Canadian corporate travel has had a couple of false starts over the past six months. The hopes that the segment would generate more hotel demand in September 2021 and January 2022 were unfortunately halted by rising cases and hospitalizations related to the delta and then omicron waves. Unfortunately, the waves took place just as the industry normally shifts its reliance to corporate travel as leisure travel slows after the holidays.
The lag in the return of business travel is showing up in the weekday hotel performance data, which can be used as a proxy for corporate travel. Weekday occupancy trailed weekend occupancy, which can be used as a proxy to measure leisure demand, by six percentage points in 2021. This is not a vast difference, but from June on, when the recovery started to gain momentum, the disparity became more pronounced.
Other indicators provide further insight. Historically, weekday revenue per available room, or RevPAR, tends to correlate with the Ivey Purchasing Managers Index, or PMI. The latter measures business sentiment by a panel of purchasing managers across Canada. As such, it provides an indication of how confident businesses are to do things such as invest, hire and even encourage employees to travel for business purposes. The close historical relationship between business sentiment and business travel is indicated in the chart below.
During the pandemic, however, the two indicators appear to have decoupled. The PMI sharply recovered shortly after the pandemic began, while weekday RevPAR had a much slower start. The decoupling is evidence of the continued constraints felt in the hotel industry due to the public health crises rather than simply weak business sentiment. The variation may also indicate a possible behavioural shift related to corporate travel.
The wide adoption of online meeting tools, such as Zoom and Teams, will likely remain an integral means of communication to manage both internal and external business relationships, even after the pandemic ends. Given the potential costs savings, this means of communication could replace the need or frequency for business travel. In fact, the savings realized by reducing corporate travel has been brought into focus at the top level of many organizations.
Against the backdrop of growing cost and wage pressures, the somewhat-variable nature of travel costs could be increasingly seen as a key cost-control measure by some organizations. Additionally, the wider acceptance of the importance of a lower-carbon future from the corporate world is resulting in greater scrutiny of corporate travel. This has been identified as one of the largest sources of carbon emissions for some large multinational professional services firms, so the need, frequency and mode of travel are being questioned and challenged.
While there may be less frequent business travel, the length of stay appears to be on the rise. This demand may not only replace some lost trips but could also boost profitability due to the lower cost structure associated with longer stays. One strategy being adopted by large corporations is to increase the number of days travelled to boost productivity for each trip taken.
Additionally, the length of stay may be extended should travelers blend corporate and leisure travel, which has been a growing trend evident over the pandemic. The growth in remote work and the ability for people to work from anywhere has increased the mobility of many workers. This also presents a huge opportunity for hotels to position themselves as a place for individuals to work or meet as a team.
The behavioural shifts threaten to upset the balance between supply and demand in some markets and may ultimately affect asset value. This is especially true for markets with few leisure demand drivers. Nevertheless, pricing throughout the pandemic has remained resilient with limited discounts on pre-pandemic values, even in markets heavily reliant on corporate travel.
Emerging trends for corporate travel do present opportunities for hoteliers that identify strategies to attract this type of business. Additionally, corporate travel has largely been put off for two years and this is creating pent-up corporate demand. This is especially true for business travel related to getting in front of clients and prospects in addition to internal meetings to create company culture. The timing of this benefit remains to be seen and is hinged on improvements in public health conditions, but hoteliers remain poised and agile.