Webinar: Forecasting Your 2023 Travel Budget (Dec. 2022)

Hello and welcome to our continuing webinar series at Amtrev. My name is Susan Altman, and I'm the Chief Sales Officer and your host for the day. I'll guide you through the session, and my colleague, Elliot McNamee, will be our moderator and presenting most of the content.

Over the course of the past two years, we've been offering informational and educational sessions here at Amtrev to travel buyers, travel program stakeholders, and really all that wanted to participate from our entire industry. Over the pandemic, it became essential to provide these types of sessions for information and support to our clients, suppliers, colleagues, and even our competitors to ensure that we had continued growth for all. And in an effort to contribute during those tumultuous times, and now fast-forwarding to today, so much has changed.

Now, our webinar series really wants to give back by offering valuable information to manage your day-to-day programs and to gain valuable insights that help for all stakeholders to travel programs. And our end goal is to drive your travel productivity to get the full value of business travel by reducing obstacles, complexity, and cost in getting places. So that leads us to our budget forecast for 2023.

So the very first thing we did was we asked all of you attending, what are your top concerns and what are your expectations for 2023? You answered that your top concern was cost. Inflation, inflation, inflation, thus making this very timely. And under expectations, on budget increasing, the results were mixed, but the winner was an increase of anywhere from zero to 50%.

What we'll go through in this session is to help you understand and predict your 2023 budget. I'll now hand it over to Elliot, who will walk us through where we've been, where we are today, and what we expect for 2023. Awesome.

Thanks, Susan. And hello, everybody. We are thrilled to be here talking with you, peering into the future to think about where travel costs are headed in 2023.

For a little preview, we are going to look back first, consider where we are today, and then look forward to 2023. So real quick, a note on our data sources. Before we start, we need to give credit where it's due.

Some of this data that we're sharing today come from Amtrak sources. Other numbers in this presentation come from publicly available data that's produced and provided by GBTA, the Aviro Institute, CWT, BCD. Thank you to them for their hard work to inform the industry.

And with that, let's go ahead and get started first looking at where we've been. If you've been around the industry, you may remember forecasts of the past. They used to be pretty boring.

You'd hear 2018 rates were going to increase between 1% and 3%. 2019 rates were going to increase between 1% and 3%. And going into 2020, thought the same thing.

And in fact, the trends year on year were not terribly exciting. In 2018, rates did increase 2% car, hotel, air. 2019 rates increased 2%.

And then, of course, 2020 happened. And our industry fell off. But we're not here to talk about that.

Just one final note on the forecasting. At that point, everybody stopped forecasting, stopped trying to forecast their travel spend, which was pretty smart. But jokes about forecasting aside, it's worth taking stock of where we've been.

Where are we? Where are we today? And by the way, we do have a forecast. It would be kind of boring if I set all that up and didn't have a forecast. So first of all, has business travel recovered yet? Based on current corporate airfare ticketing provided by an industry, we're going to take it on the arc.

The answer is that we're about 25% to 30% off of 2019 levels, or 70% to 75% recovered overall. You listen to the airlines, they'll say about 80%. It's all in that range.

That's on volume. Obviously, the cost increase plays a factor too, and we'll talk a little more about that. But we've been in that range for the past six months.

Maybe this is the new normal, maybe not. Volumes aren't the main story from the last couple of months though, although they are really important and they're one of the two big themes that we're going to be talking about today. The number of trips.

The other story, of course, is price increases. Why are prices increasing? You've heard this before. We'll reiterate it here.

Labor shortages, increasing wages prevent airlines, hotels, ground suppliers from increasing capacity. Meanwhile, energy prices are also going up, putting pressure on costs. High prices are passed through to travelers on airfare and ground rates.

Shortages, tight supply means the hotel and car supply isn't increasing to meet demand along with labor impacts. Then, of course, demand. We've seen a huge recovery from 2021 to 2022.

COVID restrictions and fear have decreased. There are double the number of business trips in 2022 versus 2021. Susan's point, inflation.

Inflation is part and parcel of this. There's more demand than supply means that prices increase, frankly. Overall, inflation, if you look at the broader economy, is expected to slow from 8% this year down to 3% to 4% in 2023.

Normal is about 2% to 3% and that's expected in 2024. Still on the forecast. This has led to historic rate increases.

North American airfare increased by, is expected to increase on the whole of 2022 by 30%. That is unheard of. 1% to 3%, forget about it.

North American hotels, likewise, 22% increase from 2021 to 2022. And car rentals, an 11% increase. One thing you might notice, actually, if you compare 2021, sorry, 2022 to 2019, you will notice that rates haven't quite recovered to 2019 levels.

