The business travel itinerary is no longer limited to the already developed world, and while European and American markets are still growing, B2B travel in BRIC countries is growing faster. According to a recent report released in August 2014 from Carlson Wagonlit Travel (CWT) and the Global Business Travel Association (GBTA), China will have the highest business travel spend in the world. Russia will have the highest percentage increase in business travel spend in 2015 compared with other countries in Europe, the Middle East and Africa. Specifically, Russia’s business travel spend will increase by 19 percent, jumping from -5.4 percent in 2014 to 13.6 percent in 2015.
“Growth will be led by expansion in emerging markets such as China, India, and Brazil,” the report said. “Advanced economies will also strongly contribute as economic growth improves and pent-up demand is released. Meanwhile, muted advances in travel supply will begin to put upward pressure on rates, particularly in high-demand travel markets.”
For payments professionals, those high spends are frustrating because they happen to be in areas that are impressively inhospitable for payments. In China, regulations exist that prevent the foreign card companies from processing yuan transactions. Chinese consumers can use foreign cards, but currently they are allowed to do so for the clearance of foreign currency – this has been the case since their entrance into the market 20 years ago.
In Russia, on the other hand, card brands are tied into a diplomatic war of sanctions between the United Nations, Russia and the U.S. American business travellers carrying American issued corporate cards are going to suffer issues.
In terms of business travel spend in the Asia Pacific countries, China’s business travel spend will see just a slight 1.3 percent increase from 2014 to 2015, while India’s business travel market is expected to increase by 5.5 percent in that same time frame.
The study, titled2015 Global Travel Price Outlook, interviewed 624 corporate travel managers in Asia-Pacific, Europe, Latin America and North America. Overall, results showed that global business travel spending is predicted to increase by up to 6.9 percent in 2014, and 8.6 percent in 2015, the study found, as reported by Supply Management.
Russia, the second fastest growing segment in business travel faces a unique set of issues. It leads the world in the pace of it’s growth—it’s business travel is set to jump by 11.5 percent in the next year alone, the biggest jump for any nation. But that growth becomes somewhat less impressive when one notes that Russia actually saw -0.5 percent growth this year, due to a highly unstable international diplomatic situation in the Ukraine.
The high growth potential is offset by the risk of further turmoil in the Ukraine and economic sanctions against Russia, which would be detrimental to travel demand and air prices in the region,” the report said. “We expect air prices in Russia to grow 1.3 percent in 2015, with the caveat that considerable downside risks remain if economic sanctions are escalated by the West.”
For hotel prices, the report found that Eastern Europe prices are dependent on the health of the Western European economy, as well as the escalating Ukrainian situation. The report’s authors said that hotel prices in Russia will increase by 1 percent, “as long as there are not major economic sanctions from the West.”
It’s not completely far-fetched to think that the political battle with Russia could affect businesses around the world. PYMNTS.com previously reported on howB2B markets can be easily affected in these situations, because cross-border trade is an easy weapon to use.
For example, in early August, Russia banned imports of a wide range of food and agricultural products from Europe, the U.S. and other countries in retaliation for sanctions the U.S and Europe placed on that country stemming from its support for fighting in Ukraine. These included barring imports for a year of meat, fish, seafood, vegetables, fruit, milk, dairy products from the U.S., the European Union, Australia, Canada and Norway
Speaking of negative influence, the intense game of political ping-pong between Russia and the United States puts a particularly interesting twist on the study’s findings. Back in May, Russia President Vladimir Putin signed a law ordering a “national payment system” as retaliation for MasterCard and Visa halting service of payment cards of some major Russian banks based on those international sanctions.
Additionally, the U.S. then imposed serious sanctions against Russia this summer, which halted payment card charges and purchases from quite a few cards owned by Russian citizens. One executive,Alexander Moskovkin then sued MasterCard because the U.S. Department of Treasury blocked his card “without any prior notice.”
However, earlier this month (Aug. 14), Russia’s Central Bankannounced that it was not going to stick to its original October 31 deadline for MasterCard and Visa to pay transaction security deposits. The reasoning was that neither payment company has yet selected a partner to process cards in Russia next year.
In terms of air prices, the study found that issues in Ukraine and economic sanctions could affect growth potential in several emerging markets in Europe, the Middle East and Africa, including the Czech Republic and South Africa.
The study does outline potential risks. Joseph Bates, GBTA’s vice president of research, explained that the escalating Ukrainian crisis, declining European inflation, and the increasing debt in China are all highlighted potential hindrances to business travel spend.
“[They all] could potentially have a negative influence on travel demand and pricing however, so travel managers are advised to consider contingencies for these risks in their planning,” Bates told the news source.
In Russia’s case at least, U.S. travel managers need to be aware that even if all the political turmoil dissipates, the nation is still acash-based society. As PYMNTS.com reported just last week, only 20 to 25 percent of Russian adults have bank accounts. Just 15 percent had credit cards in 2011, and 90 percent of those cards are used only for withdrawing cash. American business travelers could still have difficulties making purchases with a corporate card, as even merchants that accept plastic don’t typically welcome it.
Travel in the U.S doesn’t have the same growth rate as these countries. In comparison, the U.S. business travel spend will decrease, going down to 5.9 percent, compared to 6.8 percent in 2014. This should not be a deterrent for U.S. companies, but U.S. travel managers who are competing on a world state must know that they can’t stay in their own borders and wait for the world to come to them. It’s critical for them to be aware of the areas that are attracting business travelers. The world is increasingly going to China and Russia—regardless of current payment issues.