¡°It¡¯s a hot mess,¡± said one UK-based travel buyer at a BTN Group event in London late last month when invited to describe the condition of the corporate travel marketplace.

Given this fashionable phrase means ¡°a person or thing that is spectacularly unsuccessful or disordered¡±, she could just have easily have been talking about the economic and political state of the country in which she was speaking. Or indeed the premiership of Liz Truss, whose chaotic stewardship ended yesterday after only 45 days, comfortably the shortest of any Prime Minister in British history.

Times are tough throughout Europe, which is affecting travel both indirectly and directly ¨C witness widespread industrial action in France, for example. But surely no country has seen fuel poured on the fire quite so spectacularly by its own government as in the UK.

Kwasi Kwarteng¡¯s even shorter-lived (38 days) tenure as Chancellor of the Exchequer produced a so-called ¡°mini-budget¡± that sent Sterling shooting downwards, borrowing rates shooting upwards and precipitated a major political crisis.

Inflation and market volatility all potentially have an impact on business travel. So too could the resulting political upheaval, with the prospect of a change in ruling party in the UK not only plausible but, according to the opinion polls, highly probable for the first time since 2010. What does all this turmoil mean for the travel buyer?

High prices
Another travel manager sharing the stage with the ¡°hot mess¡± buyer drew attention to the cost of travel, in his words, ¡°going through the roof¡±, a trend firmly in evidence well before Liz Truss became Prime Minister in early September, and indeed an international problem.

Assessments of just how fast prices are rising vary but they are all in double figures. Institute of Travel Management head of programme Kerry Douglas (interviewed, as was everyone else for this article, before the departures of Kwarteng and Truss), says buyer members report ¡°an increase of 10-20 per cent in total trip costs¡±, with the trajectory ¡°likely to continue rising as the global economic situation is uncertain.¡±

Some believe the price rises are far steeper. Analysis prepared for Iain Robinson, a mergers and acquisitions adviser with business travel industry experience, shows the average ticket price paid by corporate travellers is now 42 per cent higher than pre-Covid.

Likewise, Deborah Potts, director at business growth and M&A specialist Summit Advisory says: ¡°We are hearing of 30-40 per cent increases in fares and, in some instances such as transatlantic premium cabins, it can be double the price that it was pre-pandemic.¡±

Sterling¡¯s slide against the dollar
A near-perfect storm of converging factors is pushing up the price of business travel in many countries. These include surging post-lockdown demand; accelerating input costs for labour, fuel and much else; and capacity constraints (notably at London Heathrow and Amsterdam Schiphol), also driven by a labour shortage.

However, another major contributor for UK-based travellers is the weakness of Sterling against the US dollar. Sterling has been in trouble since 23 June 2016, when the UK narrowly voted for Brexit. Overnight the pound plummeted from $1.50 to $1.33 and it has never recovered. That left Sterling in an already poor position this year when the US Federal Reserve raised interest rates to counter inflation, leading to the dollar climbing against most currencies.

In the UK, the infamous spooking of the markets by Kwarteng¡¯s mini-budget gave Sterling another massive boot downstairs, plunging from an already feeble $1.13 to $1.03 in just one working day.

At time of this article being published, the pound has recovered from that shock to $1.11 but Robinson believes it will be hard for Sterling to make much more headway in the medium term. ¡°The Fed isn¡¯t going to change its interest rate and other policies governing inflation, probably until the end of 2023,¡± he says. ¡°Therefore the dollar will remain strong at least until 2024.¡±

The most obvious consequence for UK business travellers is the eye-watering cost of visiting the US. However, says Business Travel Association director Clive Wratten, there is no discernible impact at present on bookings.

¡°Through September and October it has been pretty strong for the US,¡± he says. ¡°I¡¯ve spoken to a couple of big airlines and their numbers are still looking very strong. Nobody¡¯s travelled for two years, so it¡¯s a case of ¡®We¡¯ve got to get out. If it¡¯s a bit more expensive, so be it¡¯.¡±

Speaking more generally, not just about travel to the US, Douglas reports a similar holding up of demand. ¡°There is currently no indication from ITM buyer members that there will be any reduction in spend due solely to the economic environment,¡± she says.

But could that change? The strength of the dollar is particularly challenging for the travel industry because, says Tim Coombs, managing director of Aviation Economics, ¡°For airlines, not only fuel bills but aircraft leasing and many other costs are in US dollars. For a long-haul carrier, around 60 per cent of its costs are going to be in dollars, so that makes it fairly grim for them at this particular time. But, offsetting that, they will have put in hedges for currency just as they do for fuel, so the immediate impact that we¡¯re seeing today won¡¯t necessarily flow through automatically.¡±

Coombs adds that airlines such as British Airways and Virgin Atlantic are now helped through such situations by having strong joint-venture partners. If a drop in the pound does eventually inhibit demand, ¡°UK carriers are going to be relying on their US partners to fill the seats on their joint-venture planes,¡± says Coombs, which is exactly what he saw happen after the Brexit referendum.

One other potential consequence of Sterling¡¯s weakness to watch out for is whether it encourages any US companies to buy UK businesses in the travel sector. One recent example of a transatlantic acquisition was Sabre¡¯s purchase of the virtual card technology provider Conferma Pay in August.

¡°International players from the USA will certainly see the UK sector as even more attractive for acquisitions the more favourable that exchange rates are for themselves,¡± says Potts. ¡°However, their own strategic plans will drive appetite rather than sudden fluctuations in exchange rates.¡±

High borrowing costs and fiscal holes
The interest rate the government pays for its borrowing leapt after the mini-budget and remains high even though the latest Chancellor (at the time of writing), Jeremy Hunt, has scrapped his predecessor¡¯s tax giveaways. Soaring rates have helped widen a hole in the public finances that Kwarteng appeared to overlook in his mini-budget delivered without consultation with the Office for Budget Responsibility. ?

These challenges could dampen demand for business travel in three ways. First, Hunt has warned government spending is to be cut, potentially affecting travel by or on behalf of the public sector. Second, it has pushed up interest rates for individuals, threatening to curb consumer spending and therefore pressurising businesses to economise if sales weaken. Third, borrowing rates have soared for businesses themselves, adding more cost to their books, which curbs their ability to invest and expand, potentially chilling their ability to spend on travel too.

For companies within the travel sector, the consensus of the people Potts talks to is that although many have borrowed heavily themselves over the past couple of years, increased interest rates will only spell bankruptcy for a few that are already on the brink. For the rest, high borrowing costs could make companies, like their clients, much more cautious about investment and expansion ¨C something that might inhibit new product development for their corporate customers.

See also:UK under pressure, Part 2: What would a Labour government mean for business travel?