US business travel could suffer from European debt crisis

The business travel industry, which was forecast to grow during the next two years, is increasingly threatened by the European debt crisis.

The Global Business Travel Association (GBTA) last month projected that outbound international business travel from the US would grow by 4.6% in 2012. But last week, the GBTA issued “U.S. Business Travel Outlook: European Debt Crisis Scenario,” which said a severe crisis could result in a 16% drop – about $88 billion – in US business travel spending.  

“Given the critical role of business travel in facilitating economic growth, the current slow US recovery could be severely hampered if the European debt crisis is not resolved,” the GBTA, a trade group based near Washington, DC, said in a news release. “International outbound travel, which has played an outsized part in the revival of business travel since the [US] recession, would be crushed by further deterioration in the euro zone.”

The report outlined three scenarios:

• Current scenario: An expected mini recession in Europe would be short-lived and would result in continued growth in US business travel spending at $263.5 billion and $277.3 billion in 2012 and 2013, respectively. The GBTA thinks this is the most likely scenario.

• Moderate scenario: A prolonged European recession would result in a reduction of almost $40 billion (‒7%) in business travel spending between 2012 and 2013. There’s a 25% chance of this scenario, the GBTA says.

• Severe scenario: Widespread debt and banking failures across Europe and possible dissolution of the EU would reduce international business travel spending by 16%, or about $88 billion. The GBTA says there’s a 10% chance this would happen.

International outbound flights originating in the US would likely see the most immediate decline if the debt crisis worsens, the report said. But domestic flights, which make up the majority of the US business travel market, could also take a hit.

Export losses would directly hurt US manufacturers and, in turn, the supply chains, the report says. The loss of sales and profits could diminish business confidence, potentially killing plans for non-essential spending – including business travel.

“While these problems are happening abroad, they most certainly can have an effect at home,” Michael W. McCormick, executive director and COO of the GBTA, said in a statement. “We’ve seen a resurgence in business travel investment, meaning slow but strong economic recovery for the US. However, in a severe situation where the euro zone may even break apart, business travel would drop dramatically, severely impeding economic growth overall.”

—Jack Hagel (jhagel@aicpa.org) is the editorial director of CGMA Magazine.