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The Global MICE Industry Forecast for 2013

The Global MICE Industry Forecast for 2013

By Rob Davidson

 

6“2012 will be remembered as the year when the wide variations in the global economic landscape considerably intensified, with some parts of the world seeing rapid growth levels, while others were falling back towards or even into recession” says Rob Davidson of EIBTM.

According to him, “the current and projected situation of the meetings, events and business travel sectors largely reflects global financial conditions, with the greatest growth in this sector being found in those destinations that are experiencing the highest levels of economic development.”

This article, based upon the 2012 TrendsWatch Report launched at the EIBTM exhibition in Barcelona last November, provides a snapshot of the industry now and predictions for the coming year. The consensus of the sources Davidson quotes in this article demonstrate that buyers and suppliers in the industry are successfully adapting to the ‘new normal’ and that even in world regions characterized by low growth or no growth, we can still look forward to another period of moderate expansion in meetings, events and business travel volume and spending in 2013.

Rob Davidson
Industry Analyst
EIBTM

 

THE GLOBAL ECONOMIC ENVIRONMENT

 

In 2012, economic performance continued to vary greatly around the world, with stabilizing but still positive performance by some countries in the Asia Pacific and Latin America regions and slow but steady progress in North America. The debt crisis made Europe the most volatile region of the world, and according to the United Nations (UN) and many others this situation presented the biggest threat to the global economy.

The Economist Intelligence Unit’s (EIU) Global Outlook Summary published in June noted that the global economy as a whole remained in precarious shape. The EIU expected global GDP (Gross Domestic Product) growth to slow to 3.2 percent in 2012 as a direct result of the problems in Europe, down from 3.7 percent in 2011 and 5.2 percent in 2010. The euro area’s economy was forecast by the EIU to fall 0.7 percent in 2012, and to grow only 0.3 percent in 2013. With each passing month of 2012, more cautious estimates of growth, particularly in Europe, emerged.

The UN slightly revised down its own forecast for world GDP growth to 2.5 percent in 2012 and to 3.1 percent in 2013. World trade growth, according to the UN, was also expected to slow to 4.1 percent for the full year 2012, down from 6.6 percent in 2011.

Some of the vibrant BRICS economies, which have driven growth in recent years, were also seen to weaken, as fears about the state of the euro spread and global demand fell. For example, the Chinese economy expanded by only 7.4 percent in the third quarter of 2012, compared with a year earlier – its slowest pace of growth since early 2009.

The Carlson Wagonlit Travel (CWT) Travel Price Forecast noted that unemployment remained the greatest barrier to improvement in most world regions. Globally, employment-to-population ratios remain below 2007 levels in every major economy except Brazil, China, and Germany. And despite positive economic growth, US unemployment remained at more than 8 percent in mid-2012, and reached historic highs of nearly 11 percent in the euro zone.

 

KEY MARKETS – BY WORLD REGION

Europe

 

According to the Advito 2013 Industry Forecast, there was a strong start to 2012 in Europe, with spending on corporate meetings up by between 10 and 15 percent on the previous year. After several years of depressed spend on meetings, many companies appeared to decide at the beginning of 2012 that they would invest more in improving long-term communication with their customers and staff.  However, there was a marked slowdown in Europe towards the end of the second quarter, once again because of fears about the euro crisis.

But the situation regarding the association meetings market looked much more buoyant. According to statistics released by the International Congress and Convention Association (ICCA), 15 out of the top 20 destinations for international association conferences were European cities. The top four destinations (Vienna, Paris, Barcelona and Berlin) are located in Europe.

Currency fluctuations may explain some of the appeal of Europe as a destination for conferences. The current strength of the US dollar against the euro means that Europe has become a more financially attractive destination for US buyers. Additionally, perhaps in part because of the weakened value of the euro, more European meetings were held closer to home in 2012. According to Meeting Professionals International’s (MPI) Business Barometer, 69 percent of European companies’ meetings remained in Europe, up from 63 per cent in 2011 and 36 percent in 2010.

Regarding business travel, a key source of data is the GBTA (Global Business Travel Association) 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 account for nearly 70 percent of European demand for business travel, and provide a barometer for 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.

