Corporate and business travel will undergo a fundamental transformation

Summary:

• Business travel, previously strong and growing, ground to a near-halt as borders closed and the virus threat deterred travellers, while duty of care issues constrained employers.
• Teleconferencing became the natural travel replacement as business had to go on.
• The travel profile promises a smaller proportion of business traffic, challenging traditional airline models.
• Safety and sanitary standards are not standardised and will take time to adjust.
• Before business travel can recommence in earnest, borders must open, fears dispelled, and the entire travel journey must be made - and be seen to be - safe.

Teleconferencing quickly filled a vacuum

Long-discussed plans to make greater use of teleconferencing platforms quickly came into play as travel ground to a halt. No longer able to have physical meetings with colleagues or customers, and spend much of their time on aircraft, in airports or city hotels, corporate travellers quickly focussed on mastering the likes of Zoom or Teams.

But surely this would just be a short term issue and life would return to normal after this brief interlude? After all, while business travel spend was sharply hit during the global financial crisis, it recovered, even if cuts in travel spend were reflected for many months, both in the volume of air travel and a downgrading in cabin class.

Even during the early evolution of the coronavirus, business leaders were not overly concerned about its effects. The Chinese city of Wuhan may have gone into lockdown and a limited number of cases had been recorded elsewhere, but despite having seen the effects of similar viruses earlier in the century, this was still seen as a short term inconvenience for business travellers rather than the global public health crisis it was soon to become.

From a minor inconvenience to an unprecedented tragedy there is now major uncertainty about when business travel will start to recover. After the global financial crisis it took two to three years, but that was not preceded by the months-long shutdown that global travel has experienced this year. Fears of second waves, when some countries have not yet cleared their first, only add to the uncertainty.

Optimism on business travel recovery has now turned more pessimistic; one major airline CEO has stated that even now the return of business travel remains a moving target and hard to pinpoint as corporations continue to push back office returns and travel until the latter stages of 2020, even into 2021. The blended working notion that many businesses are seeking to adopt will leave an indelible impact on business travel, but its scale and impact remains uncertain.

The calm before the storm gave no hint of what was to come

At the start of the year, little about the medical tsunami that was about to hit the world was known outside Wuhan - China's tenth largest city and one of its main high-tech, education, and financial centres - or beyond the wider Hubei province, in which Wuhan is located. At this time, demand for travel across the world remained strong, even in and out of China.

Capacity data derived from OAG schedules and CAPA aircraft seat data shows that across the first three weeks of the year global capacity levels were up year-on-year, albeit that a declining trend was already evident. For the week commencing 06-Jan-2020 capacity was up +3.5%, followed in week commencing 13-Jan-2020 by +3.4%, then +2.5% for week commencing 20-Jan-2020 and then +2.0% for week commencing 27-Jan-2020. They then started a shallow fall into negative growth before falling off a cliff in Mar-2020 and hitting average levels below -70%, below -90% in many markets.

Business demand had been strong and aircraft premium cabins were seeing heavy loads. However, the introduction of international traffic restrictions and country lockdowns quickly turned off the tap as airports turned into ghost towns.

Domestic travel gives hope; international remains subdued

In some jurisdictions domestic travel is showing a recovery. Internal air capacity is up, but there has been some modal shift evident in many countries as travellers turn to road and rail where alternatives exist. That is also evident in some short haul regional international markets that are slowly beginning to open.

There is some hope for international 'corona corridors' or 'travel bubbles' which can help shift business travel intentions, but to date they have not necessarily delivered the levels of travel anticipated, at least in terms of business travel. For leisure travellers they have proved more successful in supporting the pent-up demand, but they remain fluid as the quick resumption of quarantine restrictions in parts of Europe and Australia have proven. These offer warning signs for businesses that have adopted enhanced duty of care requirements for the health of their road warriors.

The recovery of travel to all destinations worldwide will depend on a host of factors, not limited to the economy, the speed with which travel restrictions are lifted, the health of the aviation industry, and the risk aversion of potential travellers. The latter of these is so far proving to be a substantial barrier; for corporates the issue of duty of care also looms large.

Border restrictions have been generally lifting, but the approach taken to reopening varies hugely between regions and by country. This will ultimately determine the shape of the recovery. What is clear is that the likelihood of a stable and quick recovery of travel demand is likely to be greater for destinations that rely more heavily on domestic and short haul travellers. Lower cost of travel, remaining international travel restrictions, uncertainty around transport availability as well as a heightened risk aversion is likely to increase consumer preference for travelling closer to home.

