDC’s most recent announcement, but noted at the time that when the agency addresses travel, “that’s going to be the next sign of timing the return,” he said. “I think corporate America is following that very carefully and adhering to it.”

Changes for Travel Managers 

Employees who are comfortable with travel for work likely will see more approval processes. “Travel managers will be putting in more procedures and rules in terms of when travel is allowed and when it is not,” Riaz said. “Companies were always concerned about the health and well-being of employees, but after Covid, it’s become their biggest priority. The travel manager job is now more than just optimizing corporate travel. It’s a much more broad mandate, as companies recognize that travel has a much larger impact.”

Deloitte’s Murali agreed, adding that her company sees corporate travel managers analyzing ways to reactivate travel plans within a six-month horizon. “In this near-term, they are very thoughtful, with very clearly laid out protocols for getting business travel approved,” she said. “The circumstances and need for the travel, and going through a rigorous review process is a healthy and responsible step. I think that is one thing that will continue to happen.”

Opportunities for Innovation

Riaz said that participants on his company’s business travel webinar noted that hotels would have to adapt to a post-pandemic environment, and change how they run meetings and events. Some employers will want a hybrid component to some in-person events, and “hotels will have to provide additional technology and capabilities to the business community, and embed technology into how they conduct meetings and events,” he said. “They also have to invest in technology to ensure that the stay is as safe as possible, and investing in a touchless customer experience is important for [them].”

Hotel facilities could play another role for businesses, Riaz added, noting that some companies are reducing their real estate footprints. “There are ways to work with hotel companies, to use hotels as overflow space for office needs when they are at peak capacity or if they need additional space,” he said. 

Murali concurred: “We are seeing a number of big hotel companies think about how they adapt their offerings to adjust to some of these changing needs,” she said. “There are more flexible room reservations to use hotels as a work-away-from-home space.” 

Deloitte’s travel and hospitality supplier clients are considering how they maintain and engage with their customers, Murali said, particularly in a world where their most loyal customers, the high-frequency business travelers who might have booked 100 nights a year, could travel far less. “This does present potential challenges,” Murali said. “But there’s also a significant opportunity to think about how loyalty programs and customer engagement and the customer experience can be modified. How do you maintain that stickiness and depth of relationship?”

From a business travel standpoint, she said that loyalty will need to be re-earned. “Not because we’ve suddenly abandoned the brands we feel most connected to, but because the tradeoff that business travelers are likely to make in a post-pandemic world are different. I don’t know if we’ll see the point junkies and road warriors. Maybe consumers will opt for convenience and the shortest flight, or the hotel that provides a slightly different experience than before. That will present new opportunities for these [suppliers].”

In the meantime, “my position and PwC’s is that the rest of 2021 is going to be a real slog,” Berman said. “It’s going to be ups and down and all kinds of hints of recovery, and I think we’re going to have to build and create the puzzle together.”

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