EUR 120.00 For Business Accounts Only

MOSL: TECHNOLOGY: Business travel costs likely to remain benign in FY23

TECHNOLOGY: Business travel costs likely to remain benign in FY23

 

Slow pace of travel pickup to aid margins

• With the vaccination rate improving and the reopening of economies, there is a growing expectation of travel costs (150–300bps of revenues; Exhibit 5) returning for IT services companies in FY23. This has been further reinforced by airlines’ commentaries on corporate travel. However, recent third-party surveys and industry commentaries suggest the pickup in business travel would be a prolonged affair – as enterprises continue to keep a tight check on non-urgent travel.
• Recent surveys from Deloitte and Bloomberg suggest that most companies plan to keep travel budgets meaningfully below pre-pandemic levels. Moreover, US corporate travel is expected to trend below CY19 levels throughout CY22.
• More importantly, commentaries from the travel heads of IT services peers, such as Cognizant and Capgemini, further reflect that strong controls would continue to ensure business travel is only approved for the most essential purposes. Hence, while offices are gradually being reopened, we expect travel costs to continue to trend low and support the margins of IT services companies.
• Moreover, business travel is a key profit engine for most travel and hospitality companies. Thus, a tepid outlook for business travel could pose a risk to growth in the Travel vertical of IT services companies next year. Our base case assumes strong revenue growth for the Travel vertical over FY21–23. We remain reasonably confident on FY22E on 1) increased technology intensity, 2) strong deal wins, and 3) the low base. Nonetheless, prolonged recovery adds risk to FY23E.