Shifting Balance

Sour Economic Vision Marks SME Plans

_{Inflation Has Increased Pessimism, But Will it Affect Spending?}

By Chris Davis

Projecting the corporate strategy, including spending decisions, of small and midsize enterprises poses quite the challenge midway through 2022, and it’s because of a sharp difference in the way those companies’ executives view their financial standing. 

Those executives’ view of the overall economy in the past few months has turned sharply and decisively pessimistic, with rampant fears of recession amid inflation and staffing challenges. On the other hand, their perception of their own businesses is far sunnier, with expectations of more robust sales and revenue throughout the balance of 2022 and into 2023.

What does that mean for SMEs’ strategy regarding travel spending, especially after the segment was arguable the sturdiest throughout the Covid-19 pandemic? It’s unclear, but it’s certainly possible that most SMEs won’t accelerate travel spending too drastically, even as domestic and international travel restrictions related to Covid melt away, until they have more clarity on the overall direction of the economy and their companies’ place in it. 

They’re certainly not enthusiastic about the economy. In fact, only 19 percent of the more than 1,500 midsize business leaders polled from May 25 through June 10 in JPMorgan Chase’s 2022 Business Leaders Outlook Pulse survey said they were optimistic about the U.S. national economy in the year ahead, which not only was down from 75 percent one year prior but also was the lowest figure the financial services giant has ever recorded in 12 years of conducting the survey.

But on the other hand, 71 percent of those same respondents said they were optimistic about their own company’s performance, and 73 percent project increased sales or revenue in the next 12 months. 

“The first half of 2022 has really tested business leaders with pricing pressures and increased interest rates, on top of the supply chain- and labor-related issues they were already facing,” JPMorgan Chase Commercial Banking head of research Ginger Chambless said in a statement. “While it’s surprising to see how drastically sentiment has shifted, it is important to note that business leaders are still mostly upbeat when it comes to their companies and areas that they can more directly control.”

Similarly, a survey of small and midsize businesses by CEO coaching and peer advisory organization Vistage also showed a sharp recent drop in respondents’ confidence in the economy. Vistage’s CEO Confidence Index, a quarterly measurement of CEO sentiment regarding a variety of economic and business factors in the second quarter dropped 36 percent year over year.

“The only thing that remains certain for small business CEOs in the year ahead is more uncertainty,” said Vistage chief research officer Joe Galvin in a statement.

Audit, tax, and consulting firm RSM US LLP chief economist Joseph Brusuelas, in a statement accompanying the company’s quarterly survey of midsize business execs, said that “we expect that until there is clear evidence of a return to price stability, sentiment around business conditions in the real economy will remain split.”

Until then, it remains unclear how SME executives’ perceptions of the economy and their own businesses’ performance will translate to decisions on travel spending. There is some conflicting evidence on this front as well. Airlines Reporting Corp. data of airfares sold by U.S. corporate travel agencies compared with the corresponding week in 2019 showed steady recovery through about mid-April but little consistent change since, possibly indicating that the rebound from the Covid-19 pandemic has plateaued, at least for now. 

On the other hand, Delta Air Lines, the first major business travel supplier to publicly discuss its second-quarter performance, insisted that the rebound in business travel demand not only was continuing but that they anticipated acceleration in the coming months. 

Delta recently surveyed its corporate clients and results showed “positive corporate expectations for business travel” in the third quarter, with several of the least recovered sectors “conveying strong optimism for increased travel this fall,” said Delta president Glen Hauenstein. The carrier’s business travel segment “continues to improve,” he said.  

Suppliers Target SMEs With Products, Deals

By Chris Davis

Business travel suppliers for years have designed products and services to target small and midsize businesses, often focused on implementation simplicity and ease of use to assist those organizations that might not have a fully managed travel operation. Several suppliers in 2022 have furthered those efforts, launching or advancing products designed for SMEs or making deals to offer such specific functionality to the market. 

