What will November’s shock US election result mean for the industry? BBT hails the new chief...
DONALD TRUMP, BABY! WE GOT SOME HILLARY BITCHES ON HERE? Donald Trump! It’s your president. Every goddamn one of you. If you don’t like it, too bad.” Thus were passengers aboard a Delta Air Lines flight from Atlanta, and by symbolic implication every goddamn one of us in business travel, welcomed from an aircraft aisle to the election of the 45th president of the United States in late November.
Though the manner in which he stated it left much to be desired, this unknown herald of the Age of Trump (who received a life ban from Delta after his outburst was filmed by a fellow passenger) had a point. Whether anyone, including the greater number of Americans who voted for Mrs Clinton than her Republican rival, likes it or not, Donald J Trump will be inaugurated on January 20.
Travel managers, along with everyone else, therefore need to figure out how they may be affected, because, if his campaign rhetoric and post-election behaviour are any guide, the new leader of the world’s second-largest business travel market (it lost top spot to China last year) does not play by normal rules.
The problem is that Trump’s unconventionality makes it very difficult to second-guess exactly how his presidency will affect managed travel. A capacity for mendacious and contradictory statements, that perhaps only Silvio Berlusconi among recent Western leaders has come close to rivalling, renders it impossible to know if any of Trump’s pre-election words will translate into actions once he assumes office. With that elephantine caveat clearly stated, here at least are some factors that could prove relevant for travel managers over the next four years.
GOOD NEWS/BAD NEWS
Viewed through the narrow prism of our particular sector, there could be some good news regarding the new president. “You would think with Trump’s election that travel would have a friend in the White House,” says Greeley Koch, executive director of the Association of Corporate Travel Executives. “He has hotels which cater for business travel and meetings, and he has airline experience.”
More problematic is how Trump’s attitude will affect travel indirectly. “We have to be concerned about what was said on the campaign trail about borders, a Mexican wall and certain ethnic groups,” Koch continues. And the same volatility that afflicts the writing of a feature like this is also a worry. “Businesses like certainty,” says Koch. “They want to know what is going to happen so they can plan. At the moment, with Trump and Brexit, we have to hope companies don’t put things on hold. All this uncertainty will have a detrimental effect on travel.”
TRUMPONOMICS AND TRAVEL
The state of the economy shapes travel programmes in two basic ways: the number of trips companies make and how much they pay for those trips. Assuming Trump does eventually deliver policy clarity once inaugurated, then arguably his most profound influence on travel will be whether he improves or trashes the US economy. And that, taking Trump at his word, depends on whether you believe a cocktail of tax cuts, increased public spending, higher debt and protectionist tariffs are the key to success or disaster.
You can also take your pick from which economic forecast aligns most closely with your views about Trump, but the consensus seems to point towards, for the first couple of years, a sugar-rush of higher GDP, higher inflation rates and a stronger US dollar before it all goes pear-shaped later on. All those trends point short-term towards higher prices for travel to and within the US, but there are other factors at play to complicate the picture...
During his candidacy, President Trump threatened to ban all Muslims from entering the US, though he subsequently said during a debate with Hillary Clinton that “the Muslim ban is something that in some form has morphed into extreme vetting from certain areas of the world”. It’s hard to know what “extreme vetting” would mean in practice and the suspicion is Trump has no idea either.
However, targeting particular religious or ethnic groups would be not only abhorrent but impractical and arguably unconstitutional, too. Trump may, therefore, have to act tough on border controls in less discriminatory ways that would lengthen an already wearisome process for everyone. Curbing the visa waiver programme that includes most EU states is just one example. Sorting out entry for employees to the US could become a more common issue for travel managers.
Various surveys suggest some of the world’s holidaymakers may book elsewhere, but business travellers will have less choice. “Leisure travel could be hit, but businesses are global organisations that have to grow,” says Bill Kerr, chief marketing officer for the travel management consultancy TCG Consulting. “Long-term business strategies won’t change based on immigration policies.”
Assuming Kerr is right, corporate travel will continue to the US while a downturn in inbound leisure visitors could apply downward pressure to prices. On the other hand, tax cuts could stimulate more domestic leisure travel by wealthier US citizens.
Passing border control might become more onerous but other aspects of air travel could improve. How such ambitions can be financed in a time of drastic tax cuts remain unclear, but Trump has pledged to invest US$1 trillion to upgrade the US’s crumbling infrastructure.
