Down 70% From Last Year, Business Travel Demand Won’t Bounce Back In 2021, And Maybe Not For Years

Noble Horvath

In a relatively rare sight these days a business woman checks an airport flight information board. … [+] Business travel demand in the U.S. and around the world is down more than 70% from 2019, and increasingly there’s data, signs and commentary suggesting that it may be years before it […]

Even if a vaccine for Covid-19 becomes widely available – and widely used – around the globe, and if the current, very onerous government restrictions on international travel largely disappear, airlines still will continue to experience extraordinarily weak demand for business travel through end of 2021, and likely beyond.

And that could be devastating for an already cash-depleted and shrinking airline industry that is guaranteed this year to report losses that, even for a group with a long history making of huge losses, will be record-shattering.

The economic importance of business travel for all conventional airlines and even for most so-called “discount” carriers simply cannot be overstated. It is the kind of travel that historically has generated more than half, and in some cases as much as 75% of carriers’ profits. In effect, cheaper seats sold mostly to leisure travelers are “loss leaders” that serve to fill 75% of the industry’s available seats so that the carriers then are able to offer near-on demand flights to their big-spending business travel customers.

In 2018 business travelers globally spent $1.4 trillion on airlines, hotels, ground transportation, food and other travel services. Half of that was spent in just two economies, the United States and China, according to the World Travel & Tourism Council. About 20 percent of the remaining global business travel spending occurred in Europe.

But since the arrival of the pandemic early this year travel has plummeted to previously unseen lows. U.S. air travel fell by as much as 95% in April. And while it has bounced up from that near-death experience, U.S. air travel demand never reached above 50% of its previous normal level during the peak summer travel season. Today it remains down at around 70% of what it was just one year ago. And though the data is not yet clear it appears that business travel demand is off at least as much as leisure travel demand, and probably more so.

Now there’s mounting evidence that collectively warns that even if vaccines proliferate and governments begin relaxing or lifting entirely their heavy Covid-19-derived restrictions on cross-border travel, business travel will be particularly slow to rebound vis-à-vis the rate of leisure travel recovery.

When the Institute of Travel Management recently asked corporate travel managers around the world what they expect their companies’ travel plans and budgets to be for 2021, 38% of them said their businesses’ travel volumes will be down by 25% to 50% (vs. 2019, the last “normal” year). Another 36% were even more pessimistic, saying their corporate travel would fall 50% to 70% from 2019.

Earlier this week UBS travel industry analyst Jarrod Castle spoke at an ITM conference and said, “The crisis will take several years to get through. A rise in GDP next year may not mean travel is out of the woods.”

He reminded conference attendees that it took five years for air traffic to fully recover after the financial crisis that began in 2008. And during that event travel demand fell only about 7% compared with the staggering drop in demand of more than 70% on a full-year basis in the current crisis.

Castle, who is based in in the United Kingdom, said that some surveys he has seen in the last couple of months “Suggest business travel could reduce by 20% next year against 2019.” And he was quick to add: “I would take that number. The economic background will be challenging,” implying that the likely drop in demand will be worse.

On Tuesday, Gary Kelly, CEO of Southwest Airlines, which provides more domestic airline seats than any other U.S. carrier (both before and since the pandemic began) offered further evidence that the recovery of demand is going to take a lot longer than he and other industry leaders thought it would early on after the pandemic began. He told employees in a video message Tuesday that the only way their carrier can get through 2021 without instituting the first layoffs in the company’s 49-year history will be to negotiated by Jan. 1, significant labor concessions.

Kelly, who also announced he is foregoing his own base pay through at least the end of this year, said, “We have a clear way to do all of this without layoffs or furloughs, at least through the end of next year.” But he added that “We simply do not have time for long, complex, drawn-out negotiations. We need to move quickly and have cost savings in place,” by the time the new year begins. Without those, he added, layoffs at some point in 2021 could become a last resort necessary for the airline to survive.

Southwest is the only one of the big four U.S. carriers not to lay off workers this year. Delta, American and United, along with the rest of the nation’s airlines have eliminated well over 100,000 workers since the pandemic began.

American and United cut more than 32,000 jobs, combined, on Oct. 1 when layoff restrictions tied to airlines acceptance of $25 billion in federal grants expired. U.S. carriers, which also were offered up to $25 billion more in federal loans, begged publicly for more help from the U.S. government. But Congress and the White House have been unable to reach agreement on a second broad post-pandemic economic stimulus package, of which any additional support for airlines would have to be a part.

