wttc business travel 2011

1Business Travel: A Catalyst for Economic Performance

2CHAIRMAN:

Geoffrey J W Kent Founder & Executive Chairman Abercrombie & Kent

VICE CHAIRMEN:

Jean-Claude Baumgarten Vice Chairman World Travel & Tourism Council

Edouard Ettedgui Group Chief Executive Mandarin Oriental Hotel Group

Michael Frenzel Chairman of the Executive Board TUI AG

Mark Harms Chairman & CEO Global Leisure Partners

Stephen P Holmes Chairman & CEO Wyndham Worldwide

Manfredi Lefebvre DOvidio Chairman Silversea Cruises

Brett Tollman President & Chief Executive The Travel Corporation

EXECUTIVE COMMITTEE:

Marilyn Carlson Nelson Chairman Carlson

Gary Chapman President, Group Services & Dnata Emirates Group

Jeff Clarke President & CEO Travelport

Andrew Cosslett CEO InterContinental Hotels Group PLC

Qiang Duan Chairman Beijing Tourism Group

Sebastin Escarrer Vice Chairman Sol Meli

Manuel Fernando Esprito Santo Chairman Rioforte Investments SA

Denis Hennequin Chairman & CEO Accor

Pansy Ho Managing Director Shun Tak Holdings Limited

James Hogan CEO Etihad Airways

Hubert Joly President, CEO & Director Carlson

Richard R Kelley Chairman Outrigger Enterprises Group

Tom Klein President Sabre Holdings

Gerald Lawless Executive Chairman Jumeirah Group

Jabu Mabuza CEO Tsogo Sun Group

J W Marriott, Jr Chairman & CEO Marriott International, Inc

Christopher J Nassetta President & CEO Hilton Worldwide

Charles Petruccelli President Global Travel Services American Express Company

Christopher Rodrigues CBE Chairman VisitBritain

Jeffrey C Rutledge Chairman & CEO Travel Guard Worldwide, Inc

Arne M Sorenson President & COO Marriott International, Inc

Jyotsna Suri Chairperson & Managing Director Bharat Hotels Ltd

GLOBAL MEMBERS:

Talal Al Bahar Chairman & Managing Director IFA Hotels & Resorts

Mohammed Al Habbai CEO Dubailand

Ted J Balestreri Chairman & CEO Cannery Row Company

Simn P Barcel CEO Barcel Corporatin Empresarial

Raymond Bickson Managing Director & CEO Taj Hotels, Resorts and Palaces

Giorgio Boscolo CEO Boscolo Group

Rattawadee Bualert President lebua Hotels & Resorts Co, Ltd

Mariano Prez Claver Chairman NH Hoteles

Chris J Cahill COO Fairmont Raffles Hotels International

Alexandre Chemla President Altour

Chen Feng Chairman of the Board HNA Group

Chen Rong CEO China International Travel Service, Limited Head Office (CITS )

Jim Compton Executive Vice President & Chief Revenue Officer United Airlines

Dong Zhiyi Chairman Beijing Capital International Airport Co, Ltd

Pier Luigi Foschi Chairman & CEO Costa Cruises

Arthur de Haast Global Chief Executive Officer Jones Lang LaSalle Hotels

Andy Harrison Chief Executive Whitbread Plc

Raimund Hosch President & CEO Messe Berlin GmbH

Stephen P Joyce President & CEO Choice Hotels International

Miltos Kambourides Managing Partner Dolphin Capital Investors

Dara Khosrowshahi President & CEO Expedia Inc

Sir Nigel Knowles Co-CEO DLA Piper

RK Krishna Kumar Vice Chairman Taj Hotels, Resorts & Palaces

Hans Lerch Vice Chairman & CEO Hotelplan Group

Liu Yi President Beijing Tourism Group

Luis Maroto President & CEO Amadeus IT Group SA

Richard Mortimore Managing Director Reed Travel Exhibitions

Jim Murren CEO MGM Resorts International

Jerry Noonan Co-leader, Global Hospitality & Leisure Practice Spencer Stuart

Deepak Ohri Chief Executive Officer lebua Hotels & Resorts Co, Ltd

Frits D van Paasschen President & CEO Starwood Hotels & Resorts Worldwide, Inc

Andy Payne CEO Wilderness Safaris

Jean Gabriel Prs President & CEO Mvenpick Hotels & Resorts

Fernando Pinto CEO TAP Portugal

Alexander Pleshakov CEO Transaero Airlines

David Radcliffe Chief Executive Hogg Robinson Group

Marty Salfen General Manager Global Travel & Transportation Industry IBM

Per Setterberg President & CEO Global Blue

Jasminder Singh Chairman & CEO Radisson Edwardian Hotels

Jeff Smisek President & CEO United Airlines

Khalid A bin Sulayem Director General Department of Tourism and Commerce Marketing

Hiromi Tagawa President & CEO JTB Corp

Yassin K Talhouni CEO Zara Investment Holding Co Ltd

Jaume Tpies President Relais & Chteaux

Robin Tauck President R Tauck & Partners

Jose Antonio Tazn Chairman of the Board Amadeus IT Group SA

Jonathan M Tisch Chairman & CEO Loews Hotels

Matthew D Upchurch CEO Virtuoso Ltd

Philip C Wolf President & CEO PhoCusWright, Inc

Xu Jiwei Chairman Huangshan Tourism Group

Vladimir Yakushev Managing Partner S-Group Capital Management

Tim Zagat Co-Founder, Co-Chair & CEO Zagat Survey LLC

Guanghui Zhang President & CEO Beijing Capital International Airport Co, Ltd

HONORARY MEMBERS:

Andr Jordan Chairman Andr Jordan Group

Jon Linen Adviser to the Chairman American Express Company

Lord Marshall of Knightsbridge Chairman Nomura International plc

Sir Frank Moore, AO Chairman FT Moore P/L

Frank Olson Retired Chairman of the Board The Hertz Corporation

Grard Plisson Co-President Founder Accor

Carl Ruderman Chairman Universal Media

Tommaso Zanzotto President Toscana Ville & Castelli Srl

CHAIRMAN EMERITUS:

James D Robinson III General Partner RRE Ventures WTTC Chairman (1990-1994)

MMEDIATE PAST CHAIRMAN:

Vincent A Wolfington Chairman Global Alliance Advisors LLC WTTC Chairman (2004-2007)

FORMER CHAIRMEN:

Sir Ian Prosser Retired Chairman InterContinental Hotels Group PLC WTTC Chairman (2001-2003)

Harvey Golub Retired Chairman & CEO American Express Company WTTC Chairman (1996-2001)

Robert H Burns Chairman The Robert Burns Hotel Group WTTC Chairman (1994-1996)

PRESIDENT & CEO:

David Scowsill

15 April 2011

Contents

Executive Summary................................................................................... 1

Detailed Findings ....................................................................................... 9

1 Global business travel trends ....................................................... 11

2 The ROI of Business Travel The Business Perspective.............................................................................. 16

2.1 Generating New sales ............................................................................ 17 2.2 Keeping Customers................................................................................ 18 2.3 Developing Partnerships ........................................................................ 19 2.4 Spurring Innovation ................................................................................ 20

3 The ROI of Business Travel Econometric Analysis ............................................................................. 21

3.1 World Trade Benefits.............................................................................. 21 3.2 Broader Productivity Effects ................................................................... 28 3.3 Scenario Analysis................................................................................... 31

Methodology............................................................................................. 33

Executive Summary

WTTC would like to thank the following sponsors:

1GLOBAL BUSINESS TRAVEL IS UNDER SCRUTINY. EVEN AS THE WORLD ECONOMY RECOVERS, COMPANIES REMAIN CAUTIOUS ABOUT RESTORING TRAVEL BUDGETS. MEANWHILE, VIRTUAL MEETING TECHNOLOGY OFFERS A READY ALTERNATIVE TO IN-PERSON MEETINGS. AND ENVIRONMENTAL CONCERNS HAVE BEGUN TO INFLUENCE BOTH CORPORATE AND GOVERNMENT POLICIES REGARDING TRAVEL.

These trends raise a fundamental question with significant implications: What role, if any, does business travel play in driving corporate performance and in the development of the global economy?

