5 Headwinds Facing Business Travel in South Africa

12
4 min read

SMEs have been at the forefront of business travel recovery for the past two years. Unfortunately, new macroeconomic challenges in South Africa and globally are currently threatening the recovery of SMEs and business travel, according to a new study by Wakefield for SAP Concur.

Despite this, the consensus is that business travel is essential for companies to retain a competitive edge, and most plan to lean into the opportunities. A recent Deloitte report on corporate travel found that respondents expect their travel spending to return to pre-pandemic levels by the end of 2023.

“Business travel in South Africa is currently exceeding pre-COVID levels. If we look at July this year (2022) compared to July last year (2021), numbers were up by 265%,” says Bonnie Smith, GM Corporate Traveller. Also globally, the corporate division of the Flight Centre Travel Group is exceeding pre-COVID numbers.

This strong desire for a return to more consistent business travel must be balanced with budget considerations to achieve a good return on investment, explains Smith. “It is important that travel managers understand the trends and challenges impacting travel so they can adjust their policies accordingly and make decisions with confidence.”

Smith points out that there are several important factors to consider when planning business travel, and using a travel management company (TMC) can mitigate many of the challenges associated with these factors. Below are some of the key considerations, as outlined in a recent Corporate Traveller White Paper, Travel Matters. Don’t let the cost of living derail your plans.

1. Rising inflation

According to the South African Bureau of Statistics, inflation in South Africa reached a 13-year high in June 2022, putting tremendous pressure on small businesses, with travel budgets an easy target for cost savings.

“Before you cut your travel budget, take a close look at your company’s travel costs to prevent potential revenue leakage,” says Smith. A TMC can help companies keep track of costs and ensure employees follow the rules.

2. Higher travel costs

Currently, demand far exceeds the supply for air travel. There are not enough seats to accommodate everyone wanting to travel, and airline ticket prices have increased by 20-30%. Car rental prices have also taken a hit. Petrol prices are a contributing factor, of course. Believe it or not, South Africa’s petrol prices have more than doubled in the last five years. Taking the inland petrol price as an example, it’s increased from R12.86 per litre for Petrol 95 in July 2017, to R26.74 per litre in the same month in 2022. It’s driven by the global oil price and the war in Ukraine – but the knock-on effect on everyday South Africans (private and public transport alike) can’t be underestimated.

Opting for an interest-free bill back service is a straightforward way to help save money while travel costs are skyrocketing. Smith says: “Corporate Traveller is the only TMC in South Africa that offers a credit facility to clients, which can help protect a company’s cash flow.”

3. The pressure on the Rand

After months of depreciation, the Rand stabilised somewhat in early 2022. However, according to Nedbank, further turbulence is likely. 

The latest update to The Economist’s Big Mac Index shows that South Africa’s currency is one of the most undervalued globally. Based on the index’s findings, the rand is undervalued by as much as 54.5%, and should be trading at a ‘fair’ value of R7.75 versus the dollar – or R9.85 if you take into account the size of South Africa’s economy relative to the United States. The reality, however, is that the rand is currently trading around R16.70 to the dollar.

Negotiating preferred agreements can be a smart way to reduce a company’s travel expenses and navigate the currency fluctuations. Although SMMEs often don’t have enough travel volume to negotiate worthwhile deals with suppliers such as airlines, hotels and car rental companies, partnering with a TMC with a global backing can help overcome this challenge.

4. Labour shortages

With travel rapidly rebounding, many airports are struggling to hire staff, resulting in a 2 million labour shortfall, according to the FCM Consulting Global Quarterly Trend Report Quarter 2-2022. Airports are therefore forced to limit the number of travellers per day, pushing prices up.

If you want to save money on travel, booking your tickets well in advance is best. Flexible fares can be more expensive if you book at the last minute. Smith recommends planning 1-3 months in advance for domestic travel and 2-8 months in advance for international travel.

5. Load shedding

Stage six load shedding, last seen in 2019, made an unwelcome return in July 2022. Alexforbes chief economist Isaah Mhlanga estimates that stage 6 load shedding wipes around R4 billion from South Africa’s GDP per day. That’s a big number. And a nightmare for anyone trying to run a business today. To add insult to injury? Consumers had to cough up 9.61% more for electricity from 01 April 2022.

Although the current macroeconomic challenges can feel overwhelming, they don’t need to derail companies’ business travel plans. “The post-pandemic travel landscape is more complicated than anyone would have imagined and once again underlines the importance of working with a professional travel management company. With the right travel partner by your side, it is possible to have a flourishing business travel programme that shows a clear return on investment,” concludes Smith.