The Democrat-controlled House passed a $2.2 trillion stimulus package in September but the Republicans who control the Senate won’t act on that bill, saying its nearly $1 trillion too expensive and packed with lots of money for Democrat-favored programs unrelated to the immediate economic needs caused by the pandemic. Treasury Secretary Steve Mnuchin, representing the Trump Administration, was in talks with House Speaker Nancy Pelosi, D-CA., in hopes of reaching a compromise measure that can pass both houses. But after seemingly picking up steam last week, they fizzled. On Tuesday President Trump, who accused Pelosi of not negotiating in good faith, instructed Mnuchin to postpone further stimulus talks until after the Nov. 3 election.

Earlier this week UBS travel industry analyst Jarrod Castle, who is based in in the United Kingdom, recently spoke to a gathering of the ITM, he said that some surveys he has seen in the last couple of months “Suggest business travel could reduce by 20% next year against 2019.”

He was quick to add: “I would take that number. The economic background will be challenging,” implying that the likely drop in demand will be worse.

So why is business demand recovery likely be so challenging this time around?

The first, and most obvious reason is fear; individual travelers – and their corporate officers responsible for the well-being of their employees doing the traveling – remain frightened of Covid-19. Though death rates among working-age adults who get infected are far, far lower than were initially predicted, it’s still not zero. And the short-term – and in some cases long-term – effects of the disease on people can be quite significant. Not only do individuals understandably want to avoid being infected, corporations fret over the possibilities that any of their workers might contract the virus while traveling for work. Companies would be legally liable for any medical costs incurred and for any potential damages claimed by such employees. Companies also risk losing the availability of top workers who get ill and risk creating a very negative reaction among all employees, who might quickly view such companies as uncaring and undesirable places to work.

Secondly, while market conditions vary by product and service categories, many companies currently are reluctant to spend lots of money on new equipment and technology or lots more products and services they need and rather are shepherding their cash closely and avoiding taking on new debt. As a result, other companies that always before pushed hard to keep their sales people on the road generating new deals and revenue, now have a lot less reason for their people to travel.

Thirdly, exactly where are business travelers supposed to go to conduct their business? A September report from Credit Suisse noted that in September only 40% of workers in the U.K. were, at that time, back in their office. And not even all of them were working in their offices on a full-time basis. The report concluded: “We expect 50% of employees back in the office in 2021, meaning a recovery in corporate travel only in 2022.”

UBS’s Castle, in his talk at the ITM conference, also noted that with more than half of corporate workers in the U.K. – and presumably similar or even large percentages of them elsewhere – now working from home, there’s simply is no place where business travelers comfortably can go to call on their customers or clients. The offices where they used to make sales or service calls are now mostly or entirely empty. Thus, that kind of work has shifted online, where the improved capabilities of teleconferencing and data sharing technologies are vastly improved from what they were 20, 10 or even five years ago.

While technology is not likely to entirely eliminate the need to meet with customers and clients face-to-face from time to time, the huge work-at-home trend is forcing a major re-think of the purposes behind and effectiveness of business travel. And that work-at-home trend is likely to remain strong all the way through 2021. In fact, to some still unknown degree the work at home trend is expected to become a bigger and more permanent aspect of work life around the world.

Fourth, and of more immediate concern, even those companies that are eager, even desperate to get their people back out on the road are facing huge barriers in the form of mandatory quarantines for foreigners arriving in countries and, in some locations, workers returning home from certain foreign destinations. Travel trade groups and individual airlines, hotels and other travel trade companies are pleading with their own nations and others to come up with standardized policies that would enable international business travel to be conducted without such onerous rules in place. Among the measures suggested are standardized Covid-19 testing procedures that passengers would have to pass before being allowed to board international flights. That would all-but assure that foreigners arriving in a nation would not be carrying the virus. But currently there’s a crazy-quilt array of travel bans, quarantines, medical documentation rules and testing procedures around the globe that are making it very difficult for people to travel internationally for any reason other than to return to their homeland.

The ITM study said that borders reopening to foreign travelers and the lifting of other related travel restrictions such as quarantines is the single most important thing that nations can do to get business travel demand going again. In fact, 97% of respondents to its survey said that it is critical. Eighty-two percent said another much-needed action before business travel can get started again would be a declaration from the World Health Organization that global travel is permitted. And 71% said the removal of mandatory quarantines on both travelers arriving in a foreign land and on travelers returning to their homelands is essential for business travel to begin recovering. Obviously having to submit to quarantines of a few days and all they way up to 14 days on either end of a business trip is an extremely strong deterrent to even taking such a trip.

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