Analysts at a business travel financial forum last week predicted that the economic slow-down in the United States will not last long. The forum, held last week in New York by the National Business Travel Association, gave 215 travel managers and supplier participants a "Wall Street Look at the Business of Business Travel."
Ken McGill, executive vice president and managing director of travel and tourism for economic analysis firm Global Insight, said that the United States is currently in a recession, which he labeled as "mild," but that the negative growth would last only two consecutive quarters (a recession is generally defined as two consecutive quarters of negative growth). McGill said the globalization of business will keep the recession short, and that fuel prices and the falling dollar would both moderate in the medium term, contributing to the recovery.
"I see the glass as half full, not half empty," said NBTA president and CEO Kevin Maguire, adding that travel managers are doing their jobs by continuing to contain their companies' travel costs, but that he "has not seen companies taking drastic measures to cut travel."
The airline industry, however, will likely face a longer down period than the broader economy, said Randy Babbitt, director of management consulting firm Oliver Wyman. Babbitt said that the airline business is "hyper-cyclic," meaning it is the first to drop into negative growth and the last to emerge from it.
Frank Boroch, Associate Director, Bear, Stearns & Co. Inc., reported that airline fuel costs represented 12 percent of airline revenues in 2000. By 2007, that fuel costs had grown to 26 percent of revenues, and this year it will be closer to 30 percent. In real terms, added Boroch, airline ticket prices have declined 50 percent since deregulation.
Boroch predicated that this year, as airlines seek to gain traction in a slipping economy, travel buyers will likely face airline mergers, capacity reductions and fare hikes. "Buckle up," he said. "2008 is going to be an interesting year."