Published to coincide with the 11th Global Travel & Tourism Summit in Las Vegas, this study was commissioned by the World Travel & Tourism Council (WTTC) to seek answers to this question.

Two separate research channels were used to inform the study. The first was a survey of global business travellers and executives in the United States, United Kingdom, Germany, Brazil and China. The second channel was an econometric analysis covering 190 countries which tested for the existence of any causal relationships between business travel and national economic performance.

The results of these analyses are compelling, showing a clear relationship between business travel and corporate performance, as well as economic growth. Business travel not only helps the bottom line; it also grows economies, raises incomes, and creates jobs.

Business travel improves global corporate productivity, yielding a return on investment of 10:1. In other words, one unit of new business travel spending produces incremental industry sales of ten units.

Business travel is integral to international trade. Approximately one third of the growth in global trade over the past decade has been driven by international business travel.

Growth in business travel from 2000 to 2007 facilitated the creation of over 40 million jobs through related increases in trade and productivity. This represented almost 20% of the growth in global employment over the same period.

If business travel were cut by 25% over two consecutive years, global GDP would be 5% lower than would otherwise be the case after a five-year period. This would mean 30 million fewer jobs than forecast under baseline assumptions for the same period an average loss of 1% of global employment.

Global business travellers estimate that roughly 50% of their prospective customers are converted to new customers with an in-person meeting compared with 31% without such a meeting.

On average, business travellers believe that 38% of their customers

would switch to a competitor and their companies would lose 37% of annual sales without in-person meetings.

The majority of respondents attend trade shows in order to network with prospective (66%) and current (61%) customers. These trade shows are estimated to generate 15% of annual revenue.

A significant majority of international travellers feel it is very or extremely important to travel to international subsidiaries to expand business in international markets (70%) and to invest internationally (65%).

Four out of five global executives (nine out of ten in China) agree or strongly agree that face-to-face business meetings are essential to their organisations success and that business travel improves a firms chance of increasing sales.

On average, executives say that 29% of their companys new sales depend on business travel, with China and Brazil reporting above-average returns.

Three quarters of executives believe that business travel is extremely or very important in increasing profits (74%), increasing sales (75%), developing supplier partnerships (70%), and in spurring innovation (70%).

INTRODUCTION

KEY FINDINGS

B U S I N E S S T R A V E L A C A T A L Y S T F O R E C O N O M I C P E F R F O R M A N C E

2TO UNDERSTAND THE ROLE THAT BUSINESS TRAVEL PLAYS AT THE COMPANY LEVEL ITS RETURN ON INVESTMENT (ROI) 500 GLOBAL BUSINESS TRAVELLERS AND EXECUTIVES WERE SURVEYED IN THE USA, UK, GERMANY, BRAZIL AND CHINA (100 IN EACH COUNTRY). OUT OF THESE SURVEYS, FOUR AREAS OF SIGNIFICANT IMPACT EMERGED.

The ROI of Business TravelThe Business Perspective

B U S I N E S S T R A V E L

New salesTravel and sales are inextricably linked. On average, executives report that 29% of their companys new sales depend on business travel. And business travellers estimate that 50% of prospects become customers when an in-person meeting takes place versus only 31% without one. The most significant benefit was noted by Chinese business travellers, who indicated a 24 percentage point jump in conversion with an in-person meeting.

Keeping customersCutting back on business travel poses significant business risks. Over one-third of respondents (36%) project that between 25% and 49% of their current customers would switch to a competitor without in-person meetings. And, on average, business travellers estimate that 38% of their customers would switch to a competitor without in-person meetings. These responses were remarkably stable across the different countries surveyed.

49%

% of prospects turning into sales WITH in-person meeting

% of prospects turning into sales WITHOUT in-person meeting

30%

57%

33%

50%

27%

Ave

rage

= 3

1%A

vera

ge =

50%

45%

30%

49%

32%

Sales conversion rates with and without an in-person meeting

36%Brazil

Brazil

Brazil

41%China

China

China

37%Germany

Germany

Germany

35%UK

UK

UK

39%USA

USA

USA

Average response by country

Share of customers that would switch to a competitor without an in-person meeting

3A C A T A L Y S T F O R E C O N O M I C P E F R F O R M A N C E

PartnershipsCo-operative relationships are integral to company performance. Global business travellers understand that travel is essential to building these relationships. For example, nearly three quarters (72%) of global business travellers find external conferences and conventions have a significant or high impact on developing

partnerships. And well over half of all respondents indicated that meeting with partners is very or extremely important to expanding into new markets, investing in new markets, and managing their companys supply chain.

Innovation and human capitalGlobal business travellers also affirmed a strong relationship between travel and innovation and productivity. Over two thirds of executive travellers (70%) believe that business travel is extremely or very important to innovation and to added productivity/efficiency.

The survey shows how travel influences corporate and economic performance on multiple fronts. Results from all five countries illustrate clear benefits in terms of new sales, customer retention, innovation, partnership opportunities and overall operating efficiencies.

4%

4%

10%

7%

10%

9%

16%

8%

20%

23%

31%

25%

39%

66%

59%

64%

43%

35%

28%

33%

27%

29%

15%

26%

Importance of meeting with suppliers and other partners

Expanding into new customer markets

Investing in new markets

Managing supply chain more efficiently

Employing additional staff

Slightly importantNot at all important Moderately important Very important Extremely important

74%

74%

70%

70%

70%

63%

61%

55%

47%

Increased profits

Investing in local markets

Increased sales

Increased international sales

Developing partnerships with suppliers

Investing in foreign markets

General innovation

Ability to hire additional employees

Added productivity / efficiency

Business travel is very important or extremely important to

4IN ORDER TO QUANTIFY ANY CAUSAL RELATIONSHIPS WHICH COULD EXIST BETWEEN BUSINESS TRAVEL AND TRADE, PRODUCTIVITY AND OVERALL ECONOMIC DEVELOPMENT, A PARALLEL ECONOMETRIC ANALYSIS WAS UNDERTAKEN.

The ROI of Business TravelThe Econometric Results

B U S I N E S S T R A V E L

Trade effectsThe trade effects of business travel identified by respondents to the survey are also borne out by the econometric analysis, which reveals a clear link between international business travel growth and growth in world trade. Countries with a larger outbound business travel market tend to enjoy higher exports, while faster growth in business travel is also linked to more rapid trade growth.

The modelling shows that higher business travel intensity (business travel spending relative to GDP) drives higher trade intensity (imports and exports relative to GDP). As well as identifying a clear correlation, the analysis shows that a causal relationship exists between a higher level of business travel intensity and higher trade intensity. By considering both travel and trade spending relative to GDP, it was possible to remove the impact of similar trend growth caused by broader economic trends and, by doing so, eliminate spurious relationships. The end result provides the percentage of trade growth which is attributable to business travel activity.

The econometric models suggest that business travel is responsible for about a third of the growth in world exports over the past decade. These benefits have been shared by both developed and developing economies. The implication, supported by the surveys, is that business travel is particularly integral to the relationships, investments, supply chains and logistics which are necessary for international trade to occur. For example, a significant majority of international travellers feel it is extremely important to travel to international subsidiaries to expand business in international markets (70%) and to invest internationally (65%).

30%

25%

20%

15%

Intensity is calculated as relative to GDP

Business travel intensity (lhs)Trade intensity (rhs)

Source: Oxford Economics

0.30%

0.25%

0.20%1995 1997 1999 2001 2003 2005 2007 2009

Business Travel and World Trade Intensity

4%

8%

5%

7%

10%

3%

19%

27%

28%

33%

66%

65%

55%

29%

35%

37%

26%

30%

Importance of Travel to International Subsidiaries

Slightly importantNot at all important Moderately important

Very important Extremely important

Business travel is responsible for about a third of the growth in world exports over the past decade.

5When comparing the level of trade with the level of business travel spending across countries, it becomes clear that outbound travel is most powerful in its effect on exports, while inbound travel primarily influences imports, as shown in the charts below.

This relationship is also apparent when considering the importance of business travel and trade relative to GDP. The econometric modelling identifies a strong relationship between business travel intensity (relative to GDP) and trade intensity over time. The charts below show that changes in outbound travel are drivers of exports in both the UK and Brazil with a high degree of confidence.

These relationships are not exclusively in one direction (trade also drives business travel) so the analysis is careful to identify and isolate the causal effect of business travel on trade.

