Travel can affect a company’s bottom line.
A new study conducted by Oxford Economics and commissioned by the U.S. Travel Association has found businesses that continued to send employees on the road during the recession were more profitable than those that cut back on business travel.
The study attempted to show how travel can affect a company’s bottom line just as businesses are starting to once again spend money on trips to meetings and conferences.
For every dollar invested in business travel, U.S. companies generated $9.50 in revenue and $2.90 in profit, according to the study, based on an analysis of government data on 14 industries over an 18-year period.
An accompanying survey of 298 business travelers conducted in November found that 57% believed cutting their travel budgets during the economic downturn hurt their company’s performance. Only 4% said it helped.
“When we analyzed data from the Great Recession and recovery, we learned that companies that invested the most in business travel tended to grow the fastest,” said Adam Sacks, managing director of Oxford Economics, which conducted the analysis as a follow-up to a 2009 study.
Spending on business travel hit bottom in 2009 as companies reacted to dropping profits by cutting out trips.
Business travel has been making a comeback in the last couple of years. In 2012, businesses spent an estimated $225 billion on domestic travel, about 5% higher than the previous year and above the all-time high reached in 2007.
Hotels say they are seeing more demand from business travelers. For instance, Marriott International last week said first-quarter earnings jumped 31%, thanks to the recovery in business travel.
“Demand from business travelers is up quite strongly,” said C. Patrick Scholes, managing director of gaming and lodging equity research at SunTrust Robinson Humphrey. “It’s really the strongest demand component of hotels right now.”
For hotel brands such as Marriott, Hilton, and the like, the corporate traveler can make up as much as 80% of their business. “This is Marriott’s bread and butter,” he said.
Because of the pick-up in traffic, hotels are now able to raise rates as much as 4% to 5%, which is above inflation. They also are allocating more rooms to the business traveler. Group and convention travel, however, is still lagging, Scholes said. “Groups and conventions have been a soft spot in the recovery,” he said. “The individual traveler is leading the way.”
Still, business travelers are treading carefully when spending company money on the road, a study released by PKF Hospitality Research today shows. The revenue hotels generated from rooms grew a healthy 6.3% from 2011 to 2012. Yet total hotel revenue increased just 5%.
In other words, the revenue made from food and beverage and other hotel amenities grew just 2.3% per available room.
“Limitations have been placed on the amount conventioneers and business people can spend on ancillary services and amenities,” said Mark Woodworth, president of PKF Hospitality Research, which looked at operating statements from about 6,500 hotels.
Roger Dow, president and CEO of the U.S. Travel Association, which represents the travel industry, said the study reinforces the need to have face-to-face meetings with clients.
“The easiest thing to cut is … travel and tourism,” Dow said. “Oftentimes they pull salespeople off the road and don’t go to a convention. What this report shows is that can be counterproductive.”
Business travel helps companies attract new customers and retain existing ones, Dow said.
Business travelers believe that they would lose 42% of their customers without in-person meetings, the study found. They said they were twice as likely to get new customers with face-to-face meetings than without them.
Karen Shackman, founder of New York event management company Shackman Associates, which specializes in managing corporate meetings, said she is seeing meetings pick up in New York.
“The trend we are seeing in New York is more business travelers who opt to stay and meet in boutique hotels,” she said. “New York is in the middle of explosive growth regarding boutique hotels and many offer amenities that reflect the individual style of business travelers.”
Photo credit: Fox Business
Via USA Today