Demand Growth, Capacity Caution Drive Costs Skyward in Europe

If you plot a curve of business travel booking volume in Europe during the past 12 months, you end up with what looks remarkably like a diagram of a rollercoaster.

Following a 2020 of minimal business trips, transactions climbed steadily in 2021 and were accelerating nicely until the Covid-19 omicron variant materialized. Omicron “drove business travel demand back on a downward trajectory as we entered the end of 2021 and into the beginning of 2022,” said Jason Geall, American Express Global Business Travel SVP and general manager for Europe, the Middle East and Africa. “But from the second week of January 2022, we’ve seen again the beginnings of a recovery, with eight weeks of week-on-week growth.

“We’re seeing the recovery across multiple sectors. That pent-up demand is very real. There’s still a need for people to engage face to face,” Geall said.

Now the big question is whether that rollercoaster is poised to take another lurch downwards following Russia’s invasion of Ukraine. It’s too early to tell, said both Geall and FCM head of global account management and consulting Jo Lloyd. Amex GBT already was recording some impact on bookings in central and Eastern Europe in the approach to the outbreak of war. The only safe conclusion right now is that 2022 will prove another volatile year for European business travel in spite of the region appearing to shake off the ravages of the Covid-19 pandemic.

With regard to the pandemic, “there’s definitely a desire to travel,” said Lloyd. “When people are allowed to travel, they will. There is a direct correlation between how easy it is in terms of quarantine and testing, and the number of people traveling.

“There were companies that traveled all the way through the pandemic: the engineers, the guys in the field; but we have seen a return in Europe in the last few months of sales-driven activity as well. That’s starting to come back face-to-face when last year it was mostly done virtually. Regional heads are also back on the road,” she said.

Lloyd did, however, caution that, even without taking the Ukraine conflict into account, volumes are still well below where they were pre-pandemic. “Most of our customers are projecting that they will be back to 40 percent to 60 percent of 2019 levels before the end of this year,” she said. Permanently inhibiting factors, she said, will include an even greater focus on sustainability and employee well-being in Europe than in other regions.

Recovery has not been consistent across Europe. FCM has seen the strongest growth to this point in France, the Netherlands, Italy, Spain and Turkey. Geall offered a similar list. Spain has been Amex GBT’s fastest-recovering market, “along with France and Benelux, with the U.K. just behind them,” he said. In addition to the war in Ukraine, Geall attributed the national variations to the speed at which Covid restrictions have been relaxed and cultural attitudes. Businesses in Latin countries, he said, regard it as particularly important to see customers and colleagues in person.

Another contributing factor could be coronavirus vaccination rates. Southern Europe is especially advanced in terms of fully vaccinated individuals, with Portugal at 93 percent, for example, Spain at 84 percent and Italy at 80 percent, according to figures collated by the Financial Times. Almost all of Western Europe has higher rates than the United States (64 percent, according to the Times) but many central and Eastern European countries are well behind the western end of the continent, including Hungary and Czech Republic (64 percent), Slovenia and Poland (58 percent), Serbia (47 percent) and Bulgaria (29 percent).

Assuming Europe can maintain its business travel recovery (matched, Lloyd noted, by a rapid return of leisure travel too), price can only go one way in 2022. “European air capacity is still 45 percent lower than pre-Covid,” Lloyd said. “If demand is back but the capacity isn’t, then you have the ideal recipe for fare increases, plus you have external factors such as oil prices.

“It’s the same with hotels: they’re also going up; and car rental. There’s been a growth in rate of 50 percent to 70 percent since the beginning of 2021. Some cities are going to exceed 2019 levels by the end of this quarter.”

Amex GBT also is seeing the cost of business travel rocketing. Geall points to chronic labor shortages as another contributory factor to rising hotel rates.

_{Price Needle Points Skyward}

The perspectives of Lloyd and Geall are consistent with the picture painted by BTN’s Corporate Travel Index for Europe. It shows a price needle pointing firmly skyward. In the 2021 index, for example, there were only four cities with an average daily hotel rate north of $200. This year there are 10. Similarly, Zurich was the only city in Q4 2020 to have a total per diem above $500. This year, Switzerland’s financial center is joined by London, Geneva and Paris.

At number 10 on the list is Oslo. The Norwegian capital exemplifies the trend for rocketing prices. Its per diem plunged from $425 two years ago to $339 in 2021. This year, Oslo has comfortably surpassed pre-pandemic levels, surging to $449.

Scandinavia appears to be one of the hottest regions for inflation in the index. Hotel rates in Copenhagen have shot up from $186 in the final quarter of 2020 to $257 in the final quarter of 2021, making it the fourth-priciest city for accommodation.

London is a similar story. Its per diem fell from $516 to $477 last year but this year it has overhauled its pre-Covid figure to reach $558. Not all cities are higher than two years ago but three-quarters of European cities in BTN's index are up from last year.

Generally, prices rose every quarter during 2021. In Amsterdam, for example, hotel rates climbed from $137 in Q1 to $160 in Q2, $179 in Q3 and $180 in Q4. Edinburgh, another standout performer over the past year, also grew quarter-on-quarter, climbing from $81 in Q1 to $118 in Q2 and then rocketing to $174 in Q3 and $238 in Q4.

What makes this pan-European price surge all the more remarkable is that the CTI is based on local prices converted into U.S. dollars, and the dollar has climbed slightly against European currencies over the past 12 months. The dollar has strengthened against the euro from €0.86 to €0.88, for example. Were it not for these more favorable exchange rates, the per diem increases would have been higher still.

Tracking European currency movements against the dollar also explains one highly symbolic development in this year’s Corporate Travel Index. For several years, until around a decade ago, the index’s most expensive city, not only in Europe but globally, was Moscow. Today, the Russian capital is bottom of the European per diem rankings (although not quite bottom for hotel rate alone: four cities are cheaper, including two—Bucharest and Bratislava—that are still sub-$100 per night).

Russia’s mismanaged economy, despite vast oil and gas assets, is evident in the long collapse of the rouble that precipitated this fall to the foot of the index. In March 2005, there were 27 roubles to the dollar. By March 2017 the rouble had plummeted to 57 to the dollar, then to 75 by March 2021 and 117 to the dollar in March 2022.

Consequently, by Q4 of 2021, a per diem for Moscow had fallen to $119, less than one quarter of the cost of 24 hours in Zurich. Tragically, it’s not a bargain many businesspeople will be able, or would want, to avail themselves of any time soon.