A C A T A L Y S T F O R E C O N O M I C P E F R F O R M A N C E

The implications of these trade effects are significant. Trade not only generates income for companies, but also advances economic development by lowering prices, creating economies of scale, allowing countries to focus on areas of comparative advantage, spurring innovation and creating competition. Business travel, as a catalyst of global trade, plays a significant role in driving faster GDP growth, improving standards of living, and creating jobs.

Exports (US$bn)

France

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SingaporeOut

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)

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World Outbound Business Travel vs Exports

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World Inbound Business Travel vs Imports

Business Travel

Increased Trade

Lower prices

Economies of scale

Comparative advantage

Faster GDP Growth

Rising Incomes

Job Creation

Macro Stability

Tech transfer & innovation

Increased competition

0.00%

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16%

12%

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0%1995 1999 2003 2007

Brazil: Exports & Outbound Travel Intensity

0.04%

% GDP % GDP

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25%

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0%1995 1999 2003 2007

UK: Exports & Outbound Travel Intensity% GDP % GDP

Exports relative to GDP (lhs)

Outbound business travel relative to GDP (rhs)

Exports relative to GDP (lhs)

Outbound business travel relative to GDP (rhs)

6B U S I N E S S T R A V E L

Broader productivity effectsThe effects of business travel on corporate and economic performance go beyond the facilitation of international trade. The survey results indicate that business travel also has an impact on overall productivity and, therefore, on business performance and profitability. And these impacts are evident with regards to both domestic company performance and international trade. Again, we find that causality runs in both directions: while business performance does influence travel budgets in the short term, there is a longer-term impact of business travel on overall business performance.

By running extensive causality tests and through the combination of time series and cross-sectional panel econometrics across more than 20 countries, it was possible to identify the specific effects of business travel on productivity1 and, by extension, on sales and profits. This approach ensures that both the direct and indirect benefits of business travel are captured on the basis of historical industry data. Through this analysis, the broader indirect benefits of higher sales conversions, human capital developments, and partnership benefits are quantifiable.

The modelling was then extended to cover each world region on a country-by-country basis by applying industry-specific results for representative countries to the broader region. The industry composition and the business travel intensity (domestic and international) for each country determine ROI estimates for this broader set. A range of values is estimated, as well as the average for each region according to volatility in cross-country calculation, also factoring in any country-specific uncertainty.

On a worldwide basis, the analysis shows that, on average, business travel yields a return on investment of 10:1 that is, one unit of incremental business travel spending produces incremental industry sales of ten units.

1 The measure used, Total Factor Productivity, accounts for the effects of technology and other capital and provides a purer benchmark of changes in industry-by-industry productivity over time.

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0Americas

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ROI of Business Travel Incremental sales per dollar invested

On average, business travel yields a return on investment of 10:1.

7A C A T A L Y S T F O R E C O N O M I C P E F R F O R M A N C E

Based on these results, a scenario was then run through the Oxford Economics macroeconomic model to see the effects on GDP and employment. The model assumes a consecutive two-year reduction in business travel spending of 25%, relative to current business travel activity not dissimilar to what many companies experienced during the recent global recession. The relationship between business travel and total factor productivity for each country was used as an input to the global macroeconomic model. The scenario includes the assumption that business travel activity falls by 25% in the first year and then remains at that lower level for a second year before returning to the baseline level of spending. However, it takes several years for the impacts to fully feed through into lower productivity and be felt in the wider economy.

For the world as a whole, if business travel were cut by 25% over two years, global GDP would be 5% lower than would otherwise be the case after a five year period. In addition, employment would be 1% lower in each year based on this scenario a loss of 30 million jobs relative to the baseline forecast.

Scenario Analysis: What happens if business travel is cut by 25% over two years?

Differences across regions are partly determined by the industry composition of countries within each region. Historic relationships between business travel and industry-by-industry productivity are also important, reflecting relative spending on business travel across countries, and underlying productivity changes over time. For example, a higher estimated ROI has been determined for the USA than for the EU, consistent with overall higher productivity response in the USA over the past 20 years but also reflective of different industry compositions.

Typically, one sees a stronger response to business travel in emerging markets that are receptive to growth in key productivity sectors. However, the Asia Pacific region as a whole has a relatively low estimated ROI. This is influenced by a low estimated ROI for Japan, which carries a large weight in the calculations as a key regional source market for business travel.

Business Travel Spend and ROI by Region

Total Business Business Travel International Average Range of

Travel Spending Intensity outbound share Estimated ROI possible ROI

(US$ bn) (% GDP) of travel spend * values

Americas 302 1.6% 10% 11.9 +/-4.1

North America 275 1.7% 8% 11.5 +/-4

Other America 27 0.9% 26% 13.3 +/-4.2

Europe 290 1.5% 31% 7.9 +/-3.6

EU 243 1.5% 31% 6.9 +/-3.3

Other Europe 47 1.4% 27% 12.8 +/-5.7

Asia Pacific 226 1.7% 17% 9.4 +/-2.9

Middle East 18 1.2% 58% 10.1 +/-3.7

Africa 21 1.5% 27% 9.7 +/-3.3

World 856 1.5% 20% 9.9 +/-3.6

* Return on investment to gross sales of additional spending in business travel

-6%

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Americas Europe Asia Pacific

Middle East

Africa World

GDP loss if 25% drop in Business Travel % difference from baseline

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Americas Europe Asia Pacific

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Jobs loss if 25% drop in Business Travel % difference from baseline

If business travel were cut by 25% over two years, global GDP would be 5% lower than would otherwise be the case after a five-year period. In addition, employment would be 1% lower in each year based on this scenario a loss of 30 million jobs relative to the baseline forecast.

8B U S I N E S S T R A V E L

Though not sufficient to tip the world back into a recession, the global economy would grow at a slower rate than if business travel continued at normal levels. After five years, growth would begin to return to the baseline growth pattern, but the level of GDP and employment would remain lower than under baseline assumptions.

ImplicationsThe results of this analysis have implications for both business leaders and policy-makers.

For business leaders, the evidence shows a strong connection between spending on business travel and corporate performance. Representative surveys across five diverse countries illustrate a consistent view that travel yields benefits in terms of sales, customer retention, partnerships, innovation and human capital. These perspectives are substantiated by statistical and econometric analyses which indicate an average business travel return on investment to sales of 10:1.

As with any cost, there are likely savings to be realised through more careful allocations of business travel. However, the evidence points to substantial risks associated with cutbacks in this particular area. And companies that continue to invest in travel seem to experience returns that more than warrant the investment.

Equally, the clear effects of business travel on overall economic performance should inform policy decisions related to corporate travel. Given the dividends of productivity, jobs, exports and taxes generated by business travel, policies should be designed to foster this catalyst of the global economy.

4.5%

3.5%

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2.0%

1.5%

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0.5%

2011 2012 2013 2014 2015

World GDP Growth % growth

Baseline1.8%

1.4%

1.6%

1.2%

1.0%

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0.4%

0.2%

0.0%2011 2012 2013 2014 2015

World Employment Growth % growth

Baseline

Alternative scenario: no business travel


Detailed Findings

9

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A CATALYST FOR ECONOMIC PERFORMANCE

11

1 Global Business Travel Trends

1.1 Business travel and the business cycle

Business travel is a substantial force in the global economy. World Travel & Tourism Council research conducted by Oxford Economics estimates business travel direct spending to have reached US$856 billion in 2010, comprising nearly a quarter of global Travel & Tourism demand.

Over the last 10 years, growth in worldwide business travel has been more subdued than growth in leisure travel. This is largely due to a significant fall in business travel during the recent global recession as companies sought cost-cutting measures. According to a February 2009 survey of 400 US corporate executives (source: U.S. Travel Association):

A 51% majority reported that their organization decreased the amount of business travel.

Those who have made cuts have reduced their budgets by an average 35%. And 34% slashed their budgets by more than half. This snapshot of US corporate behaviour is consistent with Oxford Economics tracking of global business travel, which fell by 15% over the course of 2008 and 2009, before rising again in 2010.

These trends are not in themselves surprising as businesses typically cut back on travel during a downturn in the same way as on capital investments. In both the 2001/2002 recession and the recession which began in 2008, business travel fell in tandem with corporate profits, following the same pattern as investment.

