DOMESTIC BUSINESS TRAVEL
APRIL 16, 2003

This TIA Travel Outlook is the second in a planned series focusing on important market segments in U.S. travel and tourism in the context of war, SARS, and a continuing soft economy. The first report in this series was on domestic leisure travel and can be viewed on TIA's web site (http://www.tia.org/Travel/TravelOutlook/032603.asp). An additional report will focus on inbound international travel to the U.S.

If leisure travel has been the relative "star" in the U.S., business travel has been the "black hole" in the domestic travel constellation.

Domestic business travel declined 5.5 percent in 2002 over 2001, and was down nearly 9 percent 2002 over 2000. Business travel has fallen victim to a convergence of factors that are likely to continue in the near term. (1)

In the near term:

• The U.S. economy is off to a slow start with the first quarter showing a "jobless recovery". Since October, the economy has shed nearly half a million jobs - 108,000 in March alone - and hiring is likely to remain depressed through spring. Nearly half of the chief executive officers of 120 of America's top corporations expect their companies to cut jobs in the next six months versus just nine percent who expect to create jobs. (2) and (3)

• Capital spending by business dropped 5.7 percent in 2002 and 5.2 percent the year before--the worst two-year decline in capital spending since World War II and a serious drag on the economy. About a quarter of those CEOs surveyed expect their companies to reduce capital spending in the next six months, while only 18 percent plan to increase their investments. (3) and (4)

• Real GPD is expected to grow at less than a 2 percent rate in the first half of the year underscoring a continued short-term weakness in the U.S. economy. Just as it did during the first Gulf War in 1990-91, uncertainty over this war with Iraq is stifling consumer and business spending. (4)

• Business travel intentions remain weak. While most (92%) Americans who have a job involving at least some business travel think they will be taking one or more business trips this spring and summer, only 10 percent say they will be traveling more than they did last year versus 19 percent who say they will travel less. Those planning to travel less or not at all for business over the next six months cite company cost cutting as the primary reason. (1)
• Nearly half of corporate travel managers surveyed say corporate profit estimates are driving down travel in their companies. Looking forward, more than half of these respondents expect their total travel spending in 2003 to be down from 2002 levels. (5)
• Some trips are also being replaced by technology. A TIA survey found that nearly half of all business travelers in the past year claimed that they had used technologies such as teleconferencing, videoconferencing and webconferencing to conduct business instead of taking a business trip by air. (1)
• Severe Acute Respiratory Syndrome (SARS) is the newest threat to business travel, especially to and from Asia. An early April survey conducted among 240 companies found that 55 percent had decreased travel because of SARS. Fifty-eight percent of 180 corporations and organizations - all said to be large buyers of commercial air – have banned travel to Asia. (5) and (6)
• For the week ending April 6, system-wide U.S. airline traffic was down 17.4 percent year over year, primarily due to severe weakness in business travel. Traffic on Pacific routes was off 25.8 percent. Atlantic routes fell 25.2 percent. Latin America traffic was down 17.8 percent, and domestic traffic was off 14.7 percent. (7)
• Average occupancy rates at U.S. hotels fell 7.9 percent for the week ending April 5 compared to the same week of 2002, while revenue per available room (RevPar) fell 7.6 percent. (8)
• TIA forecasts a 2.5 percent decline in business travel this spring (March – May). This would put business travel more than 13 percent below the levels of spring 2001. (1)

In 2003’s second half, there is some hope we could see the beginnings of a business travel recovery.

• The U.S. economy will strengthen in the second half of the year, although the pace of recovery is likely to be slower than most would like. Real GDP growth is forecasted to come in at 3.7 percent in third quarter and 4.5 percent in the fourth, for a gain of 2.6 percent for the year. As military action in Iraq winds down and the transition to reconstruction begins, renewed optimism is expected, which would be conducive to both consumer and business spending. This assumes the absence of terrorist attacks here at home. (4)

• Signs of improving consumer confidence are already evident. The University of Michigan’s Consumer Sentiment Index rose 7.2 percent in April, after several months of decline brought it to its lowest level in 10 years. And the ABCNEWS/Money Magazine Consumer Comfort Index gained four points during the month ending April 6, but still remained 13 points below its 17-year average. Both surveys, however, noted that consumer confidence is still quite weak. (9) and (10)

• Retail sales surged 2.1 percent in March, posting their strongest showing since the fall of 2001. And, 56 percent of Business Roundtable CEOs think their companies' sales will grow in the next six months. (11) and (3)

• Business spending on equipment appears to be on the recovery track. Real spending on producers’ durable equipment is expected to jump 5 percent in 2003 and 11 percent in 2004. (4)

• Corporate economic profits will improve this year but will not exceed their prior peak of $860 billion until 2004. Profits have been essentially flat for five years. (4)

• Payroll employment should pick up in the second half of the year as the recovery gains momentum. (4)

• An improving economy and strengthening business fundamentals may serve as catalysts for the long-awaited domestic business travel recovery in the later months of 2003.

• But it is not likely that we will see the volume of the hey-days of the late 1990s again for quite some time to come considering the major changes that have occurred in business travel policies and the success of new technologies to substitute for at least some business trips.

TIA will release its updated forecast for both business and leisure travel in mid-May.

Footnotes:

1. Travel Industry Association of America
2. Bureau of Labor Statistics
3. Business Roundtable
4. GLOBAL INSIGHT, Inc.
5. National Business Travel Association
6. Business Travel Coalition
7. Air Transport Association
8. Smith Travel Research
9. University of Michigan’s Consumer Sentiment Index
10. ABCNEWS/Money Magazine’s Consumer Comfort Index
11. U.S. Department of Commerce

Visit www.tia.org for the latest information on the state of U.S. travel and tourism and what the industry and consumers can expect in the weeks and months ahead.

Produced by the Travel Industry Association of America