Airlines adapt to doubts about corporate travel's return

Corporate travel is the lifeblood for legacy airlines and some are having to adapt quickly into a world with diluted business travel demand. In Europe, this is no more evident than in the German market at Lufthansa Group, where corporate travel has long underpinned the operation of its network business. For airlines like Lufthansa business travellers account for a significant share of revenues and on some routes this was estimated to have reached levels as high as three quarters of its returns.

Especially worryingly, from the corporate travel perspective, the decision by the airline to bank more heavily on the leisure market through its new leisure unit, Ocean, may highlight a deeper concern over the return of business travel, which currently remains significantly subdued across international markets.

In 2Q2020, the Lufthansa Group airlines carried 1.7 million passengers, down -96% on the previous year, capacity fell -95% and seat load factor declines to just 56% on the limited operational services, down -27 percentage points below the previous year's figure.

Lufthansa anticipates a return to 2019 levels not before 2024

"We are experiencing a caesura in global air traffic. We do not expect demand to return to pre-crisis levels before 2024. Especially for long haul routes there will be no quick recovery," said Carsten Spohr, chairman of the executive board and CEO of Deutsche Lufthansa.

For now it is all about taking advantage of the what travel flows are currently obtainable. This primarily concerns short haul leisure travel. Since the beginning of Jul-2020, the Group has gradually increased its offering to around 20% of the previous year's level and load factors are said to be exceeding 70% in European short haul markets.

In the third quarter, capacity offered is planned to increase to an average of around 40% of the prior year capacity on short and medium haul routes and to around 20% on long haul routes to markets where travel restrictions have been lifted and assuming that COVID-19 infections remain managed.

If this continues, in the fourth quarter, the Lufthansa Group capacity plans - somewhat optimistically - to increase further to an average of around 55% (short and medium haul) and around 50% (long haul). This would see the Group return to 95% of the short and medium haul and 70% of the long haul destinations by the end of the year, albeit with greatly reduced frequencies and smaller aircraft deployed on many routes.

The former is a big inconvenience to business travellers where frequency is the holy grail. A direct service may be popular, but if it doesn't operate on the necessary days or at the necessary timings it is of no real value to corporates. While they may applaud the growth plans the inferior schedules could mean much longer journeys and extended transit times that will conflict with enhanced duty of care requirements in the current environment.

The adjustment for reduced corporate demand for the foreseeable future is also clear in British Airways' decision to accelerate the retirement of its Boeing 747-400 fleet. A closer look at the configuration of the aircraft - BA actually flew the Jumbo in three different arrangements to suit individual markets - and a comparison with its closest replacement, the Airbus A350-1000 shows an aircraft with similar economy capacity but with much reduced premium cabin accommodation.

The US majors feel the force of reduced corporate demand

The US majors are also feeling the pressure from reduced business demand. American Airlines says it is bracing for a prolonged period of depressed corporate demand as the US attempts to beat back the rapid spread of COVID-19. "So much of what this crisis is, it's not just the demand as well but it's such uncertainty about it," the airline's chief revenue officer Vasu Raja recently told analysts and investors.

It is a similar story at Alaska Air Group. "We're seeing what I believe the whole industry is seeing is that corporate travel is massively down over -90%,", its chief commercial officer Andrew Harrison recently told analysts and investors. "…with the extension of closing office spaces right now we're not really seeing any thawing of business demand," he explained.

"Business travel, which typically represents 50% of our revenue, has not yet returned in any meaningful way," said Delta Air Lines' CEO Ed Bastian during a recent earning discussion with analysts and investors. But he concluded he is not "one that thinks that we are in a permanently depressed level of business travel for the foreseeable future".

Delta is seeing some green shoots in what is a bleak corporate outlook and although it believes the volume of business travel may never return to 2019 levels, it does not believe the drastic drop off in corporate demand will remain indefinitely. Mr Bastian stated business travel is "going to clearly be a 12 to 18 month lag, awaiting for advances on the medical front".