The road network is earmarked especially for improvement but so, too, are airports (Trump described New York’s LaGuardia as “third world”) and air traffic control. “The GPS system in my car is more advanced than what the Federal Aviation Administration has,” says Andrew Menkes, president of Partnership Travel Consulting. Menkes believes that, as a businessman, Trump understands better infrastructure “boosts travel productivity, and the more productive you make business travel, the better it is for the economy”.
Long-haul air fares have barely moved for years, for one key reason – fierce global competition from Emirates, Etihad and Qatar Airways. Rivals in Europe and the US have intensely lobbied governments to restrict the Gulf carriers, arguing they undercut fares thanks to state subsidies (something the trio deny vigorously).
So far, regulators have ignored these pleas, but that could change. “It will definitely be up for review,” says Menkes. “Hopefully, Trump will back away from protectionism on this issue.”
For good measure, Menkes would like the new administration to lift the decades-old block on foreign investors owning more than 25 per cent of a US carrier.
Finally, for a splendidly contrarian view, look no further than TCG’s Bill Kerr. It may be business as unusual in the wider world, but that shouldn’t affect travel managers who have their heads down doing their job, he believes. “What we’re hearing in discussions with clients is that they have a lot bigger issues on their plates,” says Kerr.
“There are tactical concerns about a Trump presidency, like currency fluctuations, but that is secondary. The large majority of their focus is on strategic and functional issues. Nothing is going to shift their two-, three- or five-year plans for their travel programmes.”
Sensible advice from Kerr, or shuffling deckchairs on the Titanic? As with everything else concerning America’s next president, it is very hard to decide.
In Trump we trust...
John Stepek, editor of Moneyweek, writes for BBT about the economic implications of The Donald’s new dominion
2016 WAS A YEAR OF EXTRAORDINARY POLITICAL SURPRISES. But even the most jaded observers would have to agree that the biggest surprise – Donald Trump’s election as US president – was kept for last. Businesses in the UK that were already reeling from Brexit, now face having to factor in a US leader with some potentially very different ideas of how the world should work.
As with Brexit, we can’t yet know exactly what Trump’s rise to power means for the global economy. Investment markets have so far adopted an optimistic view. They take Trump at his word when he talks of boosting growth by introducing big tax cuts, and raising government spending in the US. Meanwhile, they take his other, less business-friendly promises – threats to crack down on immigration and to withdraw from various free trade agreements – with a big pinch of salt. We’ll soon find out if they’re right to do so. But in terms of the travel industry, there are probably two key areas where a Trump presidency could have a significant impact: the currency markets, and protectionism.
On the currency front, Trump’s election has accelerated a trend that was already in place – the strong US dollar trade. The euro and the Japanese yen have slumped against the US currency, although the pound – already hammered by Brexit – has held its own. While forecasting currency trends is something of a mug’s game, it’s hard to see many reasons for the dollar to weaken substantially in the year ahead. The US economy is stronger than most of its Western peers, and the US central bank – the Federal Reserve – is tentatively raising interest rates at a time where others are still struggling to prop up their economies. Clearly a strong dollar makes life cheaper for dollar earners, so we can expect more outbound travel from the US, boosting demand for flights and accommodation, particularly for hotspots such as London. However, a strong dollar will also make travel to the US more expensive.
Global businesses have to deal with currency fluctuations all the time, of course – from that point of view, this year has just been a little more eventful than most. What’s perhaps more concerning is the risk that Trump promotes a more protectionist US trade policy. Certainly Trump made political capital from speaking out against globalisation during his campaign, threatening to dump or renegotiate trade deals with everyone from Mexico and Canada (the long-running Nafta trade agreement) to the Pacific rim (the apparently soon-to-be short-lived TPP deal).
This is worrying because at its most fundamental level, protectionism is the deliberate process of putting up barriers between countries. That means it gets harder to ship everything from goods to capital to people across borders. And when one nation – particularly the most powerful nation in the world – lashes out in this way, others tend to retaliate. So it’s particularly worrying that one of the most likely targets will be China, the other big engine of global growth.
For anyone in the travel business, that sort of trade war would be grim – not only would global growth, in general, likely slow down as a result (as it did in the 1930s), but travel specifically would be hard hit by a sharp drop in the number of people travelling. The opportunities – if there are any – may be for travel management companies and other service providers: those who do still travel may require more assistance to navigate newly-tightened visa rules and the like. The good news is that Trump seems to have backed away from his most extreme policy positions now that he has secured his place as US president-elect. Let’s hope that continues in the new year – and that 2017 doesn’t bring us too many more surprises (although keep an eye on the French elections – that’ll be a story for later in the year!). moneyweek.com