MORGAN STANLEY: Global corporate travel should rebound in 2022, but not back to normal

Smaller enterprises appear to lead the travel recovery with 29 percent of companies with revenues under US$1 billion reporting budgets to increase or stay the same


Investment bank Morgan Stanley said the year 2022 should herald the acceleration of corporate travel but budget expectations appear to be falling. In a recent study, the bank said passenger expectations are up and prices appear sticky, providing some support to airlines. The longer-term threat of virtual meetings remains a concern.

Airlines like Singapore Air have had to ground thousands of planes due to the COVID-19 pandemic and near shutdown of international aviation. (PHOTO: Steve Strike/Outback Photographics)

Travel budgets are expected to be down at 50 percent of 2019 levels in 2021, rising to 78 percent in 2022, the banks said. “Despite this material increase, when comparing our latest survey responses to those from prior surveys, we can conclude that 2022 budget expectations have been trending downwards. The average fall in budgets expected vs 2019 has increased incrementally from -15.5 percent in March, to -17.5 percent in July and finally the latest value of -22.0 percent,” the bank said.

Download the Morgan Stanley report here.

Passenger numbers and fare expectations are more supportive, likely pointing to stronger recovery in domestic and short-haul trips. Despite the bearish outlook on budgets, it appears that passenger number expectations rose. In the latest survey, 27 percent of respondents expected airline bookings to increase vs 2019, compared to just 14 percent in July and 16 percent in March. On average bookings are expected to be down 5.2 percent vs pre-COVID in the bank’s latest survey, a material improvement from -18.4 percent in March.

Similarly, airfares are increasingly expected to be in line with 2019 with 43 percent expecting no change from 2019. At the averages, a small increase of 1.9 percent is expected, less than the 2.8 percent expected in July. “We think this disconnect between travel budgets and passenger figures can be explained by the slower recovery in long-haul travel (higher cost per passenger). We note that 43 percent of respondents expected a full recovery by end of 2022, well before most airline expectations, while 27 percent do not expect travel to ever go back to the pre-COVID level,” the bank said.

Smaller enterprises appear to lead the travel recovery with 29 percent of companies with revenues under US$1 billion reported that they expected budgets to either increase or the stay the same. This compared favourably with +$16 billion revenue companies (27 percent), and even more favourably with the $1 billion-$16 billion revenue companies (16 percent).

Virtual meetings still expected to impact corporate travel, the bank reported. The expectation is for an average 29 percent shift of 2022 travel volumes to virtual, up slightly from July estimates. Despite a further decline to 19 percent in 2023, this remains a very material proportion. Virus concerns were the primary reason cited for using virtual meeting but that will likely fade with time. However, cost reduction, use of employee time and environmental concerns may continue to keep virtual meetings competitive.

(PHOTO: Wizz Air)

Conclusions for European Airlines: “We think business travel in Europe will now begin to pick up as the US has re-opened to the continent and as high vaccination rates lead to more seamless travel intra Europe. Nevertheless, we still expect progress to be gradual, and likely to lag the US on greater environmental concerns among European corporates. We do not see expect a full recovery before 2023/24 for Europe, in line with most of those surveyed. Longer term, we see the shift to virtual meetings as a sticky headwind that will negatively affect legacy carriers in particular. We continue to prefer the more leisure-exposed Ryanair and easyJet (Overweight), over corporate-exposed Lufthansa and AF-KLM,” the bank said.

(PHOTO: United)

Conclusions for US Airlines: “Despite the let-down that came when the Delta-variant pushed out the expected post-Labour-Day reopening, US airlines continue to remain very optimistic/bullish on a corporate travel rebound – and we agree,” the bank said. “While the real ramp should come in Jan 2022 – as it represents a new year and most companies have formal return-to-work dates in early 2022 – airlines are already seeing a pick-up in corporate travel (many airlines noted that corporate traffic has been the highest since the pandemic in recent weeks on 3Q earnings calls). We acknowledge that the situation remains fluid and opaque – but that applies on both sides and we believe it is possible that corporate travel managers who currently have bearish views on the rebound of corporate travel in 2022/23 are likely to change their minds if the economy remains strong and their competitors return to the air. We expect significant pent-up demand in corporate (esp. in international corporate) in 2022. This will be particularly strong for the Legacy carriers (DAL. UAL, AAL) who benefit from corporate and international the most, as well as LCC names like LUV (given their recent GDS integration) and ALK/JBLU (given their new AAL alliance and JBLU’s new London service).”

Private jet use momentum to continue in 2022 vs 2021: “It has been well reported that private jet use has increased during the pandemic and our survey suggests this is likely to continue. 11 percent of respondents stated their companies were becoming more liberal with private aircraft use in 2022 vs 2021 compared with 6 percent expecting more stringency. This suggests that at the margin, there is an expected increase of private jet use next year among our respondents,” the bank said. “This trend is positive for bizjet manufacturers, Overweight-rated Textron (TXT) and Underweight-rated General Dynamics (GD). We see more upside to earnings for TXT due to its exposure to light- and medium-sized business jets and its positive correlation to US capex spending, while GD’s current development cycle for new planes limits margin expansion in the near-term.

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