Paddy O’Neill, UK and Ireland country manager for Spendesk, takes a look at the key trends emerging from data on 3,500 small and medium sized firms the UK, France and Germany
Guest Post: How business travel is rebalancing as firms get on the move again
Conferences and trade shows have reopened their doors, and hotel lobbies are bustling.
Businesses are on the move again after two years of pandemic-imposed stasis and the travel industry is at last seeing tangible signs of recovery.
This raises the question: what impact did the pandemic have on business travel spend, and will any of the changes last longer term?
At Spendesk, we have analysed data from 3,500 small and medium-sized businesses (SMBs) across the UK, France and Germany, looking at business spending on travel and accommodation before and during the pandemic, along with a preliminary look at trends in the first quarter of 2022.
When the first wave hit, we saw a huge drop in business travel spend in all three countries.
Since then, spend has bounced back across the three regions as travel has opened up, although it may be that there are other factors, such as rising costs, which are also driving this resurgence.
Air travel spend soared while rail stayed low
While payments for business flights dropped across all three countries during the pandemic, this was less marked in the UK, while rail travel was more impacted.
The number of payments for air travel among the UK SMBs was down by 42% in late 2021, compared with pre-pandemic 2019 figures, while there was a 59% reduction for rail travel.
In comparison, businesses in Germany were making 70% less payments for planes and 44% less for trains during the same period. This may be due to a number of factors – such as price of tickets, availability of seats, and differing travel restrictions.
UK SMBs saw their spend on air travel in 2021 not only recover from 2020’s dip, but surge past pre-pandemic levels by 14%.
However, this should not necessarily be interpreted as businesses flying more, but rather having to spend more on tickets; spending went up, but the number of payments remained down 42%.
The same discrepancy was not seen in trains in 2021, when payments were down by 59% and spending was closely matched at -57%.
Anyone who travelled by air in 2021 would understand why spending shot up while the number of transactions remained low. Relatively relaxed travel rules led to a surge in demand which, on top of record fuel costs, sent ticket prices skyward.
Both demand and fuel prices are not expected to return to earth in 2022, so airfares will remain high, although the UK Government has tried to offset this with tax cuts for domestic flights.
Staycations and the fuel crisis drove up car costs
UK businesses went full speed on car rental spending over the pandemic, increasing by 163% in 2020 and an incredible 344% in 2021, compared with 2019.
Some of this additional spend was no doubt driven by private car rentals being a low exposure means of transport. But the picture is more complex, and the figures don’t mean that car rental was a COVID-proof business, quite the contrary.
Car hire companies sold much of their fleet to stay afloat early in the pandemic, and were then hit by supply chain issues when they tried to restock.
With fewer available vehicles and soaring staycation demand, car rental prices were driven even higher year-on-year than plane tickets and, like their winged counterparts, costs are forecast to remain high in 2022 and beyond.
Spend on car rentals may have been higher than UK businesses would have liked during the pandemic, but this pales in comparison to what they spent on fuel.
In 2020, spending on fuel increased by 306% compared with 2019, rising again to 691% in 2021, the year of the fuel crisis. The less severe fuel crises in France and Germany were reflected in less severe rises in fuel spend, at 356% and 217% respectively.
As for taxis and Ubers, UK business made fewer payments to both, but Uber was more seriously affected at -36% of pre-pandemic levels compared to just -12% for taxis, closing the once yawning gap between the two to a just slight lead for Uber.
Hotels raised prices to bounce back from plummeting payments
UK businesses made significantly fewer payments towards hotels during the pandemic.
In 2019, SMBs made an average of 3.32 hotel payments per month, dropping to 1.39 in 2020 and recovering slightly to 1.81 in 2021. So far, 2022 is closing in on pre-pandemic averages, with 3.1 payments per month.
While the number of hotel payments was down in 2021, spending went up. Across the UK, France and Germany, the number of hotel payments dropped by 52% in 2020, alongside a drop in hotel spending of 44%.
In 2021, hotel payments had recovered to -32% while hotel spending beat even 2019’s total by 5%. Only France did not see a rise in hotel spending.
As seen with air travel, a lower number of hotel transactions paired with increased spend means higher prices.
Hotels in 2021 were in a difficult position, having to limit occupancy in line with local restrictions while suffering labour shortages.
Demand, however, was not an issue thanks to the staycation boom in domestic holidays, so prices were raised to recoup costs, reaching record levels in some regions.
The hotel industry’s main competitor, Airbnb, remains a distant second for business accommodation spend across the board, though the number of Airbnb payments suffered less of a drop and have so far seen a significant rise in 2022, suggesting that increased hotel prices might be pushing businesses to seek alternatives.
Travel spend is trending upwards but will value follow?
The past three years of business travel spending data show that the triple threat of COVID, the supply chain crisis and the fuel shortage combined to upend the pre-pandemic equilibrium.
2021 was a year of gradual recovery and UK businesses poured their profits back into travel and hospitality, which was surely welcome for these hard-hit industries. Early figures from 2022 show a strong uptick in spending following a slight dip during January’s Omicron worries and expected seasonal spending reduction.
UK businesses have regained much of their spending power, but between rising air travel, car rental, fuel and accommodation costs, they are not getting as much for their money as they did in 2019.
As the global economy continues its rocky recovery, it remains to be seen what new balance between travel spend and value will emerge in the post-pandemic world.