In 2012, spending on business travel by these five countries appears to have been directly linked to the general state of each nation’s economy, with the recessionary conditions in Italy and Spain being reflected in their levels of spending on this activity. As can be seen from the table below, it is likely that the overall spending on business travel by the five key national markets in Europe will grow modestly in 2013.

 

[Table1] Business Travel Spending by European nations

 

Country

2012 change over 2011

2013 change over 2012

France

-2.2% ($35.7 billion USD)

1.1%

Germany

1.6%  ($50.8 billion USD)

3.3%

Italy

-6.9% ($32.9 billion USD)

-1.2%

Spain

-7.8% ($17.9 billion USD)

-1.6%

UK

No change ($40.2 billion USD)

2.8%

overall

-2.2% ($177 billion USD)

1.4%

(*Source: GBTA BTI™ Outlook – Western Europe report)

 

North America

 

In 2012, growth in the US economy was reflected in the level of demand for meetings, which was sustained all year – to the point where the Advito 2013 Industry Forecast report noted that it was becoming increasingly hard to find availability for meetings, especially for large events in the US itself. Because it was once again becoming more difficult to book meeting space at the last minute, lead times were generally stable or in some cases becoming a little longer in the US. The same source stated that in the US, 2012 had been more of a sellers’ market than at any time since the recession of 2008. As a result, rates for meetings services and facilities were rising. Rate increases were greatest in the largest cities, which is where demand has risen most sharply.

Regarding travel for business-related purposes, the conclusion of the GBTA BTI™ Outlook – United States report was that economic turmoil in Europe, slower growth in China and levels of US unemployment were expected to curb business travel growth in the US through the end of 2012. Businesses appeared to be taking a cautious approach to their investment in travel, awaiting greater economic clarity. The report estimated that total US business travel spending would have grown by 2.6 percent in 2012, reaching $257 billion by the end of the year. However, in terms of actual business travel volume, rising business travel costs mean that overall business trip volume in 2012 will in fact have fallen by 1.6% from 2011.

 

Australasia

 

The Business Events Council of Australia’s (BECA) second annual State of the Business Events Industry Report provides a measurable assessment of the substantial contribution that business events make to Australia’s economy.

This report demonstrates a strengthening of the industry in numbers of travelers, with international business event visitors’ spending in Australia increasing by 15 percent, and domestic overnight business event visitors’ spending increasing by 19 percent. However it also shows a weakening in State Government funding support of the Convention Bureaus by 28 percent and suggests that this is reflected in the increase in lost bids (5 percent) and the reduction of successful bids (12 percent). According to the report’s authors, the correlation between the two clearly demonstrates the impact that government support has on the
ability of the States to attract business events. In addition, Australia’s geographical location leaves it vulnerable to competition from close neighbours, as indicated in the conclusion of the report:

‘While there has been increased investment in infrastructure supporting the business events industry in areas such as aviation and accommodation, the growth of the industry in the Asia Pacific region, particularly in China, shows the need to maintain investment in the industry. Australia’s business events challenge will be to maintain its product that is competitive on ROI and quality’.

 

The Middle East

 

The changing fortunes of this region as a destination for business events and as a source of demand for meetings were affected by the volatility in the Middle East caused by the Arab Spring in 2011, which saw the number of tourists in the region as a whole drop by 7 percent in 2011, according to VisaVue Travel Data. But throughout these events, the United Arab Emirates (UAE) emerged as a safe haven in the region and continued to attract international visitors.

In the region, investment in meetings industry infrastructure continues unabated, with one of the most recent examples being Abu Dhabi’s Desert Island Resort & Spa by Anantara, which is boosting its meetings credentials with a new conference centre offering a range of meeting rooms and event venues. Looking ahead, the Oman Convention and Exhibition Centre is currently under construction and due for completion in late 2015. Meanwhile, in its first year of operation, the Qatar National Convention Centre was presented with the award for the Middle East’s Leading Convention and Exhibition Centre at the 2012 World Travel Awards in Dubai.