A smaller business market will mean increased competition for the reduced pool

Despite the bleak outlook for US business travel for the foreseeable future, Southwest Airlines is declaring that it intends to have a larger share of corporate demand once a recovery starts. Although it remains a leisure-based airline, during the last few years it has worked to gain significant traction in the corporate space, similar to the evolution of easyJet in Europe. In Jul-2020, Southwest announced:

Southwest's business travel revenue in the second quarter plummeted approximately -90% to -95% year-on-year and despite some optimism, further spikes in COVID-19 infections in the US have left it uncertain just when demand will bounce back. "We've had a lot of discussions with corporate travel managers, and we have been hearing some pretty cautious optimism about travel resuming back in the third and fourth quarters, but certainly, with the recent spike in COVID [19] cases, that is far from what's going to happen," said the airline's president Thomas Nealon in a recent discussion with analysts and investors.

Meanwhile, in Brazil, another nation that has been hit particularly hard by the spread of COVID-19, its largest airline GOL has been adding capacity back to its network and is anticipating a return to 80% of all frequencies and markets by the end of 2020, with confidence that some corporate travel will resume over the coming months. The airline believes larger corporate clients could begin travelling again as states and localities in Brazil begin to open up. That should allow GOL to widen its booking curve, which for now remains short, at broadly 20 days.

Based on its relationships with its corporate clients, GOL anticipates that some of the larger corporations in Brazil could authorise travel beginning in Sep-2020, "but it seems more heavily weighted toward October [Oct-2020]", according to CFO Richard Lark. During the Sep-2020 to Oct2020 period GOL expects to "go back to a somewhat more normal booking curve…as it relates to the re-establishment of corporate travel in Brazil", he explained. Whether this optimism can persist, as Brazil experiences the second worst level of infections and deaths will offer an important case study.

Is technology the cure or part of the disease?

New technologies like chatbot-powered messaging apps, mobile booking assistants, and artificial intelligence (AI)-enhanced travel tools have entered the mix, empowering more traveller independence and delivering reduced costs for the organisations that deploy them. There has been significant disruption from the growing "sharing economy" options now available to business travellers. Most had added ridesharing and alternative lodging to their programmes.

Technology is now seen as a key driver of the industry as it adapts its practices to meet new standard requirements and business protocols. But challenging the return of business travel are such features as development of artificial intelligence meeting tools.

Even before COVID-19 hit, companies had started to realise that there were some big opportunities for improving the way meetings and events were planned. Many a report has now been written about how the resurgence of business travel could be influenced by the explosion of video conferencing which has meant a lot of business meetings now routinely take place online.

Some saw their value; others were not sold. But many, having seen it in action now appreciate its value. One such example is Maurice Gallagher, chairman and CEO of Allegiant Travel Company who has shared his own appreciation of these technology platforms as a business tool in a letter to shareholders. Having been circumspect about virtual meetings, his endorsement of the platforms may suggest the level of business travel lost to technology could be higher than many envisage.

Mr Gallagher described the use of technology "as a viable alternative to business travel" and said it is a "looming problem" for the industry. "Modern streaming capabilities from companies such as Zoom, Google and Microsoft have come into their own," he explained.

Allegiant's board - like most big businesses - has been doing all of its meetings via this method. Mr Gallagher explained that prior to the pandemic it never considered virtual meetings. "Just like all things new, there were problems in the first few tries but when you have to use it, when you have no choice, you figure it out," he added.

And that is just what the company has done. "I now appreciate the tremendous savings of time and additional productivity," said Mr Gallagher. Unlike past slowdowns in the 2000s, this time senior executives "understand the power of this technology and appreciate the ability to reduce travel and entertainment expenses in the coming months and years," he added. While direct expense savings are a part of the benefit, a larger part of the equation could be the increased productivity from personnel not travelling.

"Conferences and trade shows still have merit and there are businesses who believe face-to-face meetings are critical competitive requirements," he said, but the combination of substantial dollar savings and increased productivity "has to have an impact on the return of business travel". As things improve, "old habits will re-emerge. But for the next year or two, perhaps longer, the impact of technology on business travel could be substantial," concluded Mr Gallagher.

However, United Airlines officials do not believe that video technology will replace in-person meetings over the long term. While video conferencing is "a reasonable temporary measure…we do not expect it to replace meeting in person over the long term", according to company chief commercial officer Andrew Nocella.

"In fact, we have a hypothesis that more work from home employees may drive increased business travel over the medium term," Mr Nocella explained in a recent discussion with analysts and investors. Those employees could trade their "automobile commutes for less frequent commuting by airplane from a remote location", he stated.

United's CEO Scott Kirby also believes that business demand will start to revive; however the rebound in large conventions could take some time. "The small kind of group stuff will start to come back, but we're not going to have 180,000 people show up at Consumer Electronics [the Consumer Electronics Show] in Las Vegas this January like they did last January," Mr Kirby said. "Those kinds of meetings aren't just going to happen".