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2000 2002 2004 2006 2008 2010 2012

Global Travel Spending2000=100, inflation adjusted

Source : Oxford Economics

Leisure Travel

Business Travel

BUSINESS TRAVEL A CATALYST FOR ECONOMIC PERFORMANCE

BUSINESS TRAVEL

12

With the global economy now in recovery, business travel is growing again. However, to this point, business travel has not rebounded to the degree that might have been expected given the surge in company profits and robust investment growth. Travel budgets appear to be restrained, even in recovery, as improvements in communications technology offer an alternative to some travel and business confidence has yet to fully recover around the world.

A recent survey of global business air travellers (Ascend Corporate Travel Survey, 2011) shows that roughly half of respondents expect air travel budgets to rise over the course of the next year and that fewer companies are planning to cut back on business travel. This is a definite sign of economic recovery impacting on business travel, but the survey suggests a third of companies are still planning to reduce the number of staff travelling, including a reduction in travel to conferences and exhibitions.

Despite this apparent tension at this point in the business cycle, corporate executives around the world maintain that business travel plays an essential in business performance according to Oxford Economics survey undertaken for this report. Over half of executive travellers believe spending more on business travel would have a positive impact on both gross revenue and overall profitability. Only 10% expect an increase in travel budgets to negatively affect profitability.

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0%

5%

10%

15%

1996 1998 2000 2002 2004 2006 2008 2010

Business Travel, Investment & Profits% growth, real spending


Business Travel

Company Profits

Investment

Impact of an Increase in Business Travel

50%

10%

41%

55%

10%

34%

Positive

Negative

No impacteither way

Gross revenueOverall profitability


13

1.2 Business Travel by Region

The relative importance of business travel varies significantly across world regions. Unsurprisingly, the bulk of business travel demand is generated by the developed world. OECD countries are responsible for over 70% of all business travel spending including domestic and outbound travel.

There is clearly greater scope for growth in business travel in developing markets as part of economic development and catch-up with the developed world. It may well be the case that these emerging markets are able to accrue greater incremental benefits of business travel as part of this catch-up.

International outbound business travel spending represents only 20% of total corporate travel expenditures although our research indicates that international travel generates greater benefits than domestic travel. Given the cultural, language and time differences that can exist between countries it follows that face-to-face meetings are integral to developing international business. As this research will show ,international business travel is a key driver of world trade.

The ratio of domestic to international outbound business travel varies by country, partly related to size and the scope for long distance internal travel. For example, international outbound travel is less important for North America than the EU due to the presence of the large internal US market. In these cases, many of the identified returns to business travel will still be achieved but on a domestic basis.

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OutboundDomestic

Business Travel Spending by RegionUS$ bn


BUSINESS TRAVEL

14

In general, emerging markets generate less international business travel than they receive. In direct trade terms, this implies a trade surplus in the flow of business travel spending. The analysis undertaken as part of this research will identify a strong causal relationship between international business travel and world trade. Through the benefits of globalisation, business travel produces substantial gains for both emerging and developed economies.

1.3 Business Travel by Industry

Differences in the industrial make-up of an economy partly define cross-country differences in business travel spending. Using input-output (I-O) tables we identified business travel purchases by sector across OECD countries. Among the countries for which I-O tables are available, there is considerable agreement regarding the relative importance of business travel to different sectors. A large proportion of the difference in business travel spending across countries can be explained by the relative importance of different sectors.

The professional services and manufacturing sectors generate the largest volume of business travel spending for the countries analysed. However this is influenced by the large scale of these sectors. A better measure of the sectoral importance of business travel is to consider business travel spending relative to total revenue for each industry, which we call business travel intensity.

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OtherAmerica

EU OtherEurope

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S. Asia Oceania MiddleEast

Africa

InboundOutboundNet

International Business Travel SpendingUS$ bn



15

Manufacturing and professional services tend to have relatively high business travel intensity. Business travel relative to total revenue is greatest for the communications & information sector. The financial services sector is also important on this basis. An economy with a greater proportion of these industries tends to reflect higher overall business travel demand as well as the potential to receive greater economic benefits of business travel. More detailed analysis of manufacturing has identified that production of more advanced investment goods involves higher associated business travel.

Business travel encompasses a diverse set of activities. Based on our survey in five countries, nearly one-quarter of business travellers travel most frequently in order to work on-site at a customers location while 20% travel most often for internal meetings or training. Trade shows and conferences were noted as the most frequent type of trip for 24% of respondents.

Most Frequent Type of Trip Taken, Share of Respondents

0.0% 0.5% 1.0% 1.5% 2.0%

CommunicationsOther Services

ProfessionalFinance

RetailManufacturingTransportation

WholesaleUtilitiesHotels

Ed & HealthMining

ConstructionAgriculture

OECD: Business travel intensity


Business travel spending as a share of industry revenue

BUSINESS TRAVEL

16

11%

7%

15%

29%

10%

11%

4%

2%

2%

9%

Assistant

Analyst

Supervisor

Manager

Consultant

Director

Vice President

Senior VP

Executive VP

Chief Officer

2 The ROI of Business TravelThe Business Perspective

To understand the role that business travel plays at the company level its return on investment (ROI) 500 global business travellers and executives were surveyed in the USA, UK, Germany, Brazil and China (100 in each country).

Respondents needed to be employed and have travelled at least once in the past year for business. A quota of at least 25% of respondents was established for senior executives (Directors, Vice Presidents, and Chief Officers).

Respondents by Job Title

The respondents represented the full industry spectrum of the global economy with 16% in the manufacturing sector, 11% in Professional and Business Services, and 8% in both the Retail Trade and Information industries.

The survey was also representative of various company sizes with one-third of respondents from small companies (1-100 employees), 35% in medium-sized companies (101-1000 employees), and 32% in large companies (over 1000 employees).

The 15-minute survey was conducted online in the local language of each market.

Respondents by Industry


17

Out of these surveys, four categories of significant impact emerged: generating new sales, keeping customers, developing partnerships and spurring innovation.

At a summary level, executive respondents believe that business travel is extremely or very important to increasing profits (74%), increasing sales (75%), developing supplier partnerships (70%) and general innovation (70%).

Importance of Business Travel by Area of Benefit

2.1 Generating New Sales

Travel and sales are inextricably linked. Business travellers estimate that 50% of prospects become customers when an in-person meeting takes place versus only 31% without onea spread of 19 points. The most significant benefit was noted by Chinese business travellers, who indicated a 24 percentage point jump in conversion with an in-person meeting.

Sales Conversion Rates With and Without an In-Person Meeting

21%

22%

21%

21%

19%

24%

24%

25%

28%

31%

30%

35%

33%

36%

30%

28%

24%

26%

43%

40%

40%

37%

33%

33%

32%

31%

21%

Increased profits


Increased sales

General innovation






Not at all important Slightly important Moderately important Very important Extremely important

49%

30%

57%

33%

50%

27%

45%

30%

49%

32%

% of prospects turning intosales WITH in-person

meeting

% of prospects turning intosales WITHOUT in-person

meeting

Brazil China Germany UK USA

Average = 50%

Average = 31%

BUSINESS TRAVEL

18

On average, executives report that 29% of their companys new sales depend on business travel. Interestingly, the China and Brazil respondents report the largest proportion of sales which are dependent on business travel at 38% and 32%, respectively, supporting the view that benefits from business travel may be greater for emerging markets.

Trade shows and exhibitions represent an important source of sales for participating companies. Attendees estimate these events to generate an average of 15% of the companys annual revenue. Business travellers in the USA report the highest impact (20%) of trade shows on sales.

2.2 Keeping Customers

Business travel is integral to maintaining a loyal client base. When executives were asked about the impact of business travel on various areas of company performance, customer retention scored higher than any other area.

Share of Executives Stating Business Travel Has a High Impact On

Share of Sales Dependent on Business Travel

67%

66%

63%

60%

54%

49%

Customer retention

Conversion rate forprospective customers

Developing salesopportunities

Employee morale

Employee performance

Employee compensation

32%

38%

24%

28%

21%

Brazil

China

Germany

UK

USA

Share of Sales Dependent on Trade Shows

16%

16%

10%

15%

20%

Brazil

China

Germany

UK

USA


19

Furthermore, cutting back on business travel is seen to pose significant business risks. Over one third of respondents (36%) estimate that between 25% and 49% of their current customers would switch to a competitor without in-person meetings. And, on average, business travellers estimate that 38% of their customers would switch to a competitor without in-person meetings. These responses were remarkably stable across the different countries surveyed.