 

China

 

The meetings industry in China appears to be in an upward cycle, despite the slowing pace of expansion of the Chinese economy as a whole. For the first time this century, in 2012 China’s growth rate may dip below 8 percent, but the inbound, outbound and domestic meetings markets continue to grow, with increasing budgets and the use of a wider range of destinations.

Several of China’s neighbours are taking steps to target outbound conference and incentive travel business from that country. For example, the Malaysia Convention & Exhibition Bureau introduced a new brochure specifically targeting the Chinese corporate and incentive markets. And the Kuala Lumpur Convention Centre has ensured that all relevant corporate material, including its corporate video and business presentations, are available in Mandarin – and has added Mandarin-speaking marketing staff to its team.

China’s business travel spending is one of the highest in the world, second only to the US. There is, however, considerable room for further growth as China still faces considerable supply-side constraints to business travel. However, action is being taken to address this issue and over the past ten years the size of the four largest airports has doubled and hotel room supply has risen in the major business centres.  The GBTA believes that China will overtake the US by 2014 to become the country with highest level of business travel spend, one year earlier than previously forecast.

The GBTA BTI™ Outlook – China report predicts that Chinese business travel will continue to show strong growth into 2013, with total business travel spending forecast to grow by 12.5 percent in 2012 to $195 billion, followed by another 14.7 percent in 2013. One reason for this growth is the fact that, to address setbacks in its foreign markets, the Chinese government has purposely rebalanced the economy towards domestic growth over the past few years. Domestic business travel has disproportionately benefited from these policies and in 2012 GBTA expects growth of 12.8 percent for Chinese domestic business travel.

 

Africa

 

Over the past decade, African nations’ economies, taken as a whole, have performed well and demonstrated considerable growth, albeit from a low base in some cases. In the past ten years, six of the world’s fastest-growing economies have been in Sub-Saharan Africa, according to The Economist. Angola, Nigeria, Ethiopia, Chad, Mozambique and Rwanda, all showed annual growth rates of around 8 percent or more, in that period. Moreover, according to the IMF, Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria are all expected to be among the world’s 10 fastest-growing economies in the years leading up to 2015, with annual growth rates of between 6.8 percent and 8.1 percent. Agriculture, telecoms, mobile banking and healthcare are the sectors expected to show strongest growth in the coming years. It is significant that most of these industries are also traditionally sectors of high demand for conference and incentive travel events.

According to the Meetings Africa 2012 Trends Report, positive economic growth indicators, growing foreign direct investment and the rising African middle class are promising factors for the development of Africa’s meetings and events sector. Trade flows between Africa and China, for example, are likely to be matched by growth in the volume of business meetings of representatives of both countries. At present, Africa’s population is growing at a faster rate than that of any other world region and it is the middle class that is expanding most rapidly.

The African Development Bank, maintains that by 2030, Africa’s new middle class will comprise over 300 million people, who will spend between them around $2.2 trillion a year. Professional associations are often attracted by the idea of holding their conferences in destinations that offer them the opportunity of gaining new members, and African countries increasingly fit the profile of places whose populations offer fertile recruiting grounds for associations. In the light of these socio-political changes, Africa faces an unprecedented opportunity of winning international association conferences – particularly if some of the obstacles to progress (such as political instability, the weak rule of law, corruption, infrastructure bottlenecks and the slow pace of liberalization of Africa’s airlines) can be overcome.

 

KEY MARKETS – BY INDUSTRY SECTOR

Corporate Meetings

 

In many world regions, expansion of the market for corporate events of all kinds has been held back by low levels of business confidence and uncertainty over future trading conditions. In Europe particularly, businesses are delaying new investments so they can build up cash reserves to protect themselves against another possible major downturn. Many companies are stockpiling cash instead of investing in the type of corporate events that are aimed at improving their human infrastructure or getting closer to their existing and potential clients.

Effective planning ahead by companies (including their investment in training and marketing events) depends on them being able to have a reliable view on the global economic outlook that is likely to have an effect on the demand for their products or services. But currently it is extremely difficult for companies to make predictions of this kind with any degree of confidence. Consequently, most companies are now very cautious in their forward planning, and this approach is not compatible with increases in spending on corporate events.

