Avenue5 Consulting Press Release – $540Bn Debt Mountain – January 2022

 

London, UK, 27 January 2022 – Avenue5 Consulting presents analysis of the travel eco-system $540 Billion debt mountain and the impact on the corporate travel buyer and budgets

In the first of a series of four core strategy events, this inaugural event for the Institute of travel management buyers and invited guests, Avenue5 Consulting provided powerful insight into the re-financing of the travel eco-system and the impact on the travel buyer and budgets.

Avenue5 Consulting has considerable experience working as a trusted advisor with multiple hedge funds, venture capitalists and financial institutions. These entities have powered a record financial investment in airlines, hotels, ground transportation, travel management companies, and technology/mobility start-ups.

Prices have been lower across the board in 2021 and Q1-2022 as the supply chain aggressively re-engages corporate companies to travel again, however they are operating at near break-even level. Once the demand returns, the supply chain needs to recoup their losses, service their debt, and provided meaningful returns for their financial investors. This will result in higher costs for the travel buyer. The event attendees learnt about the scale of financial intervention and strategy deployment to mitigate the risk of rising prices which have been forecast at 5-9% for hotels and 3.5-4.5% for airlines in the latter half of Q3-2022.

Mark O’Brien, founder and managing partner of Avenue5 Consulting, stated that pre-pandemic levels are unlikely to return until 2024-25, however the sheer scale of intervention is a further indicator of confidence in the longevity and attractiveness of travel.

Scott Davies, CEO of ITM, commented, Suppliers within the travel ecosystem have shown great resilience during the pandemic and have needed to seek and secure additional funding in most cases. As the recovery gets under way it is important for buyers and suppliers to understand the commercial pressures and dynamics on each side. This session gave great insights for buyers and suppliers alike to grasp the opportunities available in such a way that suppliers can continue to plan and invest going forward.

For more information about this event and Avenue5 Consulting please contact Mark O’Brien at mark@avenue5consulting.com or visit our website www.avenue5consulting.com

About Avenue5 Consulting

Avenue5 Consulting is a dedicated management consultancy for, corporate travel, meetings, payment, and expense. Offering strategic and tactical; advisory and management services, and category consulting for its clients to achieve extraordinary outcomes.

Avenue5 Consulting mission is to power their client’s success by making the most of their travel investment and advancing one step forward together, the corporate travel, meetings, payment, and expense industry.

Founded by Mark O’Brien, a senior level executive with 35-years’ experience, 12 of which have been spent in a consulting capacity to several of the world’s largest consumers of travel. Avenue5 Consulting understands that successful teams work together, often in highly complex and fast-moving environments and certainly cross functional in different geographic locations, Avenue5 Consulting brings together the very best specialist resources with deep expertise to solve the unique challenges and opportunities that exist in the corporate travel, meetings, payment, and expense industry.

Avenue5 Consulting core values of, integrity, respect, and transparency are built into its DNA, and it aspires to be its clients trusted advisor delivering the results companies need with crystal clear transparency.

 

Forecasters: Business Travel Pricing Set To Rise This Year

No one should be surprised that it’s coming, and consultant Mark O’Brien expects it in the second half of this year: higher pricing for transportation and lodging. What does it mean for corporate travel buyers?

According to O’Brien, a BCD Travel exec until 2021 who now runs Avenue5 Consulting, hotel prices will be up by 5 percent to 9 percent in the third and fourth quarters over 2019 levels, while flights will cost 3.5 percent to 4.5 percent more than before the pandemic.

During a Jan. 21 presentation for the U.K.-based Institute of Travel Management, O’Brien said upward pressure on rates would result partly from what he called the “refinancing” of travel. Avenue5 calculated about $540 billion in new debt and investment among lodging, transportation, travel tech and intermediary companies (not including infrastructure such as airports).

Staffing shortages, increased fuel costs, sustainability charges, government-imposed infrastructure fees and higher demand also may factor in.

“Prices have been lower across the board in 2021 and Q1 2022 as the supply chain aggressively re-engages corporate companies to travel again; however [suppliers] are operating at a near break-even level,” according to Avenue5. “Once the demand returns, [suppliers] need to recoup their losses, service their debt and provide meaningful returns for their financial investors. This will result in higher costs for the travel buyer.”

 

In November, CWT and the Global Business Travel Association said they expected price increases for some of the same reasons.

According to an American Express Global Business Travel report published this month, demand uncertainty means “air pricing remains extremely fluid. Just consider the experience of the last year: prices on many key business routes in the U.S. recovered close to 2019 levels in June only to fall back significantly when concerns about the delta variant overturned the supply-demand equation. It is difficult to forecast price for 2022 with any degree of accuracy or credibility.”

