The state of the industry with Rossana Martin: H1

Rossana Martin is back to connect with Chad and Miriam about the state of our industry and this is one episode you don't want to miss! 

Rossana takes us "around the world" to discuss industry insights, giving special attention to air and hotel rates in each global region, as well as what she's hearing about A.I. and advice for travelers. 

If you have a global travel program, or simply want to know what's going on in the world of business travel, this episode is a must listen! 

Learn more by visiting https://www.bcdtravel.com or https://www.linkedin.com/company/bcd-travel/

Transcript

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Intro:

Welcome to Connections with BCD Travel, an ongoing conversation about the modern day travel program, the impact of technology, and how travel buyers can take control and drive change. What are we waiting for? Let's start connecting.

Miriam Moscovici:

Welcome back to Connections, everyone. I'm one of your cohosts, Miriam.

Chad Lemon:

And I'm Chad Lemon. We love hearing from you, so please go to bcdtravel.com/podcast to leave us a note or a suggestion.

Miriam Moscovici:

Okay, Chad, what topic do you want to discuss for this episode's Quick 60 in Business Travel?

Chad Lemon:

Well, the BCD research team just put out a market insights report all about Hong Kong. Curious to get your insights on kind of the highlights, maybe some examples from it. What did you find in that insight report?

Miriam Moscovici:

Well, I think the big headline there is that capacity still hasn't returned to Hong Kong. And if you do business in Hong Kong or have offices in Hong Kong, this really matters to you. I'll give you a few examples. Capacity from Hong Kong to the Middle East is still down 40% from before COVID, down 43% to Europe, to and from Europe from Hong Kong since before COVID. Africa is still down 67% from pre-COVID levels and North America even, between North America and Hong Kong capacity is still down 41%. So if you've got business in Hong Kong, you've got travelers going there. A lot of people wonder sometimes what does a travel manager do? This is a great example of a slide in a report that a travel manager would immediately flip to take a look at, "Well, where are my travelers going? And if I've got interest in that region, how am I going to work around this problem?"

Because there's not a lot you can do other than talk to your suppliers around capacity or supply issues. And so a good travel manager is going to potentially talk to other suppliers to maybe fill a gap. They might even make some phone calls to business owners in their company where their travelers might be feeling the effects of this and the effects are probably higher prices and longer journeys and more connections and a less pleasant travel experience. So a travel manager is always going to be looking at what's happening with capacity and does it matter to the complexion of my program? So I just thought that that was, these capacity charts on updates are always really interesting to me because we sometimes feel like COVID is way in the rearview mirror. But in APAC and specifically now here we're showing in Hong Kong, they're a long way from 2019 levels.

Chad Lemon:

To learn more about the content that Miriam and her team publishes visit BCD Travel's website. So last season, some of our more popular episodes were the state of the industry episodes right?

Miriam Moscovici:

Yeah. We had Rossana Martin on each quarter and then Jorge Cruz finished up at the end of the year.

Chad Lemon:

Exactly. Well, it's time to have Rossana back for an H1 state of the industry. And if you're new to the podcast, Rossana is SVP of Global Sales and always gives us great insight and a global view into what's really happening in corporate travel.

Miriam Moscovici:

And I like to think about her as the reporter out in the field. So I'm really looking forward to this.

Chad Lemon:

Rossana, welcome back. Last season we did these state of the industry episodes each quarter, but now we're doing them at the midpoint of 2024. So I know we have so much to cover. The first question has to be, what is the state of the industry?

Rossana Martin:

Well, that's a loaded question, Chad. There's so much going on in the global travel industry. And a bigger question is when is there not? Right? Some interesting facts on the global air front. IATA expects airline industry revenue to reach almost a trillion in 2024. That's up almost 10% year over year, guys. I mean, it's the highest nominal value in history, right? And it's crazy to see that. And the primary driver of growth will be an increase in traffic with global airline passenger revenues forecasted to increase by more than 15% to over 740 billion. That's huge. And then they're expecting global air travel should finally fully recover in 2024 with passengers expected to number almost 5 billion.

Chad Lemon:

Wow.

Rossana Martin:

Yeah, I mean that's crazy right?

Chad Lemon:

Crazy numbers.

Rossana Martin:

4% year over year, they expect that figure to be 9% higher than 2019. So again, tremendous growth. Also, traffic revenue, passenger kilometers or RPKs should grow at a slightly higher pace of 11.6% as people are increasingly taking longer trips, I think people are taking less trips, but their trip length is longer. And that's something that I've actually seen this year. My average trip has been three or four nights versus just typically one or two.