We'll talk a little bit more about that in the forecast. Again, though, your travel budget is comprised of two things. One is how many trips and the other is the rates.

So we'll keep thinking about those. Actually, we'll talk about that now. So for Amtrav clients, the main driver of cost travel budget increase in 2022 was, in fact, an increase in trips.

So there were 55% more trips accounting for 55% of the cost increase from 2021 to 2022. And then higher rates accounted for 33% of that cost increase, budget increase. Many clients follow this trend with additional trips driving costs more than higher rates, although it wasn't entirely consistent.

But this is a really important factor to remember. Our budget for 2023 will be a function of how many additional trips or fewer trips and what change in rates. This is a big theme.

It's critical. We need to understand how many more, how many fewer trips to expect in 2023 in order to forecast. And then the big questions for 2023 before we switch over and look at our forecast, really the biggest question, demand.

Will the number of trips continue increasing, meaning that rates increase, overall costs increase? This is a huge question. Supply. Will airline, hotel, and ground supply increase to catch up with demand and ease price increases? Short answer is it doesn't really look like it, but we'll see.

The economy is a big question mark. Stock market has slowed a lot in this year. Big tech, a lot of headlines about things going on in big tech, and that's outside of crypto meltdowns.

Real estate is slowing because of higher interest rates. What happens with the economy? How does that flow through to travel budgets? Big question. And then there are those unknowns, which our friends in 2020, late 2019, who were forecasting 2020, that was the one that got them going into 2020 is that who knows what else will happen.

So first of all, though, before we get to the forecast, we were curious. I need to get to my Zoom controls. We have a question for you.

Are you expected to budget travel spend for 2023? We were curious about this. You can share with us. The poll should be open.

Folks are responding. We appreciate it. Let's see.

I don't know if you can see their responses. I can see. And it looks like about three out of every five, 60% of folks do need to forecast.

Good. Good thing you're here. Another about a quarter do not.

And then a number of folks don't know if they need to forecast. I'm not sure what to say to that, but awesome. Thanks for hanging with us.

So with that, let's take a look at the forecast. These are numbers thoroughly researched, put together by GBTA and that research institute that we mentioned. This is the upshot.

We saw, and again, we're looking at the North American numbers. There are other global numbers out there. Again, we saw a 30% increase from 2021 to 2022 projected.

There is expected to be another 10% increase expected in 2023 before we get to a more normal, if you remember that one to three projection, more normal 1% increase in 2024. Be very interested. We had a time machine and we could go find out what 2024 looks like if it's, but we'll get there hopefully.

Even after the 2022 increase, note that 2022 rates are still below 2019, but those 2023 airfares will exceed 2019. Your fare increase, just a quick note. Your fare increase may be larger or smaller.

One other factor here, if you want to get fancy is to consider the mixes of your travel, the mixes of your airfare. Typically domestic airfare is cheaper than international. If you see a shift where you have more international relative to domestic, because international travel restrictions are easing, that may increase your average rates.

Likewise, premium is more expensive than economy seating. If you see a mixed shift at all from economy to premium with more premium seats, less premium seats, I don't know, that too could increase your average fares. Hotels, again, a 22% increase in 2022.

Another 11% increase is expected in 2023 before we get back to a more normal 3% increase in 2024. Those 2022 rates didn't surpass 2019, 159 compared to $168 a night in 2019, but 2023 rates are expected to be about 5% higher than 2019. And again, your rates may increase more or less if your mix of premium versus mid-scale hotel shifts.

On their third quarter earnings call, Marriott's CEO gave comment, we looked through these to see what we could find specific to corporate's corporate rates. Marriott's CEO said after two years of holding rates steady, the early results look positive for at least high single digit year over year rate growth specific to corporate contracts. Normally you wouldn't expect people to brag about raising their prices on corporate contracts, but then you go listen to their earnings calls when they're talking to their investors, then they do that.

Airlines, could not find any airline quotes like that somehow. Airlines aren't really talking about that quite yet. And then car rentals.

Car rental rates actually are above 2019 with a 10, 11% increase in 2022. Another 8% increase is expected in 2023. You've heard about car shortages.

If you tried to buy a new car, you know this. Car rentals are still trying to get their fleets back up. This rate increase shows that next year may not be the year.

And then another 2% increase in 2024. And Hertz CEO said on their earnings call in the third quarter, we renewed 10%, I'm sorry, 100% of contracted corporate accounts that were open for renewal. 93% of those renewals contained a price increase.

So don't feel bad if you weren't amongst the lucky 7%, but do feel very lucky if you were amongst the lucky 7%. So that's our forecast. Continued increases.