Lack of seat availability, GBT wrote, could inflate air travel expenses.

In lodging, STR numbers cited by GBT pointed to full recovery of demand and average daily rates this year in the United States.

STR and Tourism Economics last week “slightly upgraded” their forecast for the U.S. market: “On a nominal basis, ADR is expected to surpass the pre-pandemic comparable this year, while revenue per available room is anticipated to exceed 2019 levels in 2023. When adjusted for inflation, however, full recovery of ADR and revenue per available room are not projected until after 2025. Occupancy is projected to surpass 2019 levels in 2023.”

“While many hotel groups have been willing to extend 2021 rates for 2022 programs, travel managers should not expect to find many opportunities for rate reduction without substantiated spend,” according to GBT. “In fact, rates could be going up.” GBT noted rising average daily hotel rates around the globe, including in some top business destinations, where business travelers will “compete with tourists” for rooms.

According to the travel management company, “The most significant upwards influence on hotel pricing could come from ongoing global labor shortages that afflict hospitality. Labor is the single biggest cost for hospitality providers; getting staff back into hotels will put increasing pressure on hotels’ cost base. Where they can, hoteliers will pass on these costs to guests.”

Shortages of cars in the rental business and drivers in chauffeured transport, meanwhile, mean price increases are on the way — “the only question is by how much” — according to GBT.

A December BCD Travel paper also referenced shortages and “inflationary pressures” in transportation.

O’Brien said the response from buyers to higher pricing should center on “risk mitigation” and “future-proofing.” Whereas the decision to roll over supplier contracts early in the pandemic was the right one at the time, he said, it’s time to look at what’s next. With volume hard to predict, this could mean more marketshare arrangements.

Mark O’Brien, Avenue5 Consulting managing partner

“We suggest a deep-dive risk analysis, particularly related to key routes and major cities, with perhaps more consideration to be given for a strategy of best price on the day,” said O’Brien. “Is a total trip cap viable, perhaps for certain departments? You have data for the average total trip cost for, say, London-Paris-London for two nights. You should be able to know the average price paid for that whole trip. Include ground costs, parking, etc.”

He suggested that companies consider different policies for different types of trips as part of a demand management strategy. Although it’s “tough to pull off,” perhaps a trip planning approval process for a revenue-generating traveler is different from one for a non-revenue-generating traveler.

“Travel managers will need to clearly define what constitutes necessary business travel,” according to the BCD Travel paper. “A well-organized business trip that combines visits to several clients at nearby destinations may come at a higher trip cost, but it avoids travelers hitting the road as frequently. Day trips to attend a two-hour meeting may disappear since they are harder to justify.”

Meanwhile, O’Brien emphasized the importance of content strategy. “Is your content hub fit for purpose, and how auditable is that?” he asked. While NDC has not delivered what it promised, he said, buyers should look into supplementing existing channels.

While pre-pandemic business travel volume is unlikely to fully recover until 2024 or 2025, according to O’Brien, the amount of investment in the industry is encouraging. The travel industry was “kind of ignored” by investors, but the pandemic changed that. It’s now a “strategic” and “professional” category — which “many of us have been championing” for years.

Corporate Travel Buyers Face Perilous Exposure to Industry’s $540 Billion Debt

Skift Take

Airlines, hotels, taxi firms and travel management companies owe more than half a trillion dollars. Here’s how companies can offset price surges as their suppliers look to pay off mounting debts.

Company travel buyers face years of rising prices due to an industry “debt mountain” that today exceeds half a trillion dollars.

According to a former travel buyer-turned-consultant, the debt totals $540 billion — a figure that mostly covers airlines, hotels, ground transportation firms and travel management companies.

Some $490 billion of that amount stems from government and bank loans, plus cash injections from venture capitalists, private equity and hedge funds.

Sector wise, global airline debt totals $350 billion; hotels $110 billion; ground transport companies $20 billion; and corporate travel agencies $10 billion, calculated Mark O’Brien, managing partner of Avenue5 Consulting.

The debt also includes travel and mobility tech startups which have secured $48 billion in investment, mostly from venture capital firms. An estimated 2,800 companies received investments during 2021, O’Brien said. This figure was the largest amount invested in the last 10 years, and 15 percent up on the amount seen in 2019, he added.

“We live in a world where the word billions doesn’t surprise us any more,” said O Brien. “But to put that number into context, it’s higher than the economies of Belgium and Portugal combined, or 7 percent the size of the U.S. economy.”

