US economy banks on business travel

Jump on a jet for that next business meeting and you may be doing more than pocketing free peanuts. You may be helping the American economy.

That is the message from two studies released last week that claim a direct tie between spending on business travel and increased company profits.

The conclusions should not come as a surprise considering the studies were released by two organisations dedicated to promoting travel, the US Travel Association and the National Business Travel Association.

But as the country struggles to climb out of the worst recession in decades, the two reports suggest that increased spending on business travel can help put the US economy back on track.

Business travel budgets have been slashed as corporations try to ride out the recession. Spending on business travel in the US is expected to reach $234 billion (Dh858.78 billion) in 2009, down 10.3 per cent from 2008, according to the National Business Travel Association.

But both studies released last week say a boost in business travel spending can act as the energy drink the slumping US economy needs to start flying again. The assumption is that face-to-face meetings generate more clients, better business deals, greater revenue and healthier profits.

The study commissioned by the US Travel Association, a trade group representing about 2,000 travel organisations, said a 10 per cent increase in spending on business travel would boost the country's gross domestic product by one per cent. Such an increase would be enough to shove the economy out of its recession, said Adam Sack, a managing director at the Oxford Economics, the research company from that produced the report.

The Oxford Economics study, based on surveys and 'econometric analysis' over the past 13 years, concluded that for every dollar invested in business travel, companies can generate an average of $12.50 in revenues and $3.80 in profits.

The study was read by Martin A. Asher, an adjunct professor of finance at the Wharton School, who declared the analysis sound.

The National Business Travel Association's study concluded that businesses can make an incremental increase of $15 in revenue for ever dollar spent on business travel.

If businesses increase travel spending to 'optimum levels', the boost would create 5.1 million new jobs and generate more than $101 billion in tax revenue, according to the study, conducted by IHS Global Insight. "Decisions to cut travel are very short-sighted," Sack said.

The drop in business travel has had a ripple effect throughout the economy. The International Air Transport Association revised its global financial forecast last week, predicting global airline losses totaling $11 billion in 2009.