Any questions that you've got? Sorry, one other thing, of course, we like to talk about meetings. Meeting prices are also increasing. Meeting prices, if you planned any meetings, you know this, were substantially higher in 2022.

25% on a per attendee basis higher than 2019. An additional 7% increase is expected in 2023. Hyatt CEO commented in their earnings call and said that compared to 2019, the meetings that they're already booking in 2023, they're getting at least 17% higher rates for 2023.

So, you know, that's not quite 25% or 7%. That's a lot. This is driven by just a whole lot of factors, right? Higher room rates overall, shorter meeting planning, lead times, less capacity, increases in cost, including labor, food and beverage, and then demand coming back really well as well.

And again, that other cost driver, the big question for us, we've looked at rates. The other cost driver is what happens with additional trips. Is this the new normal sitting about 25% below 2019 on volumes, or do we expect rebound? A continued rebound.

So next steps, we're moving quickly here. What can you do with this information? By the way, our Q&A is open. If you have questions, feel free to use that.

We'll get to those in a moment. We can forecast. We thought that we put together a quick exercise here to think through how the things that we've talked about work together, both with rates and trip increases.

So here's how to do a quick back of the envelope budget. This isn't the most thorough, but it gives you a rough number that you can share with colleagues. So we start with our 2022 spend, say it's $10 million, right? Air, hotel, car.

Then we're going to account for the 10% rate increase that's expected in 2023 from 2022. That increases spend up to $11 million. Now there are those additional trips too.

We need to add those. We talk to colleagues. We take a guess.

It's really good to talk to colleagues. Also dig into your data to see which departments have rebounded, which departments haven't rebounded from 2019. The better your data, the more you can look into that.

And again, go talk to folks. Let's say it's a 20% increase in annual trips. So that bumps our travel spend up by another 20%, up to $13.2 million.

It's like we shouldn't gloss over the fact that we're talking about a 30% increase in travel budget. Like that's a big deal. But what's the main factor here? It's not rates.

It's additional trips. So we really have to understand those additional trips. I didn't mean to point that out, but there it is.

And then because we want to be fancy, we're going to give a range. So we'll take 10% off and we'll add 10% just to cover for ourselves. And we can say that overall we're expecting a $13.2 million travel budget.

Our range of expectation is somewhere between $11.9 million and $14.5 million. So there is our budget. Again, you can get far fancier than this.

I'm guessing that some of you have some really awesome bottoms up budgeting processes. If you have that, then probably also have a good way of talking to your colleagues. It's really important.

One exercise you can do to do a quick back of the envelope. So you can do it. Next steps, educate yourself.

You've already done that. Hooray. We've got the data that we need on rates.

Now we need to do research. We need to check our 2022 data for trends, including increased trips and rates. We can go look at that mix of domestic and international, see if we expect that to change.

Go look at the mix of premium versus the economy. That can have an impact as well. More research.

Talking to department heads or finance contacts. If you've got, say, the sales finance contact, great resource to find out what they're thinking about for 2023. Or have that person go ask the sale people.

Find out whether they expect more trips or a different mix of trips in 2023. Bonus points if you talk through some different scenarios with them. What happens if the economy continues being pretty strong? What happens if we have average economic conditions? What happens if the economy slows down? Understand that impact on your business.

Makes a really big difference. And with that, you are ready to forecast. Now that we know the increases in trips, the increases in rates, you are ready to budget.

And feel free in the Q&A, if you think this is completely wrong, to tell me so. With that, we've covered our materials. We've talked a lot.

What questions can we answer? I'm going to go ahead and open up the Q&A. Leslie asks, is it possible to go back to the car forecast? Why, yes, it is, Leslie. And we will turn this into a one-pager as well for you.

The car forecast, again, screenshot it. Click that link. We'll share this.

Karen asks, will we receive a copy of this presentation? You will receive something very similar, with much of the same information, it will just be more compact. Leslie also asks, I'm just curious about the price increase versus the number of new cars coming into the fleet. That's a really good question.

I haven't dug into that. In the past, I've looked at how much rental cars, fleets shrunk from the end of 2019 to the end of 2020. It was like 30%.

It was incredible. That was in Enterprise. Well, no, I think Enterprise was in there.

They're not public. But I haven't looked at this since. That would be something that we could look at.

And like Hertz is earning release. Let's see, the other one, Avis is public. Nice thing about public company.

Patricia asks, how is the current situation in Ukraine impacting travel costs in nearby countries? Susan, that's not one that we prepared for. Do you have any thoughts on that? Yes, well, it certainly is impacting. We do see that because there is less supply and more demand, the cost pressure is even greater in Europe right now, and especially in the markets that are surrounding Ukraine, Russia.