So definitely seeing that change and that will help support a 4.3% rise in average ticket prices globally, but it will be much lower than 2023's 15% increase. So I think that's good. And then Advito, BCD's consulting arm released their Q3 travel index report on June 21st. And just to give you some background on it, the index is calculated by predictive analytics based on future shopping data. So in this report, they project intercontinental airfares will decline and hotel rate increases overall are expected to stabilize in the third quarter, while domestic and regional air fears are on the rise in the US and Europe, and they indicate a mixed performance in different regions on international or intercontinental airfares versus the same period in 23.

Chad Lemon:

Good insights.

Rossana Martin:

I thought that was interesting.

Chad Lemon:

Yeah, absolutely.

Rossana Martin:

And then in terms of quarter-over-quarter comparisons, intercontinental business class fares are trending downward in the third quarter surprisingly in every region. But in Africa where they're expected to be flat and intercontinental economy fares are trending down or flat in every region except Europe where they're trending upward. And on the domestic fare front, Advito noted Europe and North America are seeing increases with strong demand and industry challenges are affecting supply including supply chain constraints and aircraft grounding with what's happening with Boeing. And for hotels, Advito is projecting a third quarter global increase of 6% year-over-year and average daily rates, although it expects that to stabilize on a global basis quarter-over-quarter. So I think that's some good news. All regions other than Asia are expected to have a year-over-year average daily rate increase with inflation and hotel operational costs are really driving the increases in many markets.

Miriam Moscovici:

Rossana, let's take a trip around the world, so to speak and dig a little deeper about what's going on in each major region in the world. So let's start with APAC.

Rossana Martin:

Sure, Miriam. Okay. First, some general APAC updates include India, they're really growing at a rapid rate with GST reconciliations and tokenization top of mind when growing in a strategic sector. NDC is still a focus for both Singapore Airlines and Qantas, and both are very well progressed in their delivery of NDC. Singapore Airport will also be implementing a sustainable airline fuel usage surcharge that will ultimately be born by customers by 2025. So I think people need to expect that. And China still has airline capacity issues that we're seeing and back loads on visa processing timelines still, but we expect that to ease by the end of this year. Fingers crossed on that. On the airline front in APAC, 2023's slower than hoped for rebound means airlines may enjoy a bigger boost to growth in 24 from the delayed release of pent-up demand for international travel.

So I think people can expect that. And hotels have been interesting in the region, after dropping just 2% in March, room rates across APAC were on average unchanged year-over-year in April. Average daily rates fell in six markets including 7% decreases in China, which we normally don't see right? In Hong Kong, price increases are still being recorded in some of the other Asian countries. So when I look at rate rises, five to 9% in India, Indonesia, Malaysia, and South Korea. And average daily rates jump by almost one fifth in Japan and it's continuing a pattern that started earlier this year. So that's sort of troubling in the Japan market. I think despite April's softer performance, I think so far in 24, most markets have seen rates rise, although pricing has been slightly weak on the hotel side in Australia, China, New Zealand, and Taiwan and Myanmar's having some issues because there's some civil conflict going on. So that country is embroiled in that. So again, softer rates we're seeing there.

Miriam Moscovici:

And across Europe, Middle East, and Africa?

Rossana Martin:

Well some general updates for Europe, there's a lot going on on the sporting event side. There's two major events, right? We all know about the Paris Olympics and UEFA, the European Soccer Championship in Germany. So they're happening between June and August. And both of these events are expected to boost travel in their host countries and also to different locations within the region or even other countries, right? People may tack on some trips as well. And so it's going to attract people from all over the world. And I think given the expected increase in tourism volumes, accommodation suppliers can expect a surge and forward bookings. They've already seen it. I think that's going to continue and I think throughout the event and possibly before and after, travelers need to anticipate that room rates are going to be well above norms, in some cases triple or quadruple what they're used to seeing.

And there'll also be extra costs from tourist levies. The French government introduced those to cover some of their costs for hosting the Olympic Games. All right, so breaking down airlines and hotels, I'll start with Europe and then go to the Middle East and Africa. So airlines, Europe travel demand with international travel, again, as I talked about, it's going to remain strong, but supply chain issues and the risk of labor disputes continue to be a challenge to European airlines and their finances. This seems to be a problem that happens all the time.

In the Middle East, there's significant travel growth that we're seeing. It's supported by strong financial performance among the region's airlines in 2023 and golf hub operations located in an economically buoyant region are offering very encouraging prospects for airlines there. So you potentially see some airfares going up and then Africa, while air demand travel exists, it's being held back by high costs and there are still geopolitical issues that will continue to weigh on the airlines and their profits. And then on the hotel side, again, Europe year to date rates across Europe 6% higher. Europe overall is projected to have year-over-year increases of up to 8%. Price movements in France and Italy have been close to the market average at 12%. But what we're seeing is Spain's hotels have secured increases far above those numbers.

