Global economy and the business travel sector

Transcription

1 Global economy and the business travel sector Graham Pickett Lead Partner Travel, Hospitality & Leisure November 2015

2 Agenda Global economic outlook UK economic outlook Implications for the business travel industry Risks and challenges Key takeaways

3 Global economic outlook

4 Global GDP growth Growth rates in Europe and the US are projected to pick up slightly in Emerging markets are seeing a slow down, driven by China Global Outlook for Growth of Real Gross Domestic Product (YoY,%) GLOBAL US Europe (EU27) Euro Area CIS UK Japan India China Developing Asia Developing Europe Latin America and Carribean Brazil Mexico Middle East & North Africa Sub-Saharan Africa -3.0% -2.7% -0.1% -0.3% 3.4% 3.1% 2.4% 2.6% 1.5% 1.9% 0.9% 1.5% 1.0% 3.0% 2.5% 0.6% 2.8% 3.0% 1.3% 0.1% 2.1% 3.0% 2.6% 2.3% 3.8% 2015 (Projected) 7.3% 7.3% 7.3% 6.8% 6.8% 6.5% 5.0% Source: WEO October 2015 update

5 Emerging markets slowdown While the emerging markets are showing a slow down from recent high growth rates, the developing countries are facing a structural slowdown +10% +5% GDP growth at constant prices, Annual % change Emerging markets and developing countries Growth gap at narrowest point in 15 years Strong US dollar has accelerated outflows of capital from emerging markets Net capital outflows reached $250.2bn in Advanced economies Highest outflows since % -5% Source: IMF Without steady capital inflows, emerging markets are less able to pay debts or spend on infrastructure and expansion

6 China crisis The uncertainty created by the slowdown in the Chinese economy has impacted both developed and emerging markets. Why is this? Looming Chinese banking crisis Commodity price slump Global deflationary conditions Chinese slowdown Currency pressures in emerging markets Exposure of Asia Pacific to Chinese trade Fall in global trade Prospects of currency wars Source: Deloitte analysis

7 Business travel spending by region Emerging economies, mainly in Asia and Africa are expected to fuel business travel in the long run Americas Business travel spending by region (US$ billion (Real prices)) Europe +2.64% % Middle East +3.31% Asia Pacific Business travel spending estimates (2015) Latin America % Africa % % Business travel spending forecast (2020) CAGR ( ) Source: WTTC forecasts

8 Gross Fixed Investment Expenditure Increase in investment over the next five years is also likely to benefit business travel Gross Fixed Investment Expenditure (US$bn at current prices) North America Nominal Gross Fixed Investment (2015) Nominal Gross Fixed Investment (2019) 3,293 4,380 Latin America 859 1, % +2.6% Western Europe 3,106 3, % % % Sub-Saharan Africa +8.2% MENA * East-Central Europe Asia and Australasia 7,763 9, % CAGR (-19) Note: * Middle East and North Africa Source: EIU forecasts

9 European inflation rates Eurozone inflation remains below target creating pressure on the ECB stimulus programme 5.0% Inflation Rate YoY % 4.0% 3.0% ECB target for % 1.0% 0.0% -1.0% Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Eurostat Eurozone MUICP All Items YoY Flash Estimate NSA Source: Bloomberg

10 Unemployment in Europe High unemployment in Southern Europe remains a cause for concern but is at least moving in the right direction as corporates take up some of the slack 30% Unemployment rate 25% Spain 20% 15% 10% 5% Italy France United Kingdom Germany 0% Source: Eurostat

11 Consumer sentiment in Europe will impact corporate confidence Consumer confidence remains positive in the long term even but going forward global uncertainty around the Chinese slowdown and low inflation in the Euro zone is likely to increase volatility Consumer confidence Index in EU28 countries Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Source: Eurostat

12 UK economic outlook

13 UK economy A strengthening Sterling and Chinese slowdown burdens UK GDP growth prospects, while Spain is expected to perform best among the Euro zone countries Gross domestic product at market prices (% change over previous year) 4% 3% 3% 3.0% 2.5% 2015(F) 3.1% 2% 2% 1.6% 1.5% 1.2% 1.4% 1% 0.8% 1% 0% -1% -1% 0.2% United Kingdom Germany France Spain Italy -0.4% Source: World Economic Outlook, October 2015

14 Uncertainty Risk appetite UK business confidence slightly weaker Weaknesses in the global equity market and slowdown in the emerging markets is leading CFOs to take a conservative stand on taking risks 100% Uncertainty % of CFOs who rate the level of external financial and economic uncertainty facing their business as above normal, high or very high 80% Risk appetite % of CFOs who think this is a good time to take greater risk onto their balance sheets 90% 70% 80% 60% 70% Increase in uncertainty 50% 40% Risk appetite diminishes 60% 30% 50% 20% 40% % Source: The Deloitte CFO Survey, 2015