And we do expect that that is going to continue and maybe higher than the curve when we look at airfare rates in regions. And we were thinking about one of the sessions to be actually regional. So we may give a session subsequent to this that could be regional and you could glean more knowledge on the European market as well as Asia and Latin America.

And I they could have a copy of the presentation and I'll put my credentials at the end. And that's something that you can ask me for and we can have a discussion after this. I'll send it to you.

Thanks, Susan. Diana asks to clarify, to confirm on the forecast where the percentage increases based on domestic U.S. data or on average from a global perspective, we use the North America data. So there's some Canada in there, but it's going to be primarily things out of U.S. point of sale.

Now, one of the factors there will be an increase in travel from, say, the U.S. to Europe in 2022 and an expected continued increase in 2023. But it is heavily domestic to your question. So I think the answer is mostly yes.

Leanne asks, I'm finding that tickets purchased between two minor airports is up about 30 percent in 2019. Is it less expensive for a ticket to Europe than to Indiana? Did we take that kind of travel into account in your charts or just for major airports? We did. The short answer is it's a broad, like this is the overall average.

However, you have put your finger on a very important trend in the U.S. When we talk about labor shortages, one of the ones affecting airlines, you know, they need folks on the ground. They need people to push the planes back and load the bags and greet you at the airport. But they need pilots, too.

And there is a shortage of pilots. It's not just the one piloting the mainline flight from Los Angeles to Newark. Sorry, I've got a United bias, so I always talk about Newark.

It's also, as you say, the one going from Chicago to Fort Wayne, where there used to be enough pilots that you could run that six times a day on a 50 seat regional jet. And now United is running it a couple of times a day. I don't know this offhand, but imagining.

So, yes, that is absolutely impacting small airports. Mainline carriers, frankly, what happened was 2020 happened. March of 2020, COVID hit.

Airlines laid off. Well, no, actually, I'm sorry. They didn't lay off.

They made early retirement offers, basically, to pilots. So pilots have to retire when they get to 65. But you took an awful lot of 60 to 65 year old pilots and airlines paid them to retire.

Then travel came back and airlines didn't have enough pilots to fly all the routes that they wanted to again. Well, airlines typically they can hire from the military. There aren't really a ton of military pilots, so they hire from express carriers.

Express carriers then have to go find other pilots, which turns out there wasn't a huge supply of. And so that's where the 50 seat regional jets and the nicer 70 seat regional jets, there just aren't enough pilots to fly those. And that's where those small cities are really seeing a big increase in cost to the point, as you say, that it can cost more to fly from a small city to a small city than it can to fly to Europe, particularly from a major city.

So yeah. That was a lot. Topic near and dear.

Ali asks, hi, Ali. We like to have a ballpark domestic flight cost per head, per meeting. Do we have any good ballpark for that? Booked eight weeks out, assuming no special holiday travel, for example, $650 per flight domestic.

A couple of things we can do. One is knowing the general trend year over year. If it's a meeting that happened in 2022 and it's going to happen again in 2023, we can go that direction.

We can also help you look at rates. But again, I would take that 10% as a reasonable guess. But frankly, we're getting back to 2019 levels.

And for any of those, again, contact us directly and we can work on your scenario for you so that we can work those details out because we've got a great reporting and analytics tool that's part of our one platform. So we can definitely help you forecast your individual scenarios. And Ariana and Nellie both ask if we could switch back to the rate increases.

So we'll look at that one more time real quick. If you have your pencils out or you want a screenshot, again, we will put this into a one pager and send it out that you can reference. Keep it up on your desktop.

Overall airfare. Again, we are looking at North America airfares. Right there.

Going once. Oh, yeah. There's that.

That's different. Same thing with hotels. So 11%, 2023, 3%.

Tim asks, are there car rental rate forecasts based on standard midsize? I don't know. I can go with that. I want to say yes, but we will get clarification.

I'm pretty sure that it is. Well, with that, I'd like to turn back to Susan. Okay.

And I'd like to just say, keep those questions going, put them into the host, come up with some more questions. We've got plenty of time. So I'll try to tap dance a little.

In the meantime, I'd love to talk to you a little bit more about Amtrav and share a little bit more about what we have for corporate customers and definitely in all segments of the business. So the essence of what we bring to you and the marketplace is one connected platform. And as it says here, it's designed for you, ready to help drive your productivity.

And that's our value in the marketplace. That's the essence of what we are. And we really differentiate ourselves by this approach, by combining two very specific things that no one else has out there.

One is....