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GBTA BTI™ Outlook – Western Europe: 2013 H2 (Select Pages)

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The Global Business Travel Association (GBTA), the voice of the global business travel industry, announces the results of its latest GBTA BTI™ Outlook - Western Europe report, a semi-annual analysis of the five most critical business travel markets in Europe: Germany, the UK, France, Italy and Spain. These five markets together form the lion's share of business travel in the region, nearly 70%, and act as a good barometer of the health of the entire European business travel market. The report, sponsored by Visa Inc., includes the GBTA BTI™, an index of business travel spending that distills market performance over a period of time.

The full report is available for purchase for non-members and at no cost for GBTA members. To learn more about the Global Business Travel Association please visit www.gbta.org.

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GBTA BTI™ Outlook – Western Europe: 2013 H2 (Select Pages)

  1. 1. GBTA BTI™ Outlook – Western Europe Prospects for Domestic & International Outbound Business Travel 2013-2014 2013H2 The European business travel market continues to contract under the weight of the troubled economies on the southern periphery and a weak global recovery. We appear to have reached an inflection point, however, and expect slight growth in business travel spending in the last quarter of 2013. We expect business travel spending among our five key markets to grow 3.4%, in aggregate, in 2014 – the largest annual growth in spending since the Great Recession.
  2. 2. GBTA BTI™ Outlook – Western Europe 2013H2 Page 5© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. EUROPEAN ECONOMIC PERFORMANCE Current Conditions After six consecutive quarters of decline, Europe may have finally turned the corner. Real GDP growth crossed into positive territory in 2013Q2, advancing at a 1.3% annualized rate. This is hopefully a beginning. Significant challenges remain, however, particularly in the peripheral countries. The recession experienced across the Eurozone was deeper than originally anticipated and has lasted longer than hoped. Depressed demand, weak credit markets, fragile bank balance sheets, a sluggish export environment, and flagging confidence combined to exacerbate the downturn that began in late 2011. European economic growth remains a two-speed story with the Northern “core” markets showing meager positive growth that has not yet been enough to compensate for the still-negative performance of the Southern tier. The graph at right illustrates this North-South divide showing France, Germany and the United Kingdom achieving positive GDP growth in 2013Q2 (Q1 as well for the UK) while Italy and Spain continued to post declines. It has been a bumpy ride for Europe over the past six quarters. The key question is whether this fledgling momentum can be maintained. Despite what appears to be a cyclical turn for the better, Europe’s long term challenges are far from solved. Bond rates in many peripheral countries are still above what is needed for sustainable debt progress, relative wages and productivity gains have not yet resulted in sufficient improvements in European competitiveness, credit markets are still stalled across the region, and debt-driven austerity measures have hindered economic growth. The vicious cycle of debt, banking stress, tight credit, rising unemployment, cautious consumers, and business uncertainty has yet to entirely brake. In the meantime, there are some encouraging signs emerging among Europe’s high frequency indicators, particularly in Northern tier countries. Consumer and business confidence is up, consumer spending has slowly gathered momentum in the first half of 2013, exports are improving, and some housing markets have begun to firm. The European Central Bank’s (ECB) moves to backstop the private banking system and maintain an aggressive monetary policy stance have bought valuable time for peripheral Europe to make progress on long-term debt and short-term fiscal imbalances. The rewards for that time may be beginning to appear in some of the high frequency indicators. For example, consumer and business sentiment is improving across the Eurozone. The following chart shows the Economic Sentiment Index (ESI) for our five key business travel markets. The ESI is a monthly composite index built from various consumer and business survey results. The index assesses general confidence in the economy, both at present and for the near-term future. It is centered on a long-term average value of 100. The good news is that all 5 countries are trending up. The not-so-good news is that only a handful of markets have reached the 100 level as of July 2013. Still, the direction and pace are promising. Moreover, the split between the performance of the Northern tier countries and the