Miriam Moscovici:

I saw that.

Rossana Martin:

Yeah, that's crazy. And rates have been really weak in Denmark, Ireland, and the Netherlands. So they're ranging between one and 3% lower than last year. And we're seeing rate inflation across Europe. It's edged up slightly in March with Italy and Spain posting increases again far above the industry average, which Italy is a cyclical market. We see that sometimes.

Middle East, so looking at the hotels there, ADRs, average daily rates, continue to fall in five markets. So Bahrain, Israel, Jordan, Oman and Saudi. They had a 17% drop just in Saudi Arabia in April alone. A growing number recorded a return to rising prices year over year though, and I think Saudi Arabia is expected to level out with 3% increase by the end of the year, along with Qatar and the UAE. In Africa, hotel rate inflation remains strong in many of the key markets, most notably in Algeria, Egypt, Nigeria, and Zambia. And in 2024, hotel rates across Africa have been 7% higher than in the same period in 23. And rates have clearly risen to the fastest in Nigeria, but average daily rates have also risen by at least one fifth in Egypt, Kenya, Tanzania, and Zambia, which is not the norm for sure.

Miriam Moscovici:

Next stop is Latin America.

Rossana Martin:

All right, overall there is some political instability in the region. There are six presidential elections happening this year. Three are still pending and the other ones have been mixed party winners. So Dominican Republic, Salvador, Mexico, Panama, Venezuela, and Uruguay. And for the first time there was a female elected president in Mexico and she won by a landslide, but I think there will be some instability as a result of these elections. OBT adoption is increasing. Some markets have had great OBT adoption. I look at Brazil and Mexico, but other markets are also increasing. But form of payment is continuing to be a challenge in the region as not all travelers or companies have one, and it really is a must in order to use the OBT in the market. And then virtual payment has very high expectations too in the market. There's a lot of hotel bill backs that's happening, continue to happen in the region, but only two countries today really use it, so Brazil and Mexico.

So I think that there'll be some changes there as well. Travel management positions continue to be reduced, which is challenging. I think true travel program advancements, and this is happening on the buyer side where they're consolidating the management of the program through the US or in Canada. We're also seeing NDC and low cost carrier content availability in the region increasingly becoming challenging because every market, so all 18 countries have different market conditions, so it's sometimes very difficult to manage through all of that. On the airline front, some airlines are facing considerable financial difficulty and I think that's reflecting the region's economic and social turmoil and markets in Central America will continue to be a key to driving growth on the airline side. Economy fares are expected to be flat in the region. And intercontinental business class fares are trending down as well. So I think that's a good sign.

On the hotel front, I think after March's good performance, there's some declining prices returning to Mexico with their average daily rates going down 3% in April. So I think that's a good trend that we're seeing. And on the BCD front, we introduce Omnibees in Latin America, it's our new LATAM hotel content provider. And it's really exciting because they're the leading aggregator for hotels in Brazil and they're going to bring more non-GDS content into our booking tools. And it will really give our travelers a wider choice of bookable properties in LATAM. And this is a great addition to our current third party providers, which are Booking.com and Expedia. And this will help increase program adoption by providing over 7,000 locally operated hotels across six countries in Latin America. So that's very exciting.

Miriam Moscovici:

Yeah, that's going to make a big difference. Well finally, in North America.

Rossana Martin:

So on the airline side, I think this is probably something that everybody has been hearing about, but 14 months after beginning to remove content from EDIFACT channels as part of their aggressive NDC strategy, American has announced they're returning most of their fair content back into EDIFACT and also confirmed it's shifting away from plans to publish a preferred agency list. And I think overall we're seeing solid consumer spending and robust air travel demand in the region, and it's continuing to underpin airline finances, but there are labor shortages that will affect smaller regional markets, and I think that will result in delays. I think people need to expect that.

On the hotel side, I think there's relative stability in hotel rate inflation nationally across North America. It's less evident at the city level, particularly in the US. And so we're seeing price inflation strengthen slightly in both Canada and the US. Average daily rates rose by three to 6% in Boston, New York, and Washington DC. But we're seeing price drops in other cities like San Francisco, which they posted a dramatic 16% drop, which is pretty significant. We don't see that usually in the San Francisco market. I think when you look at the situation in Canada, it's a little bit less mixed. Higher ADRs in all three big cities, Montreal is seeing the lowest rate inflation. But overall, I would say most North American cities have seen rises of about one to 5%.