Here are some of the most notable SME offerings and deals unveiled so far in 2022. 

The Lufthansa Group and TripActions in May launched a co-branded travel booking and management platform for SMEs. The BusinessToGo platform, announced to be in development late last year, provides direct access to flight content from the Lufthansa Group and its joint-venture partners as well as hotel, train and car rental content from TripActions. The content includes “attractive” New Distribution Capability offers from Lufthansa and TripActions’ negotiated hotel rates. The platform also provides reporting on duty-of-care and carbon emissions, management data and centralized billing.

First launched in Lufthansa’s home markets of Austria, Germany and Switzerland as well as Belgium, additional markets will be added “successively” as well as additional features including upgrades, corporate products and additional languages, according to the companies.

Australia-based travel management company Corporate Travel Management in July acquired 1000 Miles Travel Group, a travel agency that focuses on SMEs via an independent-consultant setup. 1000 Miles predominately does business in Australia and the United Kingdom, according to CTM, through a “network of independent travel experts specializing in SME business travel services.”

“1000 Mile Travel Group is a highly successful business that has crafted a unique value proposition for those agents wanting to not only manage their own SME portfolio from home, but also grow that portfolio and provide services demanded by corporate clients,” according to CTM founder and managing director Jamie Pherous. The acquisition was valued at about US$1.38 million.

In North America, BCD Travel announced this week the creation of a new president role to lead efforts addressing the midmarket. World Travel Services president David Mitchell will now also lead BCD's collection of midmarket agencies, including WTS, but also Acendas Travel, in which BCD acquired a majority stake in 2017, and Adelman Travel Group, which BCD acquired in 2019. Leadership at both Acendas and Adelman remain unchanged, but Mitchell is charged with targeting what he acknowledged as a segment "rebounding faster than the large market," and one in which BCD Travel would actively pursue additional TMC and technology acquisitions.

Flight Centre Travel Group, the parent company of TMCs FCM and Corporate Traveler, at the very end of 2021 fully acquired Shep, a software company that targeted SMEs with browser-extension based communications that began as an open-booking solution that evolved into a flexible notification system that overlaid messaging on health, safety, entry and exit guidance, policy and decision support. Flight Centre in late 2019 had taken an undisclosed minority stake in Shep.

That move came a few months after Flight Centre’s Corporate Traveler brand launched Melon, a proprietary booking, travel management and mobile platform geared toward SMEs. That platform offers traveler-facing functions including a booking tool and trip management features, along with manager-targeted controls and duty-of-care and data analytics capabilities, all designed to be equally accessible via desktop and mobile, or a combination of those two channels.  

Halfway through 2022, small and midsize enterprises are wrestling with several strong but conflicting market forces that are challenging executives to assess the economic terrain, forecast future conditions and make decisions on internal spending, including travel. Executives at small and midsize companies must contend with persistent inflation, some continued supply chain woes and stubborn staffing and retention issues. On the other hand, sales for many companies have bounced back and Covid regulations have been dropped, allowing for some business activity to approximate a pre-pandemic footing. 

BTN managing editor Chris Davis in early July spoke with Marc Snyderman, a business consultant who specializes in growth strategies for small and midsize enterprises as well as an attorney and former C-suite executive, to discuss SMEs’ approach to the market and how their projections might affect spending decisions. An edited transcript follows. 

Considering the various market forces right now—some recovery from Covid, some recovery in sales, but staffing shortages and inflation—how are your typical SMEs handling it?

It’s tough. I would say they’re pretty cautious. People were really excited coming out of Covid that things were going to start moving, and you started to see movement in the market. You started to see some travel. You started to see things pick up, and quickly Wall Street cratered, and the economy went into this … whatever you want to call it, stagflation or whatever we’re going to call it right now, and it’s really changing the way people are thinking.