15 UK consumer confidence The UK consumer shrugs off turmoil in the global financial markets but volatility persists due to increasing credit and interest rate hike concerns 0% -2% -4% Consumer confidence Improving confidence -6% -8% -10% -12% -14% -16% -18% -20% Source: The Deloitte Consumer Tracker, 2015

16 UK trade forecast does have some uncertainties certainly in the short term Trade volumes are expected slightly to decline in the next few quarters but improve again in the long run. UK trade forecast (GBP million) /15f /16f /16f /16f 2020f Exports Imports Source: Trading economics

17 Implications for the business travel industry

18 World trade volumes Sluggish recovery is still impacting trade volumes, but it is expected to rise over the forecast period. This supports the earlier view here on expected UK performance 5.0% World Trade Volume of Goods and Services Annual % Change 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% Source: IMF

19 Top ten nations by export values Outbound business travel spurred by those with growing export sectors. This gives us insight into where we should be investing in business travel destinations Source: EIU China United States of America Germany Japan United Kingdom France Netherlands South Korea Italy Hong Kong Top 10 countries by export of goods & services( ) F 2016F CAGR (-19) 3.84% 3.89% 1.91% 5.58% 2.35% 2.73% 4.08% 1.99% 2.72% 2.94%

20 UK business travel spending Business travel spending grew, but at a slower pace as controlling direct cost still remains a priority for many companies UK business tourism spending % 4.62% 4.08% 3.79% 3.48% 2.48% 2.50% Spending (in GBP billion) YoY growth (%) CAGR ( ) 7% 6% 5% 4% 3% 2% 1% 0% Source: WTTC

21 UK inbound business travel Business travel into UK is gaining momentum, driven largely by European visitors. This is definitely being focused on by the large LCC airlines in Europe who are praying that this trend will help their strategies for further growth. Also supports Government approach. 3.0 Inbound business travel (Visits in millions) France Top 10 visitor countries (2015) Germany Poland USA Irish Republic Netherlands Spain Italy Belgium Number of visits (in thousands) Source: VisitBritain

22 UK outbound business travel Technology hubs, the US and certain emerging economies are fueling business travel from the UK Outbound business travel (Visits in millions) Rank Destination Within Europe International 1 Amsterdam, The Netherlands New York, United States 2 Dublin, Ireland Dubai, United Arab Emirates 3 Frankfurt, Germany San Francisco, United States 4 Paris, France Johannesburg, South Africa 5 Zurich, Switzerland Boston, United States 6 Munich, Germany Singapore, Singapore Madrid, Spain Chicago, United States 8 Copenhagen, Denmark Shanghai, China 9 Milan, Italy Hong Kong, Hong Kong 10 Dusseldorf, Germany Mumbai, India Source: ONS, American Express Global Business Travel UK point of sale data destination analysis for January December

23 Trends in digital for business travelers is having a significant influence Technology facilitates a seamless travel experience and keeps the business travellers productive on the road. Airlines are becoming more attuned to this trend Smart trip 55% travellers feel their trip experience is enhanced through due to mobile apps. 46% of millennials are interested in on-demand transport services like Uber and HotelTonight Wi-Fi services: Mainstay 78% travellers feel Wi-Fi is vital for their productivity while travelling, rated higher that mobile apps. and social media Direction of Business Travel 67% would like to use GPS navigational tools to find nearby stores, restaurants, service providers, etc 62% would use mobile device to keep track of loyalty/rewards points or other benefits 50% travellers would like to use a mobile device to coordinate meals and travel, keep track of payments and expenses Mobile cashless Wallets 22% of global travellers would like to use a mobile, cashless wallet where the credit card information is stored on their phone so they no longer need to carry cash or physical credit cards Social Media Networking 36% travellers feel social media networking helps in meeting colleagues and business contacts 43% business travellers use social media to make plans to meet up with friends when traveling for work Source: GTBA Business Traveler Sentiment IndexTM Global Report, 2015

24 Risks and challenges

25 is looking positive, but challenges remain Emergence of alternate travel modes Geopolitical conflicts around the globe Potential interest rate hike Overcapacity concerns Lower trade due to China slowdown Risks Volatility in the currency markets UK referendum on EU membership Slowdown in emerging markets Greek financial crisis Oil price uncertainty

26 Volatility in the currency markets Volatile currency markets providing a challenge on how best to manage FX exposure on pricing, revenue and cost GBP vs major currencies (Adjusted to Jan ) Russian rouble Turkish lira Euro Thai Baht Swiss Franc US Dollar 70 Source: OANDA