Chad Lemon:

Wow. Well, I don't know how we could expect to get any more information out of you. That was such a great recap of everything that's going on in the world right now. But I do want to throw you a curveball, though it's likely not an unexpected curveball. What are you hearing about artificial intelligence and AI, right? I mean, it is the buzzword right now, everyone's talking about it. What are your thoughts on how it could possibly change corporate travel?

Rossana Martin:

Yeah, I mean we've been hearing about this a lot. I talked a little bit about it at ProcureCon. I know Yannis Karmis from our team has been talking about this. He's been pretty active. He even did a summary after the BT Show in Europe. The reality is we're not new to the AI game. We've been using AI tech for several years behind the scenes. And some of it is hotel logic comparing different hotel rooms and amenities, mapping transactions with data processing, mapping traffic and shopping patterns with price assurance technology. Those are some things that we've been doing for a while. And when you think about gen AI or generative AI, Grammarly, ChatGPT, this actually brings the next generation of travel technology in and is initially on the travel side focused on transforming service. I think there are a lot of opportunities for AI to continue to improve corporate travel process, but the risk tolerance is much lower because the stakes are higher.

And when I give you this example, you might be a little surprised, but our testing has shown that in some cases AI was wrong 10% of the time. Imagine the VIP having a trip canceled if AI gets it wrong. And I think from a traveler perspective, convenience and accuracy are a priority. As an en route support and duty of care, you can never really take away that human element of travel. And I think the other thing that we need to think about, it's estimated that by 2030, decisions made by AI agents without human oversight will cause a hundred billion in losses from asset damage. An airline recently lost a significant amount of money when a court said that their chatbot lied and gave bad advice. I mean, that's really what the judge had said.

Chad Lemon:

Oh, yeah. Yeah.

Miriam Moscovici:

Yeah, I remember that.

Rossana Martin:

Right? Yep. And so they were liable. So I think for us, and we've been doing this, it's extremely important for anyone, testing the use of AI in a controlled environment before rollout is critical and key to success. Again, we've been doing this for a while, and we also have an operations innovation lab, which will help craft the future of our strategic AI initiatives and an integration here at BCD.

Miriam Moscovici:

Let's move into another. There has been a lot of consolidation in the TMC industry and love to hear what your take is on that.

Rossana Martin:

Yeah, I mean GBT, we all know their acquisition of CWT is the latest in a long line of TMC consolidation in the industry. Travelport recently bought AmTrav, they bought the America's piece. Steve Singh and a group of investors acquired Direct Travel. I mean, to me, this is a sign that TMCs are here to stay. As I said about AI, nothing can take away the human element of travel. And when there is a problem, when there is a disruption, when there is an issue, you need to have a TMC and you need to have an agent help you.

I think we're going to continue to see consolidation in the TMC space. It might be on the technology side, it might be on the traveler side, or they might be buying pieces of technology to add into their tech stack. But I think we've said it several times, our CEO, Stephan Baars, has made this very clear: Bigger isn't always better and we've strived to be the best TMC and our success with that is apparent with our industry leading retention rate, our awards, Most Admired status, and our focus on the traveler experience and really partnering with our clients.

Chad Lemon:

All right, Rossana, last question. A typical one that we always ask here on the podcast. What do travelers and travel managers/buyers need to know as we transition from first half of 2024 into the second half of 2024?

Rossana Martin:

Well, I think we can continue the travel landscape - will continue to change and evolve, and I think we have to remember to be patient as we enter the summer travel season and preparing for potential issues at check-in, et cetera. I can tell you even TSA check-in, digital entry, all of that, it has been challenging and I think it will continue to be, especially with everything that's happening globally and people traveling a lot more.

Intro:

The BCD marketplace gives you the power to discover and integrate the best technologies to elevate your business travel program. G3 Global Services specializes in US passports, global travel visas, e-visas, and document authentication. Visit marketplace.bcdtravel.com/solutions and click the visa and passport services category to find out more.

Miriam Moscovici:

I know these state of the industry episodes are some of our most listened to, but I got to be honest, they're some of my favorite as well. I love the full download and I love hearing your perspective, Rossana, it's great to hear you and great to have you back.

Rossana Martin:

Thank you. I appreciate you having me back.

Chad Lemon:

Yeah, absolutely agree. You are great. Wonderful. And so was this episode. To everyone listening, thanks for tuning in and look for the next Connections episode coming out soon.

Outro:

Thank you for connecting with us. BCD Travel helps travel smart and achieve more. We drive program adoption, cost savings, and talent retention through digital experiences that simplify business travel. Learn more about the topics you heard on this episode by visiting bcdtravel.com/podcast.