I’ve seen a bunch of deals that I thought were going to happen go completely dead. I think people are a little afraid to put money to money into the markets. They’re afraid to buy equipment and figure out where they’re going to go, because nobody really knows. There’s a lot of talk that we’re headed into a recession or something worse, some kind of extended recession. Some of the smaller businesses are definitely afraid right now.

I have a client who runs a landscaping company. He’s had trouble finding labor now for three full years, and you just get to a point where you shrink your business back to, “I’ll only do what I can do.” He’s got more calls coming in than he can handle jobs, and he won’t even take deposits because he doesn’t know when he’s going to get materials.

It definitely has created a very cautious environment, I would say. I have clients that are full-tilt, but they’re on the larger end of the SME market. They’re full-tilt because they have the advantage of all the Covid relief funds that they got. Those things put them in a position where some of them are being highly aggressive and acquiring other companies, acquiring properties. They’re really going after it.

Does that vary by sector at all?

It’s in the services industry that I’m seeing it. On the manufacturing side, not as much. I’m seeing some consolidation in manufacturing, actually, where larger entities are buying them up or private equity is. But the private equity market’s going to start drying up a bit as well with funds becoming less available.

How does this cautious environment translate in terms of looking at future plans and strategy? Is it more about retrenchment?

I think there’s going to be a lot of wait and see, because people are worried. There’s been talk of a collapse in the housing market, and I even thought it would be a lot sooner than has been, because there are still hundreds of thousands of mortgages that are in danger right now of default. It’s more than what happened in 2008. But ’08 was different because it was all backed by securities, so when that collapsed, it was a domino effect. You don’t have that same problem these days, but you still have a huge problem in, when is this market going to cool down? I think things will start to normalize themselves as mortgage rates go up, because they have to. They have no choice.

Overall, I think everybody’s going to wait on the midterm [elections] at this point. I think that’s going to start to determine where things are going to really fall out. Realistically, how much of an effect are the midterms really going to have on our economy and everything else?

What are the different ways that can go? If the Republicans flip Congress, how might that change SME perception or strategy?

I think they’ll be more confident, whether it’s legitimate or not. I think there’ll be some more confidence in the market. There’s been so much that’s moved towards the left in term where the money’s going and how much money is going out versus what’s really creating market opportunity. That sounded like I’m Republican, and I’m not. [Laughs]

Given all this, what should we expect in terms of internal spending on travel and other business needs?

In terms of internal spend, like travel and marketing dollars and all those kind of things, the year before Covid, I think I traveled 36 weeks. If I travel 15 weeks this year, that’s going to be a lot. And I think that’s consistent across the board from people I speak to and from people I know that travel a lot. 

Do you think that’s permanent?

I think there’s a permanence to some of it, unfortunately. I don’t think it’s a good thing. I do think that there’s something to be said that we all found a way to be more communicative and be able to hold certain meetings virtually, but there are certain meetings that still need to be in person. And I think not having enough events and conferences is not going to be good. I think they truly lose something over virtual that can’t be replaced. You’re not going to replace a 1,000-person conference with a 1,000-person virtual meeting. It’s just not the same thing.

Beyond the midterms, what are the metrics or signs SMEs might look to help assess what’s coming?

From my perspective, some of them will say they look at the market, which is a terrible place to look, because the public markets, aren’t really indicative of what’s going on, and they haven’t been indicative of what’s going on on Main Street in years. They’re almost polar opposites. Main Street was falling apart during Covid, and the markets were flying. So they’re not good indicators, at least not in the past decade or so. To me, the biggest indicators are really unemployment and banks. Are the banks going to loan money? Are they willing to step out and support? If interest rates go up too much, there’s no money. 

As long as money’s cheap and money stays cheap, small businesses can survive on that. And you need the labor market to switch up a bit, and we have seen some of it. We’re definitely seeing more candidates available, more people working and willing to take those lower-paying jobs than they ever did before, because all that extra money that they made during Covid for sitting at home not doing anything is gone. And now they have to work again, which is a good thing. And I think that will help stimulate the market back, some of the small businesses to get back to where they need to be.