As readers will know, we have been keeping a close eye on the impact of COVID-19 with regard to commercial payments. Ongoing government policy approaches have altered economic growth projections globally and devastated certain industry verticals, most directly travel and leisure.
There was no early effective data about the severity of the virus. If one looks back to March 2020 when the ex-Asia lockdowns started being implemented, few could have predicted that we would continue with similar policies lasting into 2021.
Although business travel had slowed somewhat in 2019 due to trade issues between major powers, leading many to conclude that a U.S. recession was coming in 2020, there was still $1.43 trillion in spend across the globe, according to the Global Business Travel Association (GBTA).
Then 2020 happened. The International Monetary Fund (IMF) projected that 2020 economic output declined by 3.5% globally, with advanced economies losing 4.9% versus 2019. The IMF also projects the level of economic output lost versus pre-pandemic growth expectations through 2022 will be substantial with wide variances by region (see graphic below).
The GBTA estimated that business travel spend declined by 52% YOY versus 2019, coming in at $693 billion. Since Q1 2020 travel was somewhat normal before lockdowns began in mid-March, this decline was mostly packed into the 2Q-4Q timeframe, meaning that the real decline was much greater than 52% if projected over four quarters. In fact, by August 2020 Mercator had projected overall U.S. mid-large market corporate card (T&E) spend to decline by 68% versus 2019, and would not reach 2019 spend levels until after 2024.
The GBTA recently conducted a webinar that summarized findings in an annual review of their Business Travel Index (BTI). During the webinar data was shared on a number of issues leading to projections for business travel spend through 2024. This is of course closely tied to the level of economic growth by region during 2021 and beyond. Some of the key variables reviewed for both short and longer term expectations include the following:
- Ongoing pandemic length
- Vaccine disruptions
- Trade tensions
- Rising interest rates
- Societal unrest and geopolitical tensions
The GBTA BTI is indexed to business travel over time with a base in 2005. As reported, business travel has a high correlation with revenue generation; in other words, sales-related activity will be a high priority as restrictions are eased. As the GBTA discussed during the webinar, they see five stages in business travel recovery as follows:
Stage 1 - Health & Crisis Prevention, Critical Project Travel & Support Trips
Stage 2 - Drive Transient Short-Haul Domestic Air
Stage 3 - Increased Domestic Air, Some Small Group Meetings
Stage 4 - Increase in International Air Travel Conferences/Conventions/Trade Shows
Stage 5 - A Return to (Next) Normal-All Systems Go
Although several months ago it appeared that Stage 3 would already be underway, the resurgence curbed such activity in western regions and this is where things are poised to change. The real key is Stage 4 since international travel generates more revenue for the industry, so it will be interesting to see if large gatherings return by Q3. A catalyst for this may be the Tokyo Olympics, set to begin July 23, 2021, depending upon whether or not any spectators will be in attendance. The GBTA is projecting business travel spend will return to 2019 levels in the year 2024, a five-year recovery process. China will recover the fastest, and therefore generate the highest post-pandemic business travel trend line.
Corporate Card Impact
When Mercator Advisory Group developed our commercial card forecast for international markets in June of 2020 and North America in August of 2020, we had a pessimistic view of business travel, which turned out to be generally on target. The tricky thing at that point (and remains so) was what assumptions to use into 2021 and beyond; the GBTA index provides a guidepost of sorts.
We expected that spend levels would return to pre-pandemic levels in 2024 for all regions except Asia Pacific (led by China), which would recover by 2022. These projections are pretty much in line with the GBTA BTI. As we review these forecasts again in several months, there should be a better sense of economic recovery and vaccine rollout effectiveness to allow for adjustments. We also projected P Cards and virtual card spend to decline at more moderate levels and regain momentum in 2021. Given the acceleration of electronic payment adoption in 2020, this also appears to have been on target.
Please feel free to reach out for additional discussion on these or other commercial payments topics.