A new report by IdeaWorks and CarTrawler reveals how the COVID-19 pandemic, technology and greater awareness of the environmental impact of flying are changing airline business travel.
“It could be a year in which the airline industry recovers some of the profits lost during the pandemic. That’s the picture for leisure travel, especially in the burgeoning premium leisure sector. The recovery of business travel is complex and largely unwritten. Online meeting technology continues to march ahead, company employees are still working from home, corporations are setting carbon reductions tied to business travel, and the airline industry still struggles to find firmer footing. Innovation and resilience saved airlines during the pandemic, and these same traits will allow airlines to adapt to the changes wrought by new communication technologies and carbon emission concerns,” the report’s author, Jay Sorensen explains.
Business is tough, even at home
Is the work-from-home trend having a long-term impact on domestic business travel? It may not be the only factor at play, but as Sorensen points out business today is nothing like usual.
“Delta’s presentation during its 2021 Capital Markets Day reflects overall conditions in the airline industry. Domestic leisure travel is rebounding, while international travel has not recovered. Domestic business travel is off 40 percent from pre-pandemic volumes. Other carriers report similar results with United Airlines disclosing a 40 percent business travel revenue reduction and Air France a 50 percent loss of long haul corporate revenue compared to 2019. It’s a vast improvement from the depths of the pandemic when business travel ceased to exist, but still lagging,” he writes. “Commerce throughout the pandemic has largely remained strong. This has certainly not been true for the travel industry, and in particular for airlines. Business activity marched on without the benefit of salespeople, buyers, technicians, trainers, researchers, and board members traveling to factories, offices, and conferences for face-to-face meetings. This once oh-so- necessary activity was replaced with services such as Zoom, Meet, Teams, and Hangouts. Work-from-home changed from an elusive perk for the few to an expectation for the many. Travel, once a vibrant component of the corporate world, was sidelined by the swirl of all these changes. Business travel is returning but it won’t come back the same. Too much has changed during these 24 months, with the pandemic forcing companies to embrace online meeting tools. Savvy airlines will anticipate the changes and tap new areas of consumer spending for travel.”
It’s a new climate
As Sorensen points out, corporate carbon budgets are leading to greater scrutiny of business travel.
“We are in an era in which corporations are actively engaged in climate change issues. CDP is a not-for-profit charity that operates a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Ten years ago, 3,500+ companies disclosed data to CDP; as of 2021 the number is more than 13,000.2 The list includes top airlines in the world, which have climate change scores ranging from A- to F. Environmental concerns were not included in the 2020 assessment of business travel trends; it’s something which must be considered in 2022. Corporate attention all over the world has turned to the issue of climate change and the reduction of carbon. For some companies, airline travel represents the largest share of their carbon footprint,” Sorensen writes.
But more than a challenge, one might argue this is a marketing opportunity. The aviation industry is already committed to drastically reducing its carbon footprint, but being at the lead in the climate change challenge can lead to favourable brand differentiation.
“Companies can use a variety of methods to reduce business travel emissions. This includes choosing airlines that promise to use sustainable aviation fuels, purchasing carbon offsets, substituting rail for airline travel, sharing ground transportation, booking fuel efficient cars and green hotels, taking nonstop flights, downgrading from business class, and substituting digital for actual travel. There are many alternatives for carbon reduction that don’t involve cancelling business trips. Airlines and other travel suppliers that embrace these tools will naturally capture a larger share of the business travel market,” Sorensen writes.
Face-to-face still matters to the bottom line
Sorensen finds there are still some key motivators pushing companies to allow business travel.
- 25% for purposes of sales and securing clients
- 20% intra-company meetings
- 20% conventions and trade-shows
- 10% support of existing customers
- 10% tech support — equipment and IT
- 10% professional services — clients and research
- 5% commuters by air
“The resulting division between customer and internal audiences is approximately 65 and 35 percent respectively. That’s a meaningful distinction, that two-thirds of business travel is customer-facing and thus difficult to replace with technology,” Sorensen writes. “This brings us back to the December 2020 report which predicted a 19 to 36 percent drop in business travel due to the effects of online meeting technology. Developments since then continue to support the prior thesis, along with a new emphasis on the carbon emissions produced by business travel. Projecting reduced levels of business travel should include another caveat. The global economy could come roaring back with a dramatic increase in overall commercial activity above the 2019 baseline. This rising tide would lift all boats, and airline travel could increase above pre-pandemic levels. Whether this increase would be enduring or temporary is yet another unknown. The most likely outcome has the global economy gradually rebounding with a three- to four-year delay before achieving net growth above 2019 levels. The continuance or escalation of war in Europe and any future Covid variant activity would reduce economic growth and business travel activity.”
More on this last point later.
