Pandemic Could Cut Business Travel by 36% -- Permanently
Between 19% and 36% of all business trips could disappear, given efficiencies developed during the lockdown, our Middle Seat columnist and airline experts estimate
Even if Covid-19 vaccines become widespread, business travel is likely to be changed by the pandemic. Travel budgets have been slashed and some meetings will remain virtual; conferences and conventions may be crimped.
But by how much? It matters not only to airlines and their employees but also their customers -- travelers. That's because higher fares paid by corporate customers actually subsidize cheap fares for vacationers. What's more, less business travel means that airlines schedule fewer flights on business routes, like trips to New York, Chicago, London and Tokyo. That means fewer seats for leisure travelers.
Estimates of permanent change in the airline industry have ranged from the CEOs of American, United and Delta all saying business travel will come roaring back in full, though it may take a few years, to observers like Bill Gates who recently suggested half of all business travel will never return.
Guesses aside, a look at data suggests between 19% and 36% of all air trips are likely to be lost, based on a business-travel analysis I worked on with three airline-industry veterans.
"Brick-and-mortar retail has been devastated by ecommerce and I think this is a parallel story,'' says Jay Sorensen, president of IdeaWorks, an airline-industry consulting firm and a member of our group. The others are Ben Baldanza, former chief executive of Spirit Airlines and a current board member of JetBlue, and consumer advocate Charlie Leocha, president of Travelers United, a passenger-advocacy organization.
We started meeting weekly online when the pandemic began. We compared notes on our own trips and commiserated on the abrupt travel-industry depression. And we became frustrated with the lack of good data on how the Covid-19 pandemic would affect airlines and travel.
We compiled data on business travel from disparate sources and broke down the market by travel purposes, such as sales, technical support or conventions and trade shows. That's not how the market is usually measured. Most data on business travel looks at how much auto makers or universities or other industries spend on trips. Then we estimated the minimum and maximum percentage of trips that might be lost to technology in each category. Some purposes are more easily replaced by technology than others. Sales calls are more likely to fully return to in-person meetings because of the competitive nature of winning business. But internal company training sessions could become virtual rather than in-person. Multiplying the estimates of lost trips by the share of business travel in each of our seven categories gave an overall estimate of trips lost: 19% to 36%.
Business travel has a disproportionate effect on airlines: The top 10% to 15% of customers at global carriers typically account for about 40% of revenue. Overall, Bank of America estimates business trips contributed $334 billion to the entire travel industry's $1.1 trillion in revenue last year.
Typically people think of business travel as sales people on the road meeting with existing clients and pursuing new ones, or people attending conventions and trade shows. But that is far from the whole picture. About 25% can be classified as sales and securing clients, according to our research, and another 20% for conventions and trade shows. Add in support of existing customers and a category we called "professional services," which includes legal and consulting work plus research, and you get to about two-thirds of the business-travel pie.
After combing through data from various sources and surveys from around the world, we found some assumptions about business travel need refining. About 20% of all of it, for example, is for intra-company meetings and training -- a category that could be replaced by online sessions. Commuting by air to work totaled about 5% of all business travel in the past. Post-pandemic, that could be reduced by working remotely. In both those categories, we estimated a minimum 40% of that travel would be replaced by technology and it could be as high as 60%.
At the other end of our scale, we estimated that the loss from sales trips would be somewhere between zero and only 20%. Conventions and trade shows likely will bounce back because they are seen as efficient ways to meet clients, recruit business and keep track of competitors. There will be bigger losses in categories like technical support, where trips can be replaced by virtual visits.
We vetted our findings with people in the industry, such as airline executives, U.S. and international trade associations and corporate travel agencies. Their feedback led to some refining of categories and supported our findings.
The worst case scenario -- losing more than one-third of all business travel -- would reshape air travel dramatically. "That's a huge number,'' Mr. Baldanza says. "If 36% really happens, that's a major, major issue for the U.S. airline industry and yet that's a believable number for me.''
Airlines like American, Delta and United in the U.S. and foreign carriers like Lufthansa, British Airways and Singapore are built around business travelers. It affects where they fly, how they design schedules, how they configure planes and everything from plush airport lounges to major investments in fancy new terminals. Their frequent-flier programs are geared to rewarding high-dollar customers.
Some airline executives note that technology has always stimulated more business travel, not less. The easier it is to make connections in the business world, the more reason there is to go meet with people. Others say that this time it's different. Video technology lives on all our laptops and phones, and we now are well-trained and efficient. Why not talk with a client online instead of making a two-day trip for an hour-long meeting?
A global survey in early October by consulting firm Oliver Wyman found that 43% of business travelers said that after Covid-19, their company travel would be less than planned. That was higher than the 27% who said in May they thought their business travel would be reduced after the pandemic.
Some big-company CEOs have already said some efficiencies developed during the pandemic will endure, such as reduced travel spending.
Faced with a loss of business travel, big airlines will no doubt try to raise ticket prices for leisure passengers to make up for reduced revenue. But that may be difficult. Low-cost carriers represent about 20% of U.S. airline capacity and can force airlines to match low prices. A lot of leisure travel is discretionary and if it gets too expensive, not as many people will go.
Mr. Baldanza says that means big airlines will have to cut costs to stay profitable. "If you built your whole airline to attract this traffic level and it's not there anymore, you still have all the costs in your airline.''
He adds that he hopes we are wrong: "I hope vaccines are great and in 12 months the world is living a somewhat normal life and everyone who thought they wouldn't travel says, 'Yeah I'm going to go travel'."