2.3 Developing Partnerships

Co-operative relationships are integral to company performance. Global business travellers understand that travel is essential to building these relationships. For example, nearly three quarters (72%) of global business travellers find external conferences and conventions have a significant or high impact on developing partnerships. And well over half of all respondents indicated that meeting with partners is very or extremely important to expanding into new markets, investing in new markets, and managing their companys supply chain.

Importance of meeting with suppliers and other partners

Share of Customers That Would Defect Without an In-Person Meeting

36%

41%

37%

35%

39%

Brazil

China

Germany

UK

USA

4%

7%

4%

10%

10%

8%

9%

16%

20%

25%

23%

31%

39%

33%

35%

28%

27%

26%

29%

15%

Expand into new customermarkets

Invest in new markets

Manage supply chain moreefficiently

Employ additional staff


66%

59%

64%

43%

BUSINESS TRAVEL

20

Among those business travellers participating in trade shows and exhibitions, 64% feel they have a significant or high impact on building partnerships, professional development, generating new insights, and career development.

2.4 Spurring Innovation

Global business travellers also affirmed a strong relationship between travel and innovation and productivity. Over two thirds of executive travellers (70%) believe that business travel is extremely or very important to innovation and to added productivity/efficiency.

Business Travel is very important or extremely important to

In addition 72% of participating respondents stated that conferences and conventions have a significant or high impact on generating new insights in my industry and 68% say the same regarding my professional development.

74%

70%

70%

70%

63%

61%

55%

47%

74%

Increased profits

Increased sales


General innovation






64%

63%

62%

56%

Building partnershipswithin my industry

My professionaldevelopment

Generating newindustry insights

My careerdevelopment

Trade Shows Have a High Impact On


21

3 The ROI of Business Travel Econometric Analysis

Surveys in all five countries illustrate benefits of business travel in terms of new sales, customer retention, innovation, partnership opportunities, and overall operating efficiencies. To confirm these findings and attempt to quantify them, Oxford Economics conducted a comprehensive set of econometric analysis to identify any causal relationships which exist between business travel and trade, productivity, and overall economic performance. First we look at the relationship between business travel and trade and then examine the overall impacts of business travel on corporate and economic performance.

3.1 World Trade Benefits

Key Results

Business travel is integral to international trade. Extensive econometric modelling indicates that approximately one third of the growth in international trade over the past decade can be attributed to business travel.

One additional dollar invested in international business travel would, on average, generate 17 dollars in trade.

A 10% increase in international business travel would increase world trade on average by 3%, which is consistent with the analysis of corporate return on investment presented later in this report.

Statistical analysis across 190 countries indicates both correlation and causation between business travel and international trade.

Countries with a larger outbound business travel market tend to enjoy higher exports, while faster growth in business travel is also linked to more rapid trade growth. And econometric modelling shows that higher business travel intensity (business travel spending relative to GDP) drives higher trade intensity (imports and exports relative to GDP).

BUSINESS TRAVEL

22

This correlation is made clear when the level of trade is compared to the level of business travel spending across countries; the largest exporters tend to be those with a high degree of outbound business travel while the level of imports and inbound business travel are also highly correlated.

While cross-country analysis of this sort demonstrates the clear correlation between the two indicators the causality cannot be determined. Time series analysis is required to determine causality.

Movements in business travel and world trade are also correlated over time. Importantly, they follow a similar cycle rather than just a common trend. The analysis compares business travel intensity (relative to GDP) and trade intensity over time, rather than actual travel/trade levels This allows easier comparison across different countries and also over time by removing broader economic trend factors. Specifically, econometric modelling identifies a clear relationship (correlation) between business travel intensity and trade intensity over time.

A strong correlation does not necessarily imply a true causal relationship and Granger causality tests have been run on a country-bycountry basis. Tests measure the extent to which lagged values of business travel influence the current value of trade and vice versa, by running a series of regressions involving different lag structures. Results suggest that relationships are not exclusively in one direction (trade also drives business travel) The statistical analysis must next identify and isolate the causal effect of business travel on trade.

R2 = 0.7595

0

2

4

6

8

10

12

14

0 200 400 600 800 1000Imports (US$ bn)

Inbo

und

Bus

ines

s Tr

avel

(US$

bn)

World imports vs inbound business travel Each data point represents a country

R2 = 0.6785

0

2

4

6

8

10

12

14

16

0 200 400 600 800 1000Exports (US$bn)

Out

boun

d B

usin

ess

Trav

el (U

S$bn

)

World exports vs outbound business travel Each data point represents a country

0.20%

0.25%

0.30%

1995 1997 1999 2001 2003 2005 2007 200915%

20%

25%

30%

Business travel intensity (lhs)Trade intensity (rhs)

Business Travel and World Trade Intensity

Intensity is calculated as relative to GDP


23

Examples of causality are shown here for UK and Brazil. Granger casuality tests identify that changes in UK outbound business travel are statistically proven to be a driver of UK exports (with a 95% confidence level). The same relationship exists for Brazil (with a 90% confidence level).

Correlations and causality were tested across a range of both developed and developing economies. Analysis at the country level better isolates specific relationships by removing any intra-regional double-counting. Business travel is a component of international trade in services so we focus on goods trade here to remove this direct link and focus on the causal relationship.

CorrelationTravel causes

TradeTrade causes

Travel CorrelationTravel causes

TradeTrade causes

TravelUS 0.87 95% 26% 0.65 82% 86%Canada 0.92 100% 99% 0.85 98% 87%UK 0.54 65% 85% 0.61 95% 80%France 0.49 57% 85% 0.63 61% 92%Germany 0.97 90% 81% 0.69 60% 98%Italy 0.52 99% 100% 0.17 58% 99%Spain 0.20 75% 99% 0.74 91% 80%Japan 0.91 97% 53% 0.40 74% 92%China 0.32 92% 95% 0.67 90% 99%Russia 0.83 50% 90% 0.52 100% 95%Brazil 0.57 100% 100% 0.98 88% 87%India 0.72 84% 66% 0.46 99% 58%UAE 0.42 83% 49% 0.82 95% 64%Singapore 0.70 96% 94% 0.74 83% 53%Hong Kong 0.67 95% 100% 0.43 86% 78%Note: causality is shown as the probability that the identif ied casual relationship is true

Trade & Business Travel by countryInbound business travel vs imports Outbound business travel vs exports

Causality (% confidence) Causality (% confidence)

0%

5%

10%

15%

20%

25%

1995 1999 2003 20070.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

Exports relative to GDP (LHS)

Outbound business travel relativeto GDP (RHS)

UK: Exports & Outbound Travel Intensity

We can reject the null hypothesis that travel does not cause trade at the 95% confidence level

% GDP % GDP

0%

2%

4%

6%

8%

10%

12%

14%

16%

1995 1999 2003 20070.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

0.04%

0.04%

Exports relative to GDP(LHS)

Outbound business travelrelative to GDP (RHS)

Brazil: Exports & Outbound Travel Intensity

We can reject the null hypothesis that travel does not cause trade at the 90% confidence level

% GDP % GDP

BUSINESS TRAVEL

24

As expected, the modeling proves that causality runs in both directions as trade has a more immediate influence on business travel activity. Further to this, the tests showed that there is a lag in the influence of business travel on trade and it takes approximately three years for full effects to be realised. By including more lagged terms in the Granger causality tests a higher probability was found that business travel causes trade. On average, the highest confidence was found by including 3 years of lagged variables. For the inverse relationship: a shorter lag time delivered greater confidence that trade causes business travel.

Following the above observed relationships, we then estimated specific equations for export intensity as a function of outbound travel intensity; import intensity as a function of inbound intensity; and finally for total trade intensity as a function of total international business travel intensity. All equations were estimated on a pooled basis across countries grouped by regions including country specific trend factors. Different lag lengths were also tested for business travel as the explanatory variable. We also included lagged values of trade intensity including different lag lengths to deliver equations that had the best possible fit while raising confidence that autocorrelation is not an issue. Equation R-squared statistics and Durban Watson statistics were improved by the presence of lagged dependent variable terms.

