Skift Take

Pent-up demand seems to be trumping any worries that businesses might have over rising travel costs, which isn't your typical pre-pandemic trait. But a clash with tourists this summer might put the brakes on spending.

Pent-up demand is trumping inflationary hikes in travel costs, as businesses “open the taps” to encourage their employees to get moving again.

Inflation may be starting to dampen demand for summer vacations, but companies are willing to pay the price despite the continuing rises in airfares — for now.

They’ve got no cap in place, according to one corporate travel agency, which is currently reminding clients to plan ahead, as experts warn rising gas prices are already affecting taxi and car rental booking habits.

“You’re going to spend a hell of a lot more than you think you are,” warned Adam Knights, regional managing director for the UK, Europe and Middle East at ATPI.

“Account management reviews at the moment are literally: forget about average ticket prices, and all of the previous metrics to measure your travel, it is just going to go through the roof.”

Knights said he’s seen the volume of corporate travel plateau at 70 to 80 percent of 2019 levels among customers, but the amount being spent on that travel is at pre-pandemic levels and moving upwards.

“Customers have said they’re not bothered (about prices) because they need to get people out and about, and get their business going,” he said. “Their bosses have said: open the taps. Don’t put more restrictions in, we need the business to get back to normality.”

The UK’s Institute of Travel Management said inflation had not yet appeared on its buyer members’ radars. “The main challenge isn’t prices, it’s staff shortages in the supplier chain, which are a major concern for buyers and will be for the foreseeable future,” a spokesperson said.

Trade body the Global Business Travel Association also told Skift inflation worries hadn’t come up in its conversations.

The Problem With Petrol

However, rising gas prices are already altering travel patterns. In the U.S., the average cost of a gallon at the pump at the end of May was $4.59. This is up $0.10 from one week earlier and it is up $1.57 from the same period in 2021.

Rising fuel prices affect business travellers in different ways. In particular, travelers who use personal vehicles and are reimbursed by the company are quickly out of pocket.

Cracks have already appeared in the public sector in Ontario, Canada. According to local media, councilors and staff in one city claim they lose money when taking the car for longer business trips due to the current reimbursement policy.

In the UK, the government only updates its “advisory fuel rates” and reimbursement rates quarterly. The current rates are based on petrol at $1.47 ($1.85) per litre, but some pump prices are as high as £1.99 ($2.51) a litre.

“Mileage reimbursement levels are completely out of kilter with both fuel and leasing costs right now, so people are reluctant to use their own vehicles to make business trips,” added Chris Pouney, owner of Severnside Consulting.

Costs will also be passed on by taxi companies.

“Rising fuel prices are having an impact on the take home pay of most drivers in the taxi industry and many fleets have already increased their pricing, and are unable to rule out future increases,” said Daniel Price, CEO of mobility platform Jyrney.

A Problem for Tourists

Inflation has already begun to impact vacation plans in the U.S. Deloitte’s latest travel survey found 44 percent of respondents cited financial factors as their main reason for choosing to stay at home this summer.

And an American Hotel & Lodging Association poll revealed 90 percent of respondents said gas prices were a consideration in deciding whether to travel in the next three months, compared to 78 percent who stated Covid-19. Some 44 percent said they were likely to postpone their road trips, and 33 percent cancel them altogether — based on a May 18-22 survey of 2,210 adults.

“Just as Covid’s negative impact on travel is starting to wane, a new set of challenges is emerging in the form of historic inflation and record high gas prices. We will be keeping a close eye on these issues and urging Congress and the administration to do the same in order to help ensure they don’t negatively impact hotels’ continued pandemic recovery,” said Chip Rogers, president and CEO of the American Hotel & Lodging Association, in a statement on Wednesday.

Rogers has previously said government travel was incredibly important to the hotel industry, supporting billions in travel spending.

ATPI’s Knights added that a “nightmare” pricing scenario was approaching this summer as business travel looks set to clash with leisure travelers.

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Tags: atpi, business travel, car rentals, corporate travel, gbta, inflation

Photo credit: Rising gas prices are already impact business travel. Paul Hanaoka / Unsplash