The hotel sector could be set for a boost as corporate travel budgets are predicted to increase by 8-9 per cent in the second half of 2023 and into 2024, according to a recent report by Morgan Stanley.
The investment bank and financial services company surveyed 92 corporate travel who collectively control a travel spend of around $5 billion and found that companies expect their travel budgets to rise by 10.9 per cent year-on-year in the first half of 2023, 9.4 per cent in the second half, and 8.4 per cent in 2024.
However, the Morgan Stanley’s report also indicates a growing trend among companies to trade down on accommodation, with 37 per cent of respondents — up from 27 per cent in October 2022 and 15 per cent in October 2021 — planning to reduce costs by booking lower-tier hotels due to macroeconomic uncertainty and high room rates.
While this trend may be negative for US-listed premium hotel chains like Hyatt, Marriott, and Hilton, it could benefit European chains like InterContinental Hotels Group (IHG) and Whitbread, which operate in the mid-scale and economy sectors.
The company also found that while the increased use of virtual meetings since the start of the pandemic is expected to continue, the loss to physical meetings is projected to decline slightly from 18 per cent in 2023 to 14-15 per cent in 2024/25, implying a decrease in virtual meetings and potentially a further boost to corporate travel spending. However, it notes that virtual meetings could quickly become popular again in an economic downturn if corporates seek to further cut costs.
Why it matters
At one point it looked like there would be no way back for business travel in the wake of changes to working patterns brought about by the pandemic but it does seem that some of that pessimism was misplaced. As corporate demand continues to recover, the hotel industry seems poised to benefit, albeit with the potential for a shift in customer preferences towards more economical options. However, Morgan Stanley’s research suggests that despite the positive outlook, the sector should still brace for a potential downturn if economic conditions worsen.