All above methodologies gave comparable results as well as robust test statistics to improve confidence that the derived relationships are valid.

Some further evidence exists at the country level for specific bilateral relationships. Reliable time series data for bilateral business travel are not available for many countries but data reported by the UK and US for business travel arrivals from key trading partners can be compared with bilateral trade flows. The charts below illustrate the relationship of travel and trade on a bi-lateral basis between the United Kingdom and the US and between the UK and France. Pooled modelling for the US and UK bilateral data provides comparable results to the total trade and business travel model.

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

0.06%

0.07%

0.08%

0.09%

0.10%

2003 2004 2005 2006 2007 2008 20090.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Business travel intensity: US travel to UKExport intensity: US exports to UK

UK - US bilateral travel & trade% UK GDP % UK GDP

0.00%

0.01%

0.01%

0.02%

0.02%

0.03%

0.03%

2003 2004 2005 2006 2007 2008 20090.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Business travel intensity: France travel to UKExport intensity: France exports to UK

UK - France bilateral travel & trade% UK GDP % UK GDP


25

This analysis yields the conclusion that business travel is integral to international trade. Estimated elasticities can be applied to historic data for business travel intensity to determine its impact on trade over the past decade. By comparing this to actual world trade developments we estimated that approximately one third of the growth in international trade over the past decade can be attributed to business travel, confirming that survey results that business travel is crucial for sales growth and customer retention.

The modelling indicates that a 10% increase in international business travel would increase world trade on average by 3%. This is consistent with productivity impact analysis described in the following section. Estimated equations have been used to determine the specific impact of a 10% increase in international business travel intensity on world trade intensity and by extension on world trade volumes. By comparing the associated dollar value of the increase in trade to the implied dollar value of travel spending return on investment can be estimated.

Calculated as a Return on Investment, this implies that one extra dollar invested in international business travel would on average generate 17 dollars in trade.

BUSINESS TRAVEL

26

0%1%2%3%4%5%6%7%8%9%

10%

3% 5% 7% 9% 11% 13% 15%Trade

Per C

apita

GD

P

Trade and Per Capita GDPCAGR 1980-2010


China

Singapore

Mex icoCanada

Chile

UK

KoreaTaiwan

India

Thailand

Why does this matter?

Quantifying the relationship between business travel and trade is a key part of identifying the overall economic benefit of business travel because the implications of these trade effects are significant. Trade not only generates income for companies, but also advances economic development by lowering prices, creating economies of scale, allowing countries to focus on areas of comparative advantage, spurring innovation and creating competition. The adjacent chart illustrates the strong historic relationship between growth in trade and growth in per capita GDP.

We can therefore say that business travel, as a catalyst of global trade, plays a significant role in driving faster GDP growth via productivity improvements, improving standards of living and creating jobs.

As business travel drives trade, it drives the development of the global economy.

Increased Trade

Lower Prices

Faster GDP GrowthRising Incomes

Job CreationMacro Stability

Tech transfer & innovation

Economies of Scale


Increased competition

Business Travel

Increased Trade

Lower PricesLower Prices

Faster GDP GrowthRising Incomes

Job CreationMacro Stability

Tech transfer & innovationTech transfer & innovation

Economies of Scale

Economies of Scale



Increased competitionIncreased

competition

Business Travel


27

These benefits have been shared by both developed and developing economies. The implication, supported by the surveys, is that business travel is particularly integral to the relationships, investments, supply chains, and logistics which are necessary for international trade to occur. For example, a significant majority of international travellers feel it is extremely important to travel to international subsidiaries to expand business in international markets (70%) and to invest internationally (65%).

Importance of Travel to International Subsidiaries

4%

8%

7%

10%

19%

28%

27%

33%

35%

29%

37%

30%

26%

5%3%

Expand business ininternational markets

Invest in internationalmarkets

Employ additionalstaff in international

markets


70%

65%

55%

BUSINESS TRAVEL

28

3.2 Broader Productivity Effects

Key Findings

Business travel improves global corporate productivity, yielding an overall return on investment of 10:1. In other words, one unit of new business travel spending produces incremental industry sales of ten units.

Growth in business travel from 2000 to 2007 facilitated the creation of over 40 million jobs through related increases in trade and productivity. This represented almost 20% of the growth in global employment over the same period.

The effects of business travel on corporate and economic performance go beyond the facilitation of international trade. Domestic business travel also generates a positive return. The survey results indicate that business travel has an impact on overall productivity and, therefore, on business performance and profitability. And these impacts are evident with regards to both domestic company performance and international trade. Again, we find that causality runs in both directions: while business performance does influence business travel mainly through budgets allocated to it - in the short term, there is a longer-term impact of business travel on overall business performance.

By running extensive causality tests and through the combination of time series and cross-sectional panel econometrics across more than 20 countries, it was possible to identify the specific effects of business travel on productivity1 and, by extension, on sales and profits. This approach ensures that it captures both the direct and indirect benefits of business travel and builds on historical industry data. Through this analysis, the indirect benefits of higher sales conversions, human capital developments, and partnership benefits are quantifiable.2

1 The measure used, Total Factor Productivity, accounts for the effects of technology and other capital and provides a purer benchmark of changes in industry-by-industry productivity over time.

2 This approach follows a proven methodology that has been used by Oxford Economics in previous analyses for European travel and in particular detail for business travel in the US and UK and has been documented in academic literature.


29

This analysis was then extended to cover each world region on a country-by-country basis by applying industry-specific results for representative countries to the broader region. The industry composition and the business travel intensity (domestic and international) for each country determine ROI estimates for this broader set. A range of values is estimated, as well as the average for each region according to volatility across countries as well as country-specific uncertainty.

On a worldwide basis, the analysis shows that, on average, business travel yields a return on investment of 10:1 that is, one unit of incremental business travel spending produces incremental industry sales of ten units.

Differences across regions are partly determined by the industry composition of countries within each region. Historic relationships between business travel and industry-by-industry productivity are also important reflecting structural factors and the type of business travel typically undertaken by each country. For example, a higher estimated ROI has been determined for the US than for the EU, consistent with previous Oxford Economics studies noted in section 4 and higher productivity growth in the US over the past twenty years.

Typically we observe a stronger response to business travel in emerging markets which are receptive to growth in key productivity sectors. However, the Asia-Pacific region as a whole has a relatively low estimated ROI. This is influenced by low estimated ROI for Japan which carries a large weight in calculation as a key regional source market for business travel.

0

2

4

6

8

10

12

14

16

18

Americas Europe AsiaPacific

MiddleEast

Africa World

Range Average

ROI of Business TravelIncremental sales per dollar invested

Business Travel Spending (US$

bn)

Business Travel Intensity (%

GDP)

International outbound share of travel spend

Average Estimated ROI

Range of possible ROI

valuesAmericas 302 1.6% 10% 11.9 +/-4.1

North America 275 1.7% 8% 11.5 +/-4Other America 27 0.9% 26% 13.3 +/-4.2

Europe 290 1.5% 31% 7.9 +/-3.6EU 243 1.5% 31% 6.9 +/-3.3Other Europe 47 1.4% 27% 12.8 +/-5.7

Asia Pacific 226 1.7% 17% 9.4 +/-2.9N.E. Asia 175 1.8% 14% 8.9 +/-2.8S.E. Asia 15 1.1% 75% 13.6 +/-4S. Asia 19 1.4% 6% 12.2 +/-3.6Oceania 18 1.6% 17% 7.8 +/-1.8

Middle East 18 1.2% 58% 10.1 +/-3.7Africa 21 1.5% 27% 9.7 +/-3.3

World 856 1.5% 20% 9.9 +/-3.6

ROI of Business Travel by RegionReturn on investment to business of additional spending in business travel

BUSINESS TRAVEL

30

Time series analysis shows that the effects of business travel on corporate performance tend to be realised in the medium term. The majority of the impact realized over approximately three years according to different lag structures tested in both regression analysis as well as Granger causality tests.

It is important to note that this model was also tested for causality in both directions. That is, the effects of business travel on corporate performance were isolated from the effects of corporate performance on business travel. It is also important to recognize that other factors contribute to multi-factor productivity in addition to travel. Although data are not available to isolate the effects of these other factors, the model clearly indicates a strong and positive correlation between business travel spend and a sectors changes in productivity over time.