 

Association Conferences

 

The situation in the association conferences sector looks more favourable than that for the corporate meetings, but is nevertheless showing signs of struggle. The INCON Survey of the Global Association Conference Market showed that 44 percent of their survey respondents confirmed that their business levels in 2012 remained on par with 2011, with 15 percent reporting a decline. However, as may be seen in the table below, these figures were 62 percent and 12 percent respectively in last year’s report.

 

 

7

 

 

 

INCON Survey of the Global Association Conference Market

 

Findings from the same survey show that association conference attendance is expected to remain the same for this year as for last year, with 41 percent of respondents forecasting no change in attendee figures at 2012 events compared to 2011. This figure reverses the findings of both the 2011 and 2010 surveys when 50 percent of respondents forecast improved delegate numbers compared to previous years.

In terms of sponsorship, the INCON survey notes that respondents were evenly divided between those who expect sponsorship revenues to remain unchanged by comparison with 2011 levels (37 percent) and those who see this revenue source declining throughout 2012 (37 percent). These findings are not as positive as those of the 2011 survey when 42 percent of respondents forecast increased levels of sponsorship revenue. That figure has dropped to 25 percent in 2012.

 

Business Travel

 

According to the Advito 2013 Industry Forecast, by the end of 2012 the business travel sector was slowing down after a strong start in the first few months of the year. 2012 started well, continuing the recovery in travel bookings which began in 2010 and 2011. However, figures emerging this summer from several different parts of the corporate travel industry showed demand growth tailing off and perhaps even going into reverse. The Forecast linked this fall in demand to corporate nervousness about the euro crisis, which was spreading from Europe itself to other markets, even China, where economic growth is also slowing.

Air travel is still the dominant mode of transport for business travel, due to convenience and the large distances covered. However, EU emissions quotas coming into force for airlines from 2013 could increase the cost of air travel and see more travellers turning to high-speed rail. The European high-speed rail network is also set for expansion, linking more major European cities. The rising price of fuel is also a factor in rail’s favour, particularly for domestic travel.

 

Incentive Travel

 

A positive note is struck by the Advito Industry Forecast, which noted that in 2012, incentive travel bookings were up on 2011, as companies recognized once more that the money spent on a reward trip can prove much more motivational than a cash bonus. The Forecast pointed to slightly rising budgets for incentive trips and suggested that US companies were increasingly considering overseas destinations. However, it also emphasized that the ostentation of former times and the concept of an incentive being little more than a free vacation were gone for good. Companies are wary of reputational damage, and as a consequence of companies’ concern over their public image, educational briefings, team-building exercises and charitable work are all becoming more popular elements of incentive trips.

However, the results of the Incentive Research Foundation’s (IRF) Fall Pulse Survey, based on slightly later data than that used by Advito, paints a less optimistic picture of the incentive travel sector, from a largely US perspective, with falls in confidence levels among stakeholders in this industry. Respondents in the September 2012 survey indicated that they were less optimistic and considered the economy as having a more negative impact on their ability to plan and implement incentive travel programs when compared with the results of the IRF’s previous survey in March 2012.

Moreover, 16 percent of the respondents indicated that they anticipated a change from ‘International to Domestic’ incentive travel destinations, with 15 percent saying that they  ‘will pick locations closer to home’ with regards to their incentive travel programme destinations. Procurement involvement in the purchasing process for incentive travel also proved to be a significant factor, with 38 percent of respondents indicating that procurement and purchasing involvement will ‘Slightly Increase’ in the coming year, and 13 percent indicating that procurement and purchasing involvement will ‘Significantly Increase’ in 2013.

In terms of budgets, 48 percent of the respondents anticipated budgets for their incentive travel programmes to ‘Remain Unchanged’ during this coming year, while 21 percent indicated that budgets would decrease by some degree in 2013. 31 percent indicated that their budgets for incentive travel programs would slightly increase in the coming year.

