Business Travel and Corporate Cards

The recession has impacted upon the Business Travel industry in a number of ways.   This post discusses the subject of Corporate Cards.

The 2010 Business Travel Survey reports that Corporate payment charge volumes in 2009 painted a clear picture of travel spending cuts, though issuers expect those volumes to rebound this year.

2009 for Corporate Card Issuers
Most major corporate card issuers saw volume decreases in 2009. American Express reported that overall commercial card volume worldwide was down almost 9 percent from 2008 levels, while U.S. Bank reported its volumes fell almost 16 percent. Jeff Rankin, senior vice president and senior sales and marketing officer for U.S. Bank’s corporate payment systems unit, said the bank was able to mitigate some of that by growing its client base. “U.S. Bank was the leader of the pack in terms of being a good, strong, solid financial institution,” Rankin said. “We continue to see a flight to quality, whereas customers in the past might have accepted a commercial card service based solely on the pricing.” AirPlus International, the leading issuer of the Universal Air Travel Plan, reported its global charge volume dropped by €17.1 billion, about 6 percent.  “2009 was a year where travel managers reacted severely to the recession,” said AirPlus CEO Patrick Diemer. “Volume from existing customers was down 20 percent, half of that because of lower ticket prices and half of that because of less travel.”

The Outlook for 2010
Payment issuers and networks are optimistic about volumes this year. All issuers who responded as to their expectations for 2010 said volumes would rise from 2009 levels. AirPlus CEO Patrick Diemer said he expects to see two-thirds of the volume lost in 2009 return this year. “With a little bit of luck, this year will come back to a 2008 situation,” he said.

U.S. Bank’s Rankin expects double-digit percentage volume growth this year. “Customers are still being very judicious about their airline contracts and preferred hotels, and we’re seeing better management today than we’ve ever seen in the past,” he said. “Even with that, our customers are working on growing their business, and we expect to see that continue through the remainder of the year, depending on the economic situation.”

A 2010 CFO Research/American Express Global Business and Spending Monitor, fielded in February, indicated that 26 percent of 479 financial executives surveyed said they plan to increase travel spending this year, part of 57 percent overall who either will maintain or increase such spending. In a similar survey in 2009, only 2 percent of respondents expected an increase in travel spending. “Overall, we’re seeing some positive signs of stabilization and growing optimism about recovery,” according to Wendy Prewitt, vice president of American Express’ global commercial card sector. “Companies are really balancing that with some of the policies, controls and disciplines they put into place over the prior year.”

Go Native Comments
The recession hit every industry hard and made companies rethink their current policies, operations and structures.  Spending was closely examined and many Corporates looked for alternatives to their existing way of doing things instead of continuing with potentially outmoded and unecessarily expensive options.

Serviced Apartments are Cost-effective: with travel budgets under pressure, Serviced Apartments offer excellent value and staff can keep within their travel expense budget more easily – they can avoid expensive hotel breakfasts, hotel bar bills and room service and choose instead to entertain clients or host meetings in the dining area of the apartment and cook for themselves when desired.

The average Go Native customer pays £45 per night compared with £89 for a similar specification hotel.  Plus, per diem and administrative costs are reduced.

Links of Interest

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Global Airline Traffic has surpassed Pre-Recession Levels

The International Air Transport Association (IATA) reported recently that Global Airline Traffic had surpassed Pre-Recession Levels as traffic statistics for May showed an 11.7% increase in passenger traffic and a 34.3% jump in freight demand compared to May 2009.

“Demand rebounded strongly in May following the impact of the European volcanic ash fiasco in April. Passenger traffic is now 1% above pre-recession levels, while the freight market is 6% bigger,” said Giovanni Bisignani, IATA’s Director General and CEO.

A capacity increase of 4.8% in May lagged behind the strong upturn in passenger demand. This pushed May’s international passenger load factor to 76% (78.7% when adjusted for seasonality).  This is the sixth consecutive month with seasonally adjusted load factors near 79%. Matching capacity to demand will become increasingly challenging in the coming months. Aircraft utilization remains 5% below pre-recession levels for single-aisle aircraft and 8% for longer-range twin-aisle aircraft. The 100 aircraft taken out of storage during May and 93 the new aircraft delivered globally add further capacity pressure.

International Scheduled Passenger Demand

  • European airlines recorded an 8.3% growth compared to May 2009 however this still puts Europe as the region with the weakest growth. Weak economic growth, questions over financial stability and sharply tightening fiscal policies will likely result in continued slower demand growth than is experienced in other parts of the world.
  • Asia-Pacific carriers recorded a 13.2% increase in demand in May 2010 over the same month in 2009. Asia-Pacific carriers continue to drive the recovery based on robust economic growth, primarily in China.
  • North American carriers saw a 10.9% increase in May over the same month last year. Careful matching of capacity to demand has driven the load factor to 82.4%, the highest among all regions.
  • Latin American carriers recorded the fastest growth in demand at 23.6% in May, supported by the region’s strong economic upturn.
  • Middle Eastern carriers recorded a 17.5% growth in May. The region’s carriers continue to post strong growth with connecting traffic through their hubs, although the pace of growth has dropped from the over 20% increases recorded earlier in the year.
  • African carriers reported a demand increase of 16.9% in May as the region’s carriers benefit from growing economies and more success in maintaining market share. At the same time, the region’s load factor was the weakest at 66.5%.

Strong traffic growth is contributing to a strengthening industry bottom line. Airlines are expected to post a $2.5 billion profit in 2010 in a dramatic turnaround from the $9.9 billion lost in 2009. “This is good news, but it is only a 0.5% margin. We are still a long way from sustainable profitability,” said Bisignani.

“In the short-term, airlines need to focus our efforts on nurturing the recovery by continuing to match capacity carefully to improving demand conditions.  And everybody must control costs. This includes airports, air navigation service providers, global distribution systems and labor. There are no exceptions,” said Bisignani.

“Two months ago, the Icelandic volcano made it clear that aviation is vital to the global economy. When the volcano went to sleep, politicians developed amnesia to the lessons-learned. Germany proposed a EUR 1 billion departure tax that will dampen demand instead of stimulating growth. The new UK government is talking about a future without domestic aviation and no capacity growth, without any analysis of the devastation that this would bring to the UK’s economy. And the much anticipated accelerated progress on the EUR 5 billion savings of the Single European Sky has been truncated at incremental change. The traveling public and Europe’s struggling economy deserves much better than this short-sighted policy myopia,” said Bisignani.

At its recent Annual General Meeting, IATA announced Vision 2050. This is an initiative to build a common vision among industry stakeholders for a sustainable future for air transport. Announcing the vision, Bisignani pointed to four cornerstones of change: a new and sustainable energy source, a regulatory regime that allows airlines to operate as normal businesses, cost-efficient infrastructure that meets the needs of users, and services that exceed customer expectations.

Go Native Sponsors the EMMAs Relocation Management Company of the Year Category

The Forum for Expatriate Management (FEM) is hosting the first ever EMMAs (Expatriate Management and Mobility Awards) in London on November 15 and in New York on October 4 as part of the FEM Global Mobility Summits.

Both the New York and London award ceremonies will be hosted in the evening following FEMs Global Mobility Summits during the day.  The evenings start with a champagne reception and there will be fine food and wine as well as entertaining speakers and the opportunity to dance through the evening.

Go Native are the Category Sponsor for Relocation Management Company of the Year award.  Click here for more details.