For those in the air transport industry hoping that 2021 would see the turning point from devastating cash burn to the beginnings of recovery—and that’s just about everyone in the industry—the first quarter has quickly dashed those hopes.
Figures released by IATA at the end of February indicated its December forecast for traffic and financial recovery this year was already looking optimistic. Tighter and wider government border closures and international travel restrictions—prompted by COVID-19 resurgences and new variants of the virus—means the prospect for summer bookings has been substantially lowered. IATA fears airline cash burn could continue through 2021, not moving into the positive toward the end of the year as originally hoped, and it could total up to $95 billion versus the $48 billion predicted in December.
As was the case through 2020, the sectors to be hardest hit will be long-haul international and business travel. For many, that will reinforce the theory that business traffic may never fully recover. The argument goes that, unlike previous events that severely but temporarily affected business travel—such as the SARS epidemic, 9/11 terrorist attacks and the global financial crisis—video conferencing technology was much more advanced when the pandemic struck. In this theory, even after vaccinations are widely administered, the virus is under control and quarantines are lifted, individuals and corporations have a new business toolkit comprising Microsoft Teams, Zoom and multiple webinar platforms that will continue to reduce the need for face-to-face meetings. Where budgets are tight because of pandemic-related economic stress, companies will turn to these tools wherever they can avoid the cost of a business airfare, hotel rooms and related travel expenditures.
Where’s the wheelie?
But this may be an overly pessimistic assumption. Already, there is the beginnings of evidence to support a contrary view—that businessmen and women, far from looking forward to working from their laptops and iPads indefinitely, are itching to bring out the wheelie bag.
In its latest survey measuring the willingness of companies to resume business travel, the Global Business Travel Association (GBTA), found that 79% of those polled would be “very comfortable” or “comfortable” traveling for business after being vaccinated, although almost half support mandatory testing before travel.
Fifty-five percent of GBTA buyer and procurement members felt their employees were “willing” or “very willing” to travel for business in the current environment, a significant increase from the 49% who were willing/very willing in a similar GBTA poll in January.
By February, just 17% of the buyer and/or procurement members felt their employees were unwilling to travel for business at the present time. Twenty-six percent of companies also said they planned to resume domestic business travel “in the near future”—
Border closures and restrictions were cited as the reason for reduced business travel by 68% of GBTA members and stakeholders, while 56% said the restrictions and closures increased confusion and uncertainty about when business travel could resume.
Mandatory testing for business travel is widely supported, those surveyed said, because people feel it would enable safe face-to-face meetings, likely indicating an important driver of why people want to resume corporate travel. This appears to weaken the argument that, in a post-pandemic world, companies will continue to rely on cheaper virtual meetings rather than return to in-person meetings. It also seems to support the idea that people are not avoiding business travel because virtual conferencing and meetings are a better alternative. More likely, these relatively new virtual tools (at least those that work well compared with previous iterations) are still seen as a stopgap until health-related hassles, including virus transmission risk, vaccination, quarantines and border closures, are addressed.
Those hassles, unfortunately, are going to be around for some time, although new initiatives like the IATA Travel Pass digital health documentation system will ease the path for those determined to fly sooner rather than later.
But vaccination rollout programs appear to be prompting people and companies to be thinking once more about when—not if—they might resume work travel.
“It is reassuring to hear so much discussion around business travel resuming and a change in sentiment from 16% to 25% of GBTA members and stakeholders who have resumed some domestic business travel in the last month,” GBTA interim executive director Dave Hilfman said.
In a fourth-quarter earning calls with analysts at the end of January, American Airlines chief revenue officer Vasu Raja said corporate travel was down to just 5%-10% of historical levels, but he was “very optimistic” it would return as vaccines are distributed. However, the timing and rate of return was unclear at best, he said.
“In a world where corporate travel is slow to come back, what we’ve really tried to do is make the airline as nimble as possible so that we can go and create as much connectivity where there is travel demand,” he said.
Get out your salesman
There are several reasons to believe the pandemic, severe as it is, will not kill off business travel long-term. First, as soon as borders reopen and travel hassles become more manageable, airlines worldwide will do what they have always done, even when cash-strapped: They will offer very attractive business-class fares precisely to stimulate the market. And as soon as one company realizes that a competitor is sending its top salesperson to a real meeting or trade fair, you can bet it will be getting its own sales team off Teams and onto a plane.
One phenomenon that might occur, and which would really be an extension of a long-running trend, is that true business-class cabins might shrink, at least until a full air traffic demand recovery occurs, while premium economy cabins grow. In its earlier years, much of long-haul travel offered just two cabin options: first class and economy. There were large service, personal space and cost differences between the two. Business class developed as a middle ground, but as airlines competed for the higher-yielding corporate traveler, the cabin offerings became more sophisticated. Once flat beds became standard in business class, many airlines dropped their first-class cabins. There could be a similar pandemic-induced pattern in premium economy if airlines see a way of attracting the business traveler on a limited budget by offering more premium economy seats with better amenities. Conversely, socially-distance-aware business travelers may be more drawn toward business seats with doors or privacy walls. Either way, airlines have many more business-seat options at different price brackets than were available even 10 years ago when the financial crisis was putting downward pressure on budgets.
Finally, and perhaps most important of all, the longer this pandemic endures, the more the road warriors and those who typically travel for work at least a few times a year are becoming fatigued. Business deals have long been secured and corporate partners selected on very human instincts like trust and “good fit.” It’s hard-to-impossible to replicate that—to catch just the right moment when to finalize the deal—over video.
People in every type of trade and profession flock to conventions and expos because they are the most efficient way to meet new contacts, hear new ideas and gain new insights into industry trends. Social media is, at best, a prop or a follow-on to business networking forged over coffee or dinner; it’s not a substitute, particularly when it comes to making new contacts.
In the airline industry, one of the best-known salesmen was John Leahy, the long-time COO-customers at Airbus. By retirement, he was credited with having been responsible for securing over $1 trillion of aircraft sales. He didn’t achieve that over Zoom.
Related Content