 

OUTLOOK

 

The Meetings, Events and Business Travel Sectors – Supply-side

 

For forecasters, there appears to be a general consensus that over the next 12 months the cost of business travel will generally continue to increase, either in line with or a little faster than inflation. However, this general picture can be nuanced by the words of the Senior Vice President and General Manager, Global Business Partnerships & Premium Services, American Express Global Business Travel: ‘We are expecting a dynamic landscape for business travel in 2013, with prices likely rising to reflect companies’ interest in doing business in growing economies such as Brazil, India, and Russia, but staying flat or even declining in those markets where growth is stagnant’.

The CWT Travel Price Forecast and the American Express (Amex) Global Business Travel Forecast both predict robust increases in business travel pricing in the Asia Pacific and Latin America regions. Within the latter region, the Amex forecast predicts that hotel rate increases will be highest in Brazil and Argentina. However, business travel rates will vary significantly by country in the Asia Pacific region. Amex expects to see the greatest increases in India, where airfares could rise by as much as 8 percent. In China, rates are forecast to remain flat or even decrease, due to slowing construction and manufacturing as well as decreased investments from Europe.

Despite growing economic uncertainty throughout Europe, prices in that region are also expected to increase, as still-strong demand continues to outpace limited supply, particularly in Eastern Europe. The Advito Industry Forecast predicts that average air fares have risen 3 percent to 5 percent in Europe in 2012 and similar increases can be expected again in 2013. The Amex forecast concurs with this, but warns that those countries hardest hit by the economic crisis could see price drops.

In North America, suppliers will enjoy modest price increases as well, with the exception of car rental providers, who for the past many years have been forced to reduce prices in a hyper-competitive environment, according to the CWT forecast. The Amex forecast expects airfares in North America to rise by between 1 and 3 percent for business-class travel, while short-haul economy fares could climb by 2 to 4 percent. Upper-range hotels in the same region could climb by as much as 4 to 9 percent.

 

 

The Meetings, Events and Business Travel Sectors – Demand-side

 – Europe, Middle East and Africa (EMEA)

 

In Europe, meeting planners will plan more meetings – and spend more on those meetings – in 2013, according to the latest Meeting Professionals International’s (MPI) Business Barometer forecast. The survey predicted that the number of meetings in Europe would rise by 3.2 percent, in 2013. Meeting budgets, meanwhile, would increase by 0.7 percent.

Strong business travel demand is still expected for Germany and the UK next year, as their economies should perform better than the region overall. In fact, 2013 business travel spending growth should reach 5.4 percent in Germany, according to the GBTA Foundation’s Spring 2012 outlook for Western Europe.

The CWT Travel Price Forecast maintains that Russia is a market to watch in 2013 and beyond. It remains attractive to investors, and much like Brazil, it will host both the Olympic Games and the FIFA World Cup over the next six years. This will prompt strong hotel construction pipelines to increase supply in preparation for the events, creating increased competition that will keep rate growth down until closer to the events and again after the crowds have subsided.

According to the CWT Travel Price Forecast, meetings and events spending throughout EMEA as a whole will increase less than in other regions, with flat to 2 percent increases in average costs per attendee per day. More broadly, CWT observes that many EMEA-based planners are containing costs by planning meetings closer to home, with international bookings expected to decrease. Planners in the region are advancing their meetings and events programmes by consolidating spend with fewer suppliers, increasingly outsourcing small meeting and venue sourcing services, and incorporating virtual meetings and telepresence into their overall strategies. These trends are expected to continue throughout 2013 as planners remain under pressure to get the most impact for every meetings and events dollar spent, particularly if economic conditions worsen.

The survey notes that the UAE has experienced decreased hotel pricing for the past several years, but the continued appeal of Dubai, particularly for an increasing number of Chinese leisure travelers, should improve that country’s outlook for 2013, although soft business travel demand could keep prices down.

 

– Asia Pacific and China

 

Australia, China, and Singapore are among the countries that will experience the most significant growth next year, according to the CWT Travel Price Forecast. Although it is a major focus for international expansion, India will face challenges in 2013 as its airline and hotel industries navigate some of the effects of rapid expansion in recent years.

In terms of air travel within this region, international capacity growth is the headline for China in 2013, with carriers like Air China, China Eastern, and China Southern offering services to more foreign markets. Based on its location, China continues to serve as a gateway between Asia and the European and North American continents, and Chinese national carriers are increasingly positioning themselves to capitalize on this market. More broadly, as China’s economy has slowed compared to its performance over the past few years, this has prompted more measured airline price increase expectations for 2013 than in 2012.

