Business Travel: Drivers And Speadbreakers

With India scoring 10th place in the business travel market over the last few years, there is a lot going on for this niche in the travel sector.

Increasing growth
India scored 24th rank in terms of size of the business travel market. In 2012 and 2013, it stood as the tenth largest business travel market in the world at travel spends of $22.1 billion and $24.4 billion, respectively. And as predicted by the Global Business Travel Association (GBTA) outlook report, the business travel market of the country is expected to zoom to $28.8 billion by 2015.

However, if we compare it to the usual suspects, China and US, we are just minnows. US heads the list with $275 billion in total business travel spend in 2013 and China comes next as it has leapfrogged and is now breathing down Uncle Sam’s neck at $225 billion. But there’s bright light at the end of the tunnel.

Increasing business centres
One of the biggest growth drivers of business travel is the increase in the number of business centres throughout India, which is driven by the expansion of the middle class. This increase in new business centres in the country has pushed the domestic business travel spending and no wonder that the domestic segment dominates the business travel niche in India with about 90% spending.

Young executive push
India has the largest percentage of young population in the world. China, on the other hand due to its one-child policy, is slowly moving towards the advanced age bracket. In India, the age group of 25-35 finds the maximum number of business travellers and will continue to do so for around the next three decades. More than 50% of corporate travellers in hotels these days belong to this bracket which contributes to well over 80% of their revenues. And this is largely due to changing lifestyles.

As against older travellers, who prefer to stay in their rooms, young travellers often want to hit the gym or go for the business centres in hotels even during late hours. Their spending on foods and beverages is 20% more than that of the business travellers aged 40 years or older.

The number of business class air travellers has increased with the advent of a rising private sector airline industry. Similarly, a new phenomenon is emerging in India - chartered air travel.

Challenges ahead
However, it’s not that all is hunky dory for India’s business travel industry. The travel directly depends on the amount of money or investment that both the government and the private sector are putting in new commercial, trade and business deals. And since in India, unlike Europe and US, most business spending is still indirectly dependent on government policy and government spending, the slow economic growth rate has stifled business travel growth in the last three years.

India’s business travel market grew just 5.8% and 10% in 2012 and 2013, respectively, and is expected to grow just 2.2% in 2014. China’s business travel market has grown more than 13% every year in the last 5 years.

Coming to demand supply dynamics of hotel rooms, there is a paradox here. Hotel developers invested heavily and signed deals throughout mid 2000s till early 2009 thinking the period of high economic growth for Indian economy which had been going on since 2003 will continue. But, this expansion was restricted to the 7-8 major economic centres of India. And, just then, in the winter of 2008-09, the global economic recession hit. So, by the time the hotels expanded and new rooms were added till the financial year 2012-13, the demand had slumped due to lower economic growth in the last 5 years.

Now, a fast pace of economic growth is expected in next 5 years with a stable and strong majority government in the centre. But this next phase of growth will equally come from cities like Jaipur, Nagpur, Mangalore, Bhopal, Lucknow etc. Thus, hoteliers will have to quickly create and expand capacity in these tier one and tier two cities, which lag far behind in terms of three-star and above classified hotel rooms.

Technology: the game changer
And then there is the underlying element of technology. An overwhelming majority, over 80 percent of the business travellers get their travel itineraries planned and bookings done through their laptops and mobiles with the latter growing fast in the last two years with mobile payment and banking becoming reliable and safe in India. And this is where Indian travel management companies (TMCs) need to invest heavily in integrated business travel solutions.

Such solutions will present options like air charter, business class special offers, group as well as individual hotel bookings listing facilities like high quality business centres and conference rooms along with fitness centres and restaurants/bars that the hotels provide for the young travellers. Thus there will be a one stop shop which will cater especially to the business traveler separate from general travel and tourism.
Also, the interface of such IT solutions will be directly linked to the corporate clients, the hotels and the banks which will facilitate the payments. This will help both hotels and clients to maintain a database of business travellers in terms of numbers, costs, per room rates and expenses thereby estimating and managing future demand in a much better way.

Hence, there’s no doubt, that a healthy dosage of sound business and economic policies on the first place, rapid infrastructure development in all major cities and an aggressive adoption of technology are the key to India becoming one of the top five business travel markets in the world by the end of this decade.