The numbers were based on public reports and financial statements, alongside data from the likes of Moody’s, Bloomberg, Fitch and S&P Global. Of course, with such a large scope it’s impossible to get a truly accurate picture, but O’Brien argued it was important for corporate travel buyers to understand the bigger picture, and the commercial pressures that suppliers now face, as it can help prepare them for future price shocks, and help these suppliers with their own recovery.

Payback Time

Companies must now get ready for price surges as governments, banks and investors start asking for their money back.

Travel prices may appear low compared to 2019, for now at least, because suppliers are looking to encourage people to travel again. However, as the recovery gets under way and demand exceeds supply, the travel industry will be under pressure to seek out profits. “That debt has to be serviced, and investors obviously expect a return on their investment … that debt can’t just sit there,” O’Brien said during an inaugural Consultant’s Corner virtual event, called “The Debt Mountain of the Travel Supplier EcoSystem — How this Impacts the Travel Buyer,” hosted by the UK’s Institute of Travel Management.

First, buyers can expects to see their corporate travel agencies, which traditionally operate on low margins, refresh their pricing models. They’re likely to accelerate shifting their business model away from transaction fees to a management fee-based model, and share risks in case of any further downturn.

Airlines will also push up air fares on key routes, up between 3.5 and 4.5 percent on 2019 levels by the third quarter of this year. But at the same time they will pass on further increases due to their investment costs in sustainable aviation fuel and due to airports putting up their landing fees.

On the hotel side, O’Brien said rates could be up to 5 to 9 percent in the third quarter of this year, compared to 2019 levels.

When it comes to budgeting, a company that typically spent $20 million on travel can expect to see that rise by $875,000 to $1.1 million in the future. At the top end, a company that once spent $250 million on its travel program would see an increase of $8.5 million to $13.25 million.

Mitigation Plans

To counter those rises, travel managers will need to get more creative, O’Brien said, and adapt their programs to allow “best price on the day” bookings, rather than hotel rates that rolled over from 2019. And with airlines, travel managers needed to dive into their key origin and destination routes, and key city hotel destinations, and better engage with airlines.

Total trip costs should also be calculated. For example, if a company could work out all elements of a business trip from before the pandemic, including meals, parking or taxis as well as flights and accommodation, it should then look to use that basis when budgeting trips in the future to avoid getting caught out by surges.

And as airlines begin to pass on costs related to sustainable aviation fuel, O’Brien said travel buyers should ensure airlines are transparent about any surcharging, and pinpoint where that money is going. “We should always demand a breakdown of the surcharge, so we can interrogate it. Those surcharges are negotiable,” he said.

Companies would then be more likely to pay those higher fares, as they’d be able to report within their companies — which also have their own sustainability targets to meet.

“Suppliers within the travel ecosystem have shown great resilience during the pandemic and have needed to seek and secure additional funding in most cases,” said Scott Davies, CEO of the Institute of Travel Management. “As the recovery gets under way it is important for buyers and suppliers to understand the commercial pressures and dynamics on each side.”

A Gloomy Corporate Travel Prediction for Hedge Funds and Tech Firms

Skift Take

AMcKinsey partner has warned “digital adopters” may never see the point in returning to business travel as we used to know it.

Not only are consultancy firms, with their avid flyers, curbing travel, one of them now predicts hedge funds and technology firms could “never return” to taking business trips.

The likes of Capgemini and Cognizant plan to drastically reduce the number of business trips in 2022, while Bain wants to reduce the emissions caused by its own travel by about a third over the next five years.

Now, a partner at global consultancy McKinsey believes hedge funds and technology firms will call an end to business trips altogether.

“We think there are some themes on the different types of customers that will come back,” said Vik Krishnan during a webinar this week. “There’s the ‘never returning’ segment. These are digital adopters and cost-focused firms who are able to maintain high levels of effectiveness while working remotely. These are technology firms and hedge funds, for example.”

San Francisco Bay Area-based Krishnan, who advises companies in the aviation, travel and aerospace sectors on operational-performance improvement and digital transformation, also outlined another group: the “wait and see customers.” They won’t be in a competitive industry, where travel is not mission critical, such as governmental organizations.

However, he said the “fear of missing out” kind of businesses, where in-person visits can be critical, would lead the recovery, with smaller firms increasing corporate travel at a faster rate. This segment includes banking, professional services and pharmaceutical companies, and before the pandemic represented 60 percent of corporate travel spend in the U.S.

“Technology companies have the culture and infrastructure to embrace virtual collaboration and may have a higher percentage of ‘never return,’” said Mark O’Brien, managing partner of Avenue 5 Consulting.