  3. 3. GBTA BTI™ Outlook – Western Europe 2013H2 Page 12© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. EUROPEAN BUSINESS TRAVEL PERFORMANCE Overview The GBTA BTI™ Outlook – Western Europe includes an analysis of the five most critical business travel markets: Germany, the UK, France, Italy, and Spain. These five markets together form the lion’s share of business travel on the continent, nearly 70%, and act as a good barometer of the health of the entire European business travel market. Last year proved to be a challenging one for the Western European6 economy and for business travel. Fallout from the sovereign debt crisis weighed heavily on business spending, hiring, confidence, and borrowing. In this environment, business travel policies were tightened and budgets were reduced or frozen. Total travel spend across the 5 key markets combined to register a decline of 2.2% in 2012, to $177.4 billion USD (€138B). Germany remained the largest business travel market in Europe reaching $50.5 billion USD (€39,302) in 2012. Our 5 key markets now comprise over 68% of all Western European business travel spending, up by about 1% over 2011. While Germany and the UK eked out small positive growth rates for the year, negative performance in Italy, Spain, and France overwhelmed the slight growth in the North. . Unfortunately, the first half of 2013 brought deteriorating year-on-year performance for Italy, Spain, and (to a lesser extent) France, while Germany and the UK were gathering positive momentum. Analyzing the quarterly rates of change across all five markets and considering their interdependence, 2013Q3 feels like a bottom. The Southern peripheral countries are expected to continue to decline for the remainder of this year and into early 2014, but with Germany and the UK’s gathering momentum, the region will see a return to growth in 2014. The GBTA Foundation expects travel spending to be essentially flat in 2013 then rise by 3.4% the following year. In order to forecast individual domestic and IOB business travel spending, we look for the strongest and most reliable correlations with European economic and market indicators. The indicators are chosen based upon both statistical testing and economic fundamentals. For example, corporate profits and domestic business travel spending show a strong and consistent relationship over the course of the business cycle. The following chart illustrates this correlation by charting French corporate profits (nonfinancial operating surplus) and domestic business travel spending over the same time period. Converting each to a year-over-year percentage, the business cycle becomes very evident, as does the tight association between the two indicators. The GBTA Foundation has used statistical methods to determine just how strong this relationship is and then folds corporate profits into our econometric model of France 5 GBTA BTI™ Global Business Travel Report, July 2013 6 France, German, Italy, Spain, United Kingdom plus Austria, Belgium, Denmark, Finland, Greece, Ireland, Netherlands, Norway, Portugal, Sweden, Switzerland Total Business Travel Spend By Country (2012; MM $USD)5 Germany $50,517 (€39,302) United Kingdom $40,631 (£25,638) France $35,676 (€27,756) Italy $32,573 (€25,341) Spain $17,990 (€13,996) Other $82,709 (€64,348) Total Western Europe $260,095 (€202,354) (€197,936 million)
  4. 4. GBTA BTI™ Outlook – Western Europe 2013H2 Page 20© September 2013 GBTA and its affiliates. All rights reserved. Members may copy this publication in its entirety for internal company use. France French business travel spending totaled $8.68 billion USD in 2013 Q2 (€6.8 billion), on a seasonally adjusted basis. This represents a 2.6% annual decline in spend and coincides with a 0.5% growth in real GDP over that same period. This total is slightly worse than the $8.69 billion we projected for Q4 in our 2013H1 BTI™ Outlook. Our revised 2012 totals show that French business travel spending declined -2.3% for the year, ending at $35.7 billion USD. We expect that business travel in France will continue to slow over the third quarter before finally experiencing some quarterly growth at the end of the year. It appears that the business travel market in France is finally ready to regain a positive growth trajectory. The long-term challenges that this market faces, however, are much more significant – namely – whether or not France can compete in the global economy without significant reform in the areas of pensions, taxes and social benefits. If not addressed, the French business travel market runs the risk of rapidly loosing ground as one of the major markets for European and global business travel. We expect total business travel spending to fall by -2.3% in 2013 to $34.9 billion USD. Business travel spending will see small gains in 2014, expanding by 2.7% to $35.8 billion USD. Domestic business travel spending continues to stagnate in 2013 and we expect annual growth of 0.3%. We expect 2014 to be a much better year for domestic business travel in France when spending is projected to grow 4.6%. International outbound spending, however, will fare significantly worse. We expect a decline of -6.7% in French IOB spending in 2013, a result of continued weakness among France’s key trading partners. We expect the losses to slow in 2014 when total IOB spending will fall -0.9%.

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