27 Spotlight on: Chinese yuan The yuan is on track to be included in the IMF's benchmark currency basket, and may lead to $500 billion reserve demand for yuan China s Asian Infrastructure Investment Bank is a direct challenge to the existing US-centric global economy approach and The yuan is the fifth most popular currency used for global payments, behind the dollar, euro, pound and yen The yuan could eventually comprise of 5% of global FX reserves, which would place it ahead of the Canadian Australian dollars

28 Greek financial crisis The re-elected Alexis Tsipras government has shown interest in passing reforms for the bailout deal but concerns remain Streamlining VAT Sequestering 50 billion of Greek assets for privatisation, bank recapitalisation and debt repayment Broadening the tax base Strengthening the financial sector Greek economic reforms Reforming the pension system Aligning labour market policies with European best practice, including collective bargaining, industrial action and collective dismissals Privatising the electricity transmission network Introducing market reforms such as Sunday trading, pharmacy ownership and opening up closed professions

29 Greek financial crisis Potential impact on business and tourism Curbs are still in place on the limit of cash withdrawal from banks. Though this is higher for foreign nationals, limits do exist Continued inability to pay public sector workers disrupts transportation. There are also issues with airport privatisation Increase in entry fees at destinations and VAT subsidy removal in tourist areas leading to higher costs Widespread strikes in response to labour reforms prescribed by the bail out package Civil unrest in response to continued austerity is frequent in Athens and many other parts of Greece Frequent strikes are prevalent in the travel and tourism sector with air and road as well as public transportation affected

30 UK corporate performance The UK economy was buoyed by domestic demand, while concerns over the financial market and weak exports remain UK private non-financial companies recorded an 11.9% net rate of returns in 2015, slightly up from 11.7% in Services company profits rose to 16.8% in 2015 from 14.9% in 2015 (Highest in 18 years) Overall operating surpluses grew to 51.7bn in 2015 against 49.7bn in Corporate profits averaged 31.7bn from 1955 until 2015, reaching an all time high of 100.9bn in the 2015 Total corporate profits are expected to grow to GBP105.7bn by 2020 ~ Trading economics forecast UK business confidence reached the lowest levels of -12% in 2015, expected to improve to 2% by end of 2015 Source: Consensus economics forecast, ONS, oxford economics

31 Net income ratio (%) Net lending/borrowing (%) European business scenario slow progress albeit there is recovery here! Although corporate incomes are under stress, private sector lending has picked up in the hope of economic recovery Net income and lending/borrowing of non-financial corporations in Euro Area (as % of net value added) 38% 37% 36% 35% 34% 33% 32% 31% 30% 29% 28% Net income ratio (%) Net lending/borrowing (%) 6% 4% 2% 0% -2% -4% -6% -8% Source: Eurostat

32 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 US$/bbl Oil price uncertainty Low oil prices have lowered the burden on business travel spending and increased airline profitability, but continued uncertainty presents a risk to the travel industry Brent price movement Oil price drivers Higher cost producers forced offline Reduced investment in new projects. $100bn+ of spending on new projects has been slowed, postponed or axed Low prices to spur renewed demand $47/bbl US fracking output has changed the petro-political landscape Technical innovation, productivity increases and cost savings reducing the break-even level for shale producers OPEC to maintain production quotas Iranian export surge could reach the market from 2016 onwards (Iran has million barrels of oil stored in floating vessels) The US is preparing to sell some of its Strategic Petroleum Reserve to pay to speed up drug discovery and development Slowing growth in China Market has proved resilient to geopolitical flashpoints Source: Bloomberg G7 carbon fuel pledge

33 Over-capacity risk In Europe, there has been little effort to constrict capacity, but US airlines are introducing more capacity discipline overall still beneficial for the travelling businessman Firm fleet orders by region as of June 2015, by number of hulls 2,201 (+32%) 2,235 (+26%) 1,022 (+79%) 3,584 (+49%) 182 (+14%) 830 (+39%) Source: CAPA Fleet Database

34 Key takeaways

35 Key takeaways not a straight forward picture!! Global economic outlook UK economic outlook Implications for the travel industry Developed markets recovering Emerging markets slowdown but still growing notably Concerns over Chinese crisis Concerns over deflation in Europe UK growth concerns Business sentiment has been shaken Expected slowdown of trade in near term but likely to pick up longer term Business travel spending improves Inbound and outbound travel volumes pick up Business travel spurred by growing trade volumes Digital technology complementing business travel Risks and challenges Oil price uncertainty Volatile currency markets Yuan as reserve currency Continued instability in Greece European business performance Keep an eye on the airlines!

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