American companies are taking to the friendly skies once again, and their impact is sending a ripple effect through the hospitality industries…
Has the U.S. economy made a full recovery to pre-recession levels?
In one aspect, it may seem that way…
In a huge turnaround from just a few years ago, businesses are once again encouraging their workforce to crisscross the globe like it’s going out of style.
According to the Global Business Travel Association, spending on business trips is on the rise, and has been since 2010. In fact, US business travel spending is expected to grow by $292.3 billion in 2014 — a 6.8% jump over last year. Take a look:
Other findings include:
- The total number of domestic person business trips in 2013 was 468.8 million, resulting in a 4.7 percent year-to-year gain
- Group business travel outperformed individual business travel in 2013, growing 8.6%, indicating companies’ willingness to increase their discretionary spending
- While individual business travel volume is expected to grow 2.3% in 2014, individual spending is expected to increase 5.69%, driven by higher prices and additional spend-per-trip. The report cites rising food prices, rental car rates, and lodging as the largest contributors to travel price growth
- International outbound business travel continues to rise, with trip volume expected to grow 6.6% and trip spending increasing 10.3% in 2014
In other words, business travel is booming and it’s slated to grow by leaps and bounds in the months and years ahead.
But what’s even more important is the trickle-down effect that will have an immense impact on supported businesses.
“Business travel spending in the U.S. supports 7.1 million jobs,” said GBTA executive director and COO, Michael W. “We continue to see a correlation: growth in business travel is intrinsically linked to jobs development and ultimately growth in the U.S. economy.”
With business travel taking flight, it isn’t just the airlines or the hotels that benefit. Other supported industries include the restaurant, car rental, retail, and entertainment industries.
And of course, there’s also the fact that business travel is a major cash cow for… the credit card industry.
Top Travel Stock To Buy Today:
Visa (NYSE:V) is the world’s largest payment services company, and boasts a presence in more than 200 countries.
It also bankrolled the GBTA report, and is optimistic on the economic impact that business trips have.
“The expected growth outlined in the GBTA BTI means for exciting times not only in the business travel market but for our country’s economy as well,” said Visa’s senior VP and head of Global Commercial Solutions Tad Fordyce.
Chances are, credit cards are being used instead of cash or checks to expense everything from online flight bookings to tradeshows to client appreciation dinners.
The Nilson Report stated in January that Visa accounted for a 60.5% market share of worldwide credit card transactions in 2013, ahead of second place MasterCard at 26.9%.
Payments volume for Visa increased to $4.3 trillion in 2013, up from $3.9 trillion in 2012 — an increase of 10.3% year over year.
Assuming that most merchants are charged an average of 2.5-3% per credit card transaction, this results in a very lucrative revenue stream for Visa.
Over the last five years, revenue has gone up from $6.9 billion in FY 2009 to $11.8 billion in FY 2013.
Earnings per share have grown from $3.10 to $7.59 over the same span.
Would-be investors will also like the fact that the Company has increased its dividend payout for seven straight years, and has a 5-year dividend growth rate of 45.9%.
When it comes to margins, there’s simply no beating the payment services business. The banks handle the cards and accounts themselves, while processing companies manage the POS systems. Visa more or less just has to show up.
Since the infrastructure is already in place, it allows Visa to run its business at a sizzling operating margin of 61%. Net margins for the last five years averaged 34.68%.
And let’s not forget about the explosion of mobile banking through smartphones, which is arguably the next big growth area for Visa.
Just think of the growth in business travel going hand-in-hand with the convenience of smartphones, and you can’t help but see what else is in store for Visa.