“We see industry verticals such as professional services, finance and banking, and insurance companies taking a more cautious return. A major travel industry dynamic is driven by the technology and online retailers, where 50 percent of the top 10 corporate travel and meetings global spend resides.”

Speaking at an online even this week, “Returning to corporate travel: How do we get it right?,” fellow partner Jillian Tellez added that sales meetings were now among the first types of trips to recover.

Her comments echo what’s happening on the ground at the UK’s London City Airport.  “If your trip brings value, which is usually the case because it’s the first wave of travelers, sales development, they can go,” said head of aviation Anne Doyere, discussing the current state of travel policies.

The webinar was held in part to offer advice on the skills all travel stakeholders need to master to adapt to a dynamic future, while the consultancy has also identified how they can emerge stronger through a renewed focus on customer experience, with the findings published in a new Skift Research-McKinsey joint report.

Top of that list for the stakeholders was using new types of data, and Krishnan urged corporate travel planners to use real-time data, including local vaccination rates. Suppliers also needed a “war-room type mindset to having meetings to act on real-time data,” he added, which could help them gain back share earlier than their competitors. “A delay of even a few hours could make a difference to you winning the recovery, or your competitor,” he said.

McKinsey has committed to net zero climate impact by 2030, and will reduce its scope 3 greenhouse gas emissions from business travel by 30 percent per employee.

ENTERPRISE JOURNEY ADVISORY AVENUE5 CONSULTING LAUNCHES

Former industry executive Mark O’Brien has created a new consulting firm dedicated to business travel, meetings, payments and expenses. Avenue5 Consulting will offer its clients strategic and tactical consulting, category consulting and management services to solve complex and challenging problems.

O’Brien went to LinkedIn to celebrate the news, noting, “Starting a business in a pandemic is difficult, but we’ve done it and we’ve already signed contracts with several clients and financial institutions who need a trusted advisor who helps them solve complex problems and challenging topics. We are very excited about the future and look forward to getting in touch with old and new business colleagues again. “

The coronavirus pandemic has rapidly changed the world of business travel and as companies try to adapt to the new environment, many are looking for advisors to help. In this context, Avenue5 Consulting aims to help its clients gain insights to get better results in terms of business travel.

The company has created three different businesses to provide in-depth information on pre-Covid activity versus post-Covid recovery. The Category Management business unit focuses on the sustainable total true cost of travel (TTCT) and offers a wide range of services ranging from end-to-end framework integration, strategic assessment and procurement to risk management and wellbeing Travelers are enough. The management department offers a range of services including organizational evaluation and design, outsourced management, support for SMB corporate travel agencies, and training and development for the next generation of travel professionals.

A new survey by global strategy consultancy Oliver Wyman found that a third of global consumers are feeling well again as the Covid-19 pandemic appears to be receding. In China, the US and Australia, business travel is now above pre-pandemic levels.

In the UK, however, many companies are still unclear which strategy to pursue. As a result, business travel in the UK remains at lower levels than before the pandemic.

Business travel advisory Avenue5 Consulting launches

Former industry executive Mark O’Brien has launched a new consultancy, dedicated to the corporate travel, meetings, payment, and expense industry. Avenue5 Consulting will offer strategic and tactical, advisory, category consulting and management services for its clients to solve complex, and challenging issues.

Taking to LinkedIn to celebrate the news, O’Brien noted, “Launching a company in a pandemic is tough but we got there, and we have already contracted with several customers and financial institutions who require a trusted advisor to help them solve complex, and challenging issues. We are super excited for the future and look forward to re-connecting with business colleagues old and new.”

The coronavirus pandemic rapidly transformed the business travel world, and as businesses look to adapt to the new environment, many are looking to consultants for support. In this context, Avenue5 Consulting hopes to help clients gain insights to drive better outcomes in terms of business travel.

The company has launched three distinct lines of business to provide informed intelligence on pre-covid activity versus post-covid recovery. Its category management division is focused on the sustainable true total cost of travel (TTCT) and offers a wide suite of services ranging from end-to-end framework integration, strategic assessment, and sourcing, to risk management, and traveller well-being. Its management division provides a range of services including organizational assessment and design, outsourced management, SME business travel agency support, and learning and development for the next generation of travel professionals.

A new survey conducted by global strategy consulting firm Oliver Wyman has found that a third of global consumers feel comfortable to travel again, as the Covid-19 pandemic seems to be receding. Business travel is now exceeding pre-pandemic levels in China, the US and Australia to that end.

In the UK, however, many businesses are still unclear of what strategy to take moving forward. As a result, business travel in Britain remains at a lower level than before the pandemic.