Combined with the previously estimated return on international travel, this implies that domestic business travel alone has a return on investment of 8:1. Differences in the proportions of domestic and international business travel spending also help to explain the cross-country differences.

By applying these results to historic economic data we can see the degree to which business travel has driven overall economic performance. The impact of business travel on productivity has clearly been identified above and can be combined with historic business travel data to asses the relative impact on the wider economy over this period. The Oxford Economics global macroeconomic model was then used to consider a counterfactual scenario in which the productivity benefits of business travel were not realised. By placing productivity into this context we can determine the impact on trade, whole economy GDP and jobs.

Based on this Oxford Economics global macroeconomic model scenario, the growth in business travel in the years 2000 to 2007 drove the creation of over 40 million jobs through the related increases in trade and productivity. This is equivalent to almost 20% of the increase in global employment over the same period.

0

2

4

6

8

10

12

14

16

18

20

Total International Domestic

Return on Investment of Business Travel



31

3.3 Scenario Analysis: What would happen if business travel were cut by 25% over two years?

Key Findings

If business travel were cut by 25% for two consecutive years, global GDP would be 5% lower than would otherwise be the case after a five-year period.

This would mean 30 million fewer jobs than forecast under baseline assumptions for the same period an average loss of 1% of global employment.

The model can also be used to consider an alternative scenario in which business travel is cut by 25% for two consecutive years compared to the baseline projections of continued steady recovery. This assumes that business travel in 2011 is 25% lower than we would otherwise expect and remains at that level in 2012 before returning to normal patterns.

We can use the Oxford Economics macroeconomic forecasting model to determine the broader effects of this on GDP and employment.The relationship between business travel and total factor productivity for each country was used as an input to the global macroeconomic model. Under the above scenario, GDP would be 5% lower than would otherwise be the case after five years. In addition, employment would be 1% lower than under baseline asumptions in each year: 30 million fewer jobs than we would otherwise expect.

-6%

-5%

-4%

-3%

-2%

-1%

0%

Americas Europe AsiaPacific

MiddleEast

Africa World

GDP loss if 25%drop in business travel

Scenario of 25% drop in business travel spending for two years - average five-year impact

% difference from baseline

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

AmericasEurope AsiaPacific

MiddleEast

Africa World

Jobs loss if 25% drop in business travel % difference from baseline

Scenario of 25% drop in business travel spending for two years - average five-year impact

BUSINESS TRAVEL

32

Within the total GDP impact in the above scenario, world trade would be 5% lower than under baseline assumptions after just three years: a quicker response than observed for the GDP impact which is the same, but over five years . Roughly half of the total impact would be directly from a reduction in international business travel spending with the remainder due to slower world demand arising from domestic travel impacts. World trade impacts also help to explain some of the disparity across countries and regions.

Trade tends to recover more quickly than GDP, returning to baseline growth after four years and even exceeding it in the fifth year to close the gap between baseline assumptions and the alternative scenario. However after five years trade would still be 4% lower than under baseline assumptions.

This would not be sufficient to tip the world back into recession but the gobal economy would grow significantly slower than if business travel continued at the current expected rate. After five years, growth would begin to return to to the baseline growth patternalthough the level of GDP and employment would remain lower than under baseline assumptions.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2011 2012 2013 2014 2015

World GDP growth% growth

Baseline


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2011 2012 2013 2014 2015

World employment growth% growth

Baseline


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2011 2012 2013 2014 2015

World trade growth% growth

Baseline



33

Methodology


BUSINESS TRAVEL

34



35

4 Methodology This approach follows a proven methodology that has been successfully used by Oxford Economics in previous analyses for European travel and in particular detail for business travel in the UK, and has been documented in academic literature.

Analysis of existing literature suggests that a 10% increase in business travel raises productivity by between 0.5% and 4%. Previous Oxford Economics estimation has found results within the lower half of that range.

Methodology used for previous Oxford Economics studies

In previous Oxford Economics studies for the UK and the US, business travel spending was defined by sector to identify specific trends for each industry arising from different travel usage. This also substantially increased the number of observations in the estimation compared to estimation at the whole economy level and improved confidence that the estimated results are valid. The same methodology was applied to a broader set of countries for this study. However, due to issues of data availability this could not be applied to all countries of interest and previous results provided part of the input into the final sectoral intensity analysis.

Performance was measured in terms of multi-factor productivity: this is the most complete measure of productivity and is defined as output per combined units of labour and capital inputs. According to the U.S. Bureau of Labor Statistics, a change in multi-factor productivity reflects the change in output that cannot be accounted for by the change in combined inputs of labour and capital. By using this measure we were able to control for any increases in per-employee productivity arising from investment in new, more efficient technology. This measure also accounts for changes in the composition of the labour force, for example a shift towards fewer highly skilled (and highly compensated) workers rather than more low skilled workers.

In an initial review of the academic literature it was found that a 10% increase in transport services would raise productivity by between 0.5% - 4.0%. Oxford Economics results for Europe and the UK are towards the lower end of this range. Results for the U.S. are slightly higher than for Europe but are also within the lower half of that range.

A clear relationship was identified between business air usage and productivity for 24 EU countries over a 10 year period. Countries which spent most on travel as a share of GDP also experienced the highest productivity. Robust econometric techniques confirmed a long-run relationship between business air travel and productivity. A 10% increase in transport raises productivity by roughly 1%.

In more detailed analysis for the UK, a similar long-run relationship was found between business travel relative to economic activity and productivity taking sectoral differences into consideration. Pooled estimation was carried out across


BUSINESS TRAVEL

36

sectors covering the entire economy. This helped to account for different trends and travel intensity across sectors and added to confidence in results by relying on a richer sample of information than by just assessing trends at the whole economy level. This study also found that a 10% increase in business travel raises productivity by roughly 1% in the long-run.

Importantly, estimation results for the UK were able to find a relationship between the level of travel and the level of productivity rather than just growth rates. This raised confidence that the estimated long-run relationships are valid.

A similar approach was applied to U.S. in 2009 based on a pooled data estimation across 14 sectors and 13 years. The primary benefit of this approach is that a greater number of observations can be used to generate more robust estimates of common factors giving greater confidence in results. Changes in aggregate productivity arising from differences in sectoral composition are also controlled for while sector specific trends are also incorporated. Sectors are defined at the NAICS 2-digit level of aggregation covering all private sector business activities. A view of this analysis is shown on the adjacent chart, clearly illustrating the relationship between these controlled measures of productivity and business travel.

In estimating the impact of business travel, intensity (i.e. the proportion of expenses represented by travel) is more relevant than the level of business travel. Business travel spending has increased for all sectors over time, partly due to higher costs/prices but also as growth in real output generates greater demand for inputs. An increase in business travel spending proportional to an increase in staff numbers is unlikely to add to employee performance other than any scale effects. Improved performance is more likely to arise from an increase in travel relative to other measures of economic activity. Estimating productivity relative to business travel spending may also generate spurious results as productivity has also trended upwards over time.

To increase confidence that valid results were estimated two specific tests were run, which have also been replicated in this study for the US and other countries.

First unit root and co-integration tests are carried out to confirm that productivity and business travel follow a consistent linear trend. This is essential for valid relationships to be identified.

Causality has been tested to ensure that observed correlations are not spurious and that the assumed causal relationship does exist. We find that causality works both ways as expected. An improvement in economic performance can result in almost immediate increase in travel intensity

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

1995 1999 2003 200775

80

85

90

95

100

105

Business travel spend & MFP%

Source : U.S. Travel, BLS, Oxford Economics

Multi-Factor Productivity relative to trend

2000=100

Business travel relative to employment

Business travel relative to GDP


37

whilst in economic downturns we have observed some cuts in intensity. However, tests also indicate that there is a lagged response between travel and performance. An increase in travel intensity has performance benefits which are realized in the medium term, which we next quantify.

Unit root testing

Unit root tests suggest that travel intensity and productivity share the same order of integration. It is essential that this is the case for dependent and explanatory variables in order for estimation of levels to be valid and suggests that they are co-integrated. Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests show that for whole economy productivity and all four measures of intensity have a single unit root. On this basis all four measures of intensity are valid for estimation. This test also suggests that there is a unit root for business travel spending and is also valid for estimation.

