Five Reasons Why Airline Business Travel Has Permanently Changed

By Travel Destination 07 Oct, 2022 Post a Comment

Business travel for airlines has been the lifeblood for the largest U.S. and worldwide airlines. When a company is paying the bill, issues of schedule, airport and cabin treatment, frequent flier program, and more matter the most to the flyers. As a result, corporate business travelers have historically paid rates three to four times more than the leisure traveler, and sometimes much more than that. Every large U.S. airline has built their business to attract and retain this kind of traveler. It affects their fleet, schedule, seating configuration, airport real estate, management organization, distribution strategy, corporate policies, and almost everything else the airline does.

The pandemic has changed this. Corporations have recognized that they can get their business done with fewer flights taken. Leisure traffic has rebounded strongly, but airlines cannot make up the revenue from the loss of even a small amount of business travel. That’s why you see airlines labeling long-time trends like bundling business and leisure trips or leisure customers willing to pay for a nicer experience as new, post-pandemic realities. Some airline CEOs are still clinging to the myth that business traffic has not really changed and it’s just a matter of time until things go back to the way they were. There are five reasons this view is outdated:

Video Is Proven And Stable

No one thinks that a Zoom meeting is a perfect replacement for an in-person meeting. Attendees can be disengaged more easily, sometimes hearing is a challenge, and you lose something in the seams and breaks that happen in the spontaneous interactions of a live meeting. But we also all learned how effective Zoom could be in 2020 and 2021, and we found out how to get things done remotely.

Baca Juga

Video is stable, and most people are now comfortable using the major platforms like Zoom, Teams, WebEx, Google Meet, and Skype. There is certainly some pre-pandemic business travel that can be completed more effectively through video, and it is easy for businesses to decide when travel is still necessary.

Here’s a simple example. When I was a CEO, it was common to have bankers come visit to pitch some new product or just catch up on industry issues. Typically they would arrive in the mid afternoon, and we’d have a formal meeting in the mid to late afternoon. We’d then go to a nice dinner and generally have a good time. The visitors would stay in a hotel and leave the next morning, Meetings like this almost never need to happen again. The meeting could easily be done by video, and think of the value created this way. The visitors would lose the hour or two of the meeting but not all the time traveling and the overnight. The costs would be almost zero with no flights, hotels, or dinner. The company itself would be better because the management would be distracted from their core function for just the time of the meeting.

Companies are figuring this out. Of course travel will still happen and sometimes “pressing the flesh” make sense. Smart management means making the right choices, and increasingly these choices will mean less airline travel for activities where video provides a more efficient solution.

ESG Focus

Investors are increasingly pressing businesses to regularly report on non-financial ESG metrics and include these in compensation plans. More of this focus right now is on the “E,” and the easiest E for many companies is air travel. By traveling less often, companies can demonstrably reduce their carbon emissions without changing anything else about their business. Bain has been leader in this space, announcing a 35% reduction in air travel as a formal ESG strategy.

It’s not that air travel is causing climate change by itself. Airplanes are a small minority of current global emissions. But they are visible and easy to identify, so our natural tendency called the availability bias says that cutting air travel is likely because everyone can see it and understand it. Flight shaming was happening, especially in Europe, before the pandemic stated. This may prove to be the most significant threat to a full return of airline business travel.

Cost Control

Few companies have the luxury to not focus on cost control. Costs come from many areas, and cost pressures hit companies both internally and externally. Today, labor costs are an issue for most companies with limited worker availability, minimum wage pressure, and union leverage for airlines. Even for companies without strong cost pressures, cost reduction creates an opportunity for margin expansion. Business travel has long been a quick thing to cut when things get sticky, maybe even more than advertising. That’s because businesses recognize, and have for a long time, that business travel is necessary but not all the time and not at the pre-pandemic rate.

Going back to the Bain announcement, while they made their 35% travel reduction about emissions, they also certainly quantified the cost savings and margin improvement from such a move. No doubt that many CFOs are salivating at cutting a major cost item without changing their top line. Second to ESG, the opportunity for cost control from less airline travel is another major threat to the largest U.S. airlines.

Work From Home

The steady state of remote work is not here yet. Some companies have reached comfortable views on how they think of long-term remote work. Some are still wrestling with this. But its effect on airline business travel is real, since travel ultimately is about meeting people and if those people aren't there, the travel doesn’t happen. A year ago, some big airline CEOs were using expected returns to office as why more business travel was right around the corner.

If a steady state includes something less than a five-day, in-office work week, then airline business travel would evolve to focus on those in-office days for a lot of activity. Related to this is the roughly 20% of pre-pandemic business travel that was related to conventions and trade shows. If this activity reaches a hybrid steady state such that live visits to these conventions also reduces, then the travel to these conventions will also reduce.

Zeitgeist

Airline travel has changed in the way society views it. The road warrior traveler, jetting around the planet for business, used to be an aspiration for many. Today, this is seen as a glutinous use of resources and something to be shamed. It’s not “cool” to travel excessively by airplane today, and further finding ways to avoid travel is now seen as an activity that people want to share and seen as being good for society.

This may be too strong. Societal views change can change quickly, and it’s possible that traveling will again be seen as a positive contributor to society. But for airlines counting on business travel for their 2023 budget plan, they will be facing a headwind around just the idea of air travel for business.

Business travel has changed. The idea that “as soon as someone loses a big deal, they’ll be back on an airplane” misses some strong realities facing airline business travel today. Important to remember is how just a small loss of historical business travel, in the 10%-15% range, has massive implications for the largest U.S. airlines.