By Paul Waadevig
Senior Consultant, Unified Communications
Frost & Sullivan
March 2009
I've noticed that none of the pundits know what to call the economic downturn we are in. Most call it a recession, not wanting to be an alarmist by using the 'D' word, but a few are bold enough to come right out and say it's a depression. However, even these mavericks will put in the caveat that they mean "depression" with a small 'd' and not The Great Depression.
So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe. By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent that combined August 1929 to March 1933 decline of 33% to form what we now remember as "The Great Depression." By contrast, worst recession in the post-WWII years was from November 1973 to March 1975, where real GDP fell by 4.9 percent - until now. In Q4 2008, real GDP was down 6.2% and, depending on overall trends in 2009, could easily eclipse the 10% mark.
However we want to define the current economic downturn, one thing is clear: just like the 1930s, and even the early 1970s when cars went from massive to tiny, this will be a game changer for how business is conducted around the world. The most obvious change in the U.S. is that Wall Street investment baking is gone with little chance that we will see it again in a lifetime. However, aside from the massive fallout in financials, the changes are becoming more wide ranging in areas such as corporate travel.
The need to cut costs through travel reduction is a usual step during any downturn, including what happened during the "dot com bust" in 2000-01. However, the pushback from the public to the major U.S. auto makers taking private jets from Detroit to Washington to testify why they needed billions in bailout funds has brought the corporate travel issue to the forefront. If there is any doubt that attitudes toward corporate travel are rapidly changing, take a look at www.welcomebigwigs.com, a viral website posted by JetBlue that parodies CEOs having to travel on commercial flights. Would this have been posted or even understandable a year ago?
The travel industry itself is attempting to salvage corporate travel before it is, potentially, legislated out of existence. In January, the U.S. Travel Association issued its own "self governance" guidelines for corporate travel. These guidelines address conferences, events and employee recognition events for recipients of emergency government assistance. Highlights include:
-
Conferences or events with a cost exceeding $75,000 must be supported by a written business case identifying a specific business purpose and positive return on objective and investment metrics;
-
At least 90 percent of incentive program attendees shall be other than senior executives (as defined by Treasury Department guidelines) from the host organization; and
-
Total annual expenses for meetings, events and incentive/recognition travel shall not exceed 15 percent of the company's total sales and marketing spend.
All deference to the hotels and airlines - most of whom have been given the bearish "sell" recommendation by the majority of Wall Street analysts - but it looks like their diminished revenue from corporate travel is not just a momentary downturn. Not only is the current public outrage the "third strike" to the corporate travel industry (the first being the 9/11/01 attacks, second being the increase in fees when oil was over $100 per barrel) but with the conferencing tools available through an IP network, for the first time, real-time business can be extensively conducted without travel.
Even immediately post 9/11, many companies had not extensively deployed IP networks, especially in the SMB space, and there was not the critical mass of high speed IP access and standards needed to make communications outside of each enterprise a viable and reliable option. Now, with the spread of broadband access, even remote workers that six years ago would have been using dial-up are able to access web and video conferencing from their desktop. For the c-level, who are most under attack for their travel habits: in 2001 tools like Telepresence were only on the drawing board, and the cost of bandwidth to build out these rooms would have been comparable to using a private jet.
Today, not only are the conferencing and communication infrastructure, services, and endpoints in place, they are available in more areas of the globe than ever before. And, with a number of countries, such as the U.S., China and the UK, adding billions of dollars for communication technology in their economic stimulus packages, the scope of availability will only increase. This will further decrease the need for business travel over time.
All the macro factors of public sentiment, government spending and available technology tools point to a major change from travel to communication technology over the long term. Will this impact the travel and hospitality sectors negatively? Absolutely. However, we must avoid the temptation to artificially prop up outmoded industries simply because there will be momentary pain. Imagine if we still had a government-supported horse and buggy industry because we didn't want massive layoffs when people started buying automobiles? We will need to embrace the advantages of change. Fortunately, it appears that many of the world's leaders understand this and are funding communications for the 21st century and not the travel of the 20th.