Since estimation will rely on panel estimation techniques we have also tested the equivalent statistics in panel data across sectors. Panel tests on productivity and business intensity across sectors also suggest that all time series have a single unit root. Since panel tests are involve more observations this increases confidence in statistical properties.

Unit Root tests for business travel intensity Null Hypothesis: Unit root in intensity Level 1st Difference Obs

t-statistic P-value t-statistic P-value

Employment intensity

ADF -0.29 0.91 -3.34 0.03 13

PP -0.29 0.91 -3.34 0.03 13

Intermediate inputs intensity

ADF 0.83 0.99 -4.32 0.00 13

PP 1.04 0.99 -4.30 0.00 13

GDP intensity

ADF -0.45 0.88 -4.52 0.00 13

PP -0.45 0.88 -4.53 0.00 13

Gross output intensity

ADF 0.20 0.97 -4.50 0.00 13

PP 0.28 0.97 -4.50 0.00 13

BUSINESS TRAVEL

38

Further co-integration tests on the validity of the estimated relationships have been carried out for productivity and travel intensity by sector. These are an extension of unit root tests to jointly determine whether dependent and explanatory variables follow a consistent trend over time. Unit root tests have been performed on equation residuals and indicate they are stable over time. Formal co-integration tests also confirm that estimation is valid. Differences between trend growth rates in dependent and explanatory variables have remained constant.

Panel Unit Root tests for productivity by sector Null Hypothesis: Unit root in ln(MFPi) Level 1st Difference Obs


Null Hypothesis: Unit root (assumes common unit root process)

Levin, Lin & Chu t* 1.92 0.97 -7.86 0.00 267

Breitung t-stat 4.01 1.00 -7.12 0.00 253

Null Hypothesis: Unit root (assumes individual unit root process)

Im, Pesaran and Shin W-stat 1.45 0.93 -8.79 0.00 267

ADF Fisher Chi-square 22.62 0.75 115.35 0.00 267

PP Fisher Chi-square 19.48 0.88 150.75 0.00 280

Panel Unit Root tests for business travel intensity by sector Level 1st Difference Obs


Employment Intensity

Levin, Lin & Chu t* 2.00 0.98 -11.38 0.00 174




Intermediate inputs intensity

Levin, Lin & Chu t* 1.09 0.86 -10.37 0.00 174




GDP intensity

Levin, Lin & Chu t* -1.04 0.15 -12.32 0.00 174

Im, Pesaran and Shin W-stat -0.08 0.47 -8.55 0.00 174



Gross output intensity

Levin, Lin & Chu t* -0.73 0.23 -11.34 0.00 174





39

Causality testing

Having determined that identified time series are correlated and co-integrated the assumed causality must be tested. Even though time series properties imply that valid estimation is being carried out it does not necessarily follow that assumed causal relationships are true.

Granger causality tests are used to check the validity of the assumption that business travel intensity influences productivity at a sectoral level. The alternative is that correlation is coincident or both series being influenced by a common third factor. The Granger causality test compares the performance of indicators over time and establishes precedence. The extent to which past values of both the explanatory and dependent variable influence current values is assessed in a series of regressions involving different lag structures. If the inclusion of lagged values of business travel intensity makes a statistically significant contribution to predictions of productivity then business travel can be said to Granger cause productivity. Tests are run for the null hypothesis that there is no causal relationship between indicators and the regression F-statistic is used to reject or accept this.

The above table clearly indicates that we can reject the null hypothesis that business travel intensity does not granger cause productivity. This is evident for most measures at the 95% confidence level and for all measures at the 90% level. This is less certain at the sectoral level where data are more erratic, but the null hypothesis can be rejected for some key high intensity sectors, with a degree of agreement across intensity measures to increase confidence. It is

Granger causality tests Null Hypothesis: Business travel does not Granger cause Productivity

(maximum tested lag length: 4 years)

Intensity measure: Employment Intermediate inputs GDP Gross output

F-stat P-value F-stat P-value F-stat P-value F-stat P-value

Whole economy 3.8 0.06 5.2 0.03 4.1 0.05 4.5 0.04

By sector: Agriculture 5.1 0.20 0.6 0.57 3.2 0.39 1.0 0.62 Mining 554.1 0.01 16.2 0.00 86.4 0.01 322.2 0.00 Utilities 1.1 0.39 0.4 0.77 1.5 0.30 1.0 0.41 Construction 8.5 0.03 3.7 0.08 1.6 0.52 0.3 0.65 Manufacturing 4.5 0.18 0.8 0.56 8.1 0.16 1.5 0.35 Wholesale 5.7 0.08 17.6 0.09 5.5 0.04 6.2 0.05 Retail 0.8 0.51 1056.6 0.02 6.8 0.28 23.0 0.16 Transportation 1.4 0.37 2.3 0.17 2.5 0.15 2.3 0.17 Information 15.7 0.11 3.3 0.10 3.5 0.27 1.6 0.23 FIRE 52.7 0.07 8.5 0.03 3.8 0.13 4.0 0.12 Professional 0.1 0.88 0.5 0.63 1.2 0.30 1.0 0.34 Ed & Health 0.5 0.68 3.2 0.14 1.9 0.28 2.4 0.21 Leisure 27.3 0.14 1.2 0.47 4.6 0.34 3.0 0.41 Other Services 171.4 0.03 8.5 0.25 1418.3 0.02 132.6 0.07

BUSINESS TRAVEL

40

unlikely that a casual relationship exists for some sectors but not others and we do not exclude any sectors on the basis of this test. Results may also be skewed by some erratic data for sectors taking a high weight in calculation with relatively few time series observations. This highlights the benefit of using pooled estimation across sectors to increase the number of observations and confidence.

It is to be expected that causality runs both ways in the strong observed correlations between travel intensity and productivity. Higher productivity (and revenue and profit) may cause an immediate increase in travel and profits are often included as an explanatory variable in models of business travel. The impact of travel on performance is likely to occur with more of a lag with benefits being fully realized in the medium to long term.

The dual causality is indicated below as the null hypothesis that productivity does not cause travel can be rejected for most measures at the whole economy and sectoral level. Causality is evident for a shorter lag length as expected.

Interestingly, by using employment intensity productivity can be seen to be influenced by business travel as for other measures, but the inverse relationship is not clear. Employment intensity is the measure which we would expect to best fit theoretical relationships.

Granger causality tests Null Hypothesis: Productivity does not Granger cause Business Travel

(maximum tested lag length: 2 years)

Intensity measure: Employment Intermediate inputs GDP Gross output

F-stat P-value F-stat P-value F-stat P-value F-stat P-value

Whole economy 1.1 0.37 5.5 0.02 4.2 0.05 5.4 0.03

By sector: Agriculture 2.3 0.46 18.5 0.09 3.2 0.10 4.5 0.09 Mining 5.1 0.05 1.3 0.47 6.2 0.07 2.9 0.17 Utilities 2.1 0.18 7.0 0.02 2.9 0.12 4.0 0.07 Construction 1353.7 0.02 3.7 0.08 3.8 0.08 6.4 0.03 Manufacturing 4.5 0.06 13.0 0.00 6.3 0.03 12.2 0.01 Wholesale 1.6 0.23 53.3 0.01 1.1 0.32 3.3 0.10 Retail 7.0 0.02 26.9 0.02 9.3 0.18 2022802 0.00 Transportation 5.4 0.21 12.6 0.01 5.9 0.04 8.7 0.01 Information 28.0 0.00 24.8 0.00 23.7 0.00 28.6 0.00 FIRE 10.1 0.23 31.6 0.04 744.7 0.03 654.0 0.03 Professional 1.6 0.26 2155.8 0.02 3.4 0.09 8.4 0.03 Ed & Health 13.3 0.20 4.8 0.33 4.2 0.29 3.5 0.37 Leisure 30.7 0.13 7.2 0.27 243.5 0.05 33.1 0.13 Other Services 5.1 0.32 1.5 0.25 8.9 0.18 44.5 0.11


41

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Employment Inputs GDP Output

Business Travel ImpactGDP response to 10% increase in travel estimated according to 4 different measures of business travel int

wttc business travel 2011

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