Business purpose is less important than high-revenue seating and posting the revenue share of the cabin footprint
With all of this in mind, it’s also well past time to think beyond the aircraft cabin as little nooks for the affluent (first), the “business person” (business class) and everyone else (coach). These cabin classes were already growing irrelevant before the crisis we face now.
In fact, I’ve been writing about the need for airlines to change this thinking for years and years and years and years. Fortunately, many airlines have changed, by adding premium economy seating and differentiating their economy class product. Growing trends over the last decade hinted at what we are experiencing now, the rise of the freelancer entrepreneur, the advent of travel and lifestyle influencers, and the cautious corporate cutbacks ‘less flash more productivity’ which began during the last recession. They all predicted what Sorensen finds happening now.
“Airlines are already making the configuration change from business class to premium economy. A recent headline in the London Sunday Times proclaimed: Airlines ditch first class but offer fliers more legroom in ‘premium economy.’,” Sorensen writes. (Just imagine the grin on my face right now.) “The largest market potential for premium economy is offered by upscale leisure travellers. Glen Hauenstein, president of Delta Air Lines, said, ‘We believe that through the pandemic, we’ve created kind of a new class of customer which is a high end consumer who wants these products.’ This is a bold statement because new types of travellers are a rare bird in an industry that’s more than a century old. Mr. Hauenstein makes the argument that the loss of business travellers during the pandemic created the opportunity for wealthy consumers to book premium seats, which were traditionally held for corporate customers at high fares. Airline executives are enthusiastic about the revenue to be gained by mining this treasure of leisure passengers. The president of Delta added more rationale for the focus on leisure, ‘Demand for premium products is actually exceeding our coach products with the business traveler out. The big epiphany for us was there’s a much broader demand for this than just business travelers.’ He closes the argument by predicting the initiative will produce attractive profits.”
Where were are is not great, but it’s also hardly the end
While these factors and their impact on business class today are certainly something to consider, it’s also important to keep in mind that we are not back to anything like “normalcy.” So any progress or recovery we see is doubly-remarkable for happening in the most adverse conditions. The most pessimistic of us could not possibly have dreamt up this scenario in 2019.
Airlines have been pushing for a relaxation of mask requirements onboard and the lifting of other travel restrictions, and the world wants to move on from COVID, but the pandemic is still very much with us. Add to that the impact of the Russian invasion of the Ukraine, both socially and economically, and we are still living through a prolonged combination of business shattering factors that we haven’t experienced for many generations.
I don’t believe we can compare the current combination of crises to any previous black swan events in the history of aviation. Nor can we really compare this time period to previous historical crises of the 20th century. I would argue that we are currently experiencing is the equivalent of combining two historic crises.
The plague-cycle conditions of the Middle Ages (when it was generally accepted that society would by necessity retreat and isolate, from time to time, to avoid mass contagion and then return to “city life” when the most recent scare passed) most closely resemble to me what we are go through with the COVID-19 variant waves. In other words, we are not yet able to stamp this thing out completely, but we learn to ride the waves and return to life as we would have it for however long we can, retreat again to wait out the worst, and then return again. It’s hardly ideal, but society has adapted to these cycles before, and we can do so for however long we need to. There is always a percentage of people who will venture out, and airlines still have the huge advantage of being a superior method to cross continents. No other transport system in the history of humanity can get people there and back as quickly as a plane. That is unlikely to change soon.
Regrettably, we now also face a serious political crisis in Europe which threatens world markets and which inevitably will affect airline recovery. It’s not enough to point out that the Russian incursion in Ukraine is a humanitarian crisis in Europe. It is also affecting food supplies throughout the world and affecting global energy supplies. Should the crisis continue, or God forbid escalate, a global recession may not be far off. Airlines would have to adapt again.
Both of these events happening at once might seem too much for aviation to withstand, but the human desire to live and even thrive through chaos is stronger than the chaos humans are capable of bringing about. At least, to me, that has been the lesson of history. We have been through any combination of earth-shattering, lifestyle-shifting events many times over the centuries. And yet, here we are—not behind, but far ahead. I am writing this on a device connected to the world which is a useful tool to perpetuate the momentum of business even when ordinary life has come to a grinding halt. It is nothing like meeting with you in person to give you this pep talk, but it will do for now.
Our expectation for recovery to business “as was” in aviation should be tempered. It doesn’t really matter who flies or when they fly as much as the fact that people are flying—despite all of this—because flying is an essential component of modern society. I think it’s really remarkable that Sorensen’s data shows 10% of business flying demand is produced by IT-related needs. Computers have changed our lives for the better, but they are not all of life. And they too—from development to production to distribution—rely on aviation.
What must happen is that governments should continue to recognise aviation as vital social and economic infrastructure. In other words, if things get grim, airlines should get a helping hand. After all, airlines pay lots of taxes.
And, as Sorensen says: “Ours is an industry which knows how to persevere and serve.”