The Advito Industry Forecast expects demand for hotel services to grow steadily in the Asia Pacific region, and the CWT Travel Price Forecast maintains that hotels will achieve modest price inflation overall throughout the Asia Pacific region in 2013, but specific results vary widely by country. Singapore will lead the way with increases topping 8 percent in 2013, as business travel demand continues to be very strong there and available supply is not keeping up with demand. Given its proximity to China, Hong Kong in particular is benefiting from the growing Chinese middle class, many of whom are traveling to Hong Kong for business or pleasure. Depending on crown category, travel buyers will find some price relief from hoteliers in China and India in 2013, with each group expected to offer some declining rates.

Meeting and event cost per attendee per day costs will increase 5-7 percent throughout the Asia Pacific region in 2013, though conditions will vary considerably by country based on the pricing power of local suppliers, particularly hoteliers. Group sizes are expected to decrease as organizations there opt for a larger number of smaller meetings over a shorter duration.

 

– Latin America

 

The Advito Industry Forecast indicated that it expected demand for hotel services to grow rapidly in Latin America, and this was echoed by the CWT Travel Price Forecast. The healthy economies of Brazil and Chile are expecting noteworthy airline price increases in 2013. Both countries’ booming economies are driving hotel prices up significantly, compared with other countries in the Latin America region. Brazil leads the way as the only nation in CWT’s entire 48-country forecast expected to see double-digit hotel price increases next year, causing significant challenges for travel budgets. Brazil is among only a few markets globally where significant new hotel construction is expected, as the country prepares to host two global sporting events – the FIFA World Cup in 2014 and the Olympic Games in 2016.

 

– North America

 

According to MPI’s Business Barometer forecast, the number of meetings in the US and Canada will rise by 2.8 percent and 3.3 percent respectively, in 2013. Meeting budgets, meanwhile, will increase 1 percent and 0.1 percent respectively. This will add to the level of demand for hotel services in the US, where, according to the Advito Industry Forecast, growing demand with little increase in supply to balance it will lead to above-inflation rate increases for meetings, especially in New York and luxury destinations.

The CWT survey anticipates cost per attendee per day will increase in the 4 – 5 percent range in the US, adding that ‘returning demand for meetings at upper-upscale and luxury properties is expected to result in price inflation of up to 5.5 percent throughout next year, directly impacting per-attendee costs’.

In particular, domestic bookings for North America remain strong. International demand for North American-based meetings is also performing fairly well, though this could change given the declining strength of the euro over the US dollar, as well as the overall economic uncertainty throughout Europe. The combination of increased demand and tight supply will enable suppliers to continue to hold their ground when negotiating contract terms such as attrition and cancellation clauses, although organizations with centralized sourcing and contracting practices have been able to secure more favorable terms than those working with a property on an ad hoc basis.

According to the Global Research and Intelligence Network, over the next decade we will continue to see the rise of second-tier cities in the US and beyond, and with this increased competition for some of the larger first-tier cities, that will need to continue to be creative to avoid being overpriced and out strategized by these new destinations.

 

CONCLUSION

 

It is clear that 2012 was a year dominated by ongoing challenges in the global economy, with the much hoped-for recovery stubbornly failing to appear in some world regions, while others continued in their progress towards modernization and prosperity.

However, there are reasons for optimism. With each year that passes, our industry becomes more adept at operating within the conditions that have prevailed since the onset of the financial crisis; and in terms of demand, there is a widespread conviction that the corporate market in particular has come to understand that there are limits to the amount of cutbacks that can be made in terms of meetings, events and business travel before business performance is adversely affected.

Most indicators cited in the TrendsWatch report point to at least a modest increase in demand and prices in 2013, while in those world regions with fast-expanding economies, much greater growth can be expected. There is clearly ongoing demand for meetings and business travel services and facilities. The challenge for the year ahead, as ever, will be identifying this business and satisfying the demands of customers, wherever they are to be found.

 

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