Even as business travel is essentially non-existent, United is seeing an ever-increasing rate of its premier members in the company's MileagePlus frequent flyer programme flying again. "…maybe not for business but for personal reasons. So they're getting back on an airplane", Mr Nocella said.

The duty of care and fighting fear in the traveller journey

A state of uncertainty prevails across the world. In many countries the first steps after lockdowns have been very tentative and there is no consensus on how to deal with what has become a life changing event. Risk management has become foremost in simple decisions about leaving the home environment.

Risk management has always been a key aspect of every business travel programme, and will be much more evident as corporate travel recovers. The business travel sector has had years of experience in dealing with unplanned disruptions ranging from epidemics and volcanic eruptions to inclement weather and geopolitical unrest. They have not been on the scale of the current unprecedented situation, but being prepared for unpredictable situations remains a key platform for making any travel programme effectively support duty of care obligations.

In the 'new normal' - probably actually a continuing state of non-normal - it is now more than ever essential to put travellers at the heart of travel policies and know what's important to them. Some travellers will have concerns about returning to business travel and understanding and addressing these concerns will be key to reigniting corporate travel in the post COVID-19 environment.

One positive is that OEMs and airlines have better communicated positive messages about air quality on modern commercial airliners, which is actually quite high, with the air volume in the cabin being completely refreshed every two to four minutes. Any recycled air is sent through HEPA (high-efficiency particulate air) filters, similar to those used in hospitals, before being mixed with fresh outside air and entering the cabin again.

New cleaning protocols and safety regimes have been introduced to keep us safe and encourage us to fly. Requirements for all passengers and crewmembers to wear face coverings, which are designed to contain respiratory droplets before they can be expelled into the air, makes a big difference too.

But any form of true social distancing on an aircraft is impossible, and while it has been proven that leaving middle seats unsold and creating a bit more space between passengers can reduce the risk of spread (and provide some comfort to nervous travellers), there will always be some moderate risk of infection. As a result there remains an element of doubt and uncertainty that can play on the minds of travellers.

"We're going to figure this out. And when we do, the country will get back to business, and business travellers will start flying again," is the positive outlook from Christina Cassotis.

"I'm under no illusions. People have bigger things on their minds right now, and rightly so. Hit hard by the pandemic, businesses will work to keep their people safe and, given the state of economy, to save on travel expenses for as long as they can. Many road warriors aren't ready to get back out there yet," she says. "But make no mistake, business travel will come back, sooner for some than for others," she believes.

For business travel, the entire passenger journey needs to be seamless

Across the entire passenger journey, industry is looking closely at how it can deliver a seamless, touchless, healthy and above all safe environment for travellers. It only needs one break in this chain to put all other areas at risk and introduce the danger of a highly infectious virus.

Restoring confidence in entering public indoor spaces is a critical step in restoring lives and livelihoods to normality and technology is playing a key role in the 'new normal', with entry health screening among the applications that are becoming the norm to ensure collective health.

…but it remains far from it

It is clear that standard practices along the passenger journey are still a long way off. Airlines continue to take individual approaches to issues like empty middle seats and in many cases are coming very close to breaching that old industry taboo against marketing of safety, by promoting their own health and sanitising procedures.

Governments have been slow to provide leadership, perhaps understandably in the face of such rapid change and catastrophic financial impacts on airlines. Yet if corporates are to be provided the level of comfort they need to fulfil their own duty of care towards their travellers, standard - and safe - practices must be established across the board. This will quickly become a two way process, as buyers prescribe the conditions they require for their staff to embark on business trips.

But where airlines display inconsistency, airports are far from providing the standards and certainty needed to provide comfort. There are exceptions, but generally the attempts made to maintain social distancing and other necessary sanitary measures are inconsistent and inadequate; this applies not just through the checking, security and boarding areas, but also among concessionaires - it is a complex machine. These shortcomings may (or may not) be tolerable where passenger throughput is reduced to around 20% of previous levels, but fundamental changes will become necessary as the market recovers.

Airports went through a step change in the face of security and safety needs at the beginning of the century, but that involved strong leadership and took many years to achieve a degree of global consistency. It also took ICAO nearly 15 years to establish multilateral standards. For the new problems that COVID-19 brings, the challenges will be much steeper. They also come at a time when the entire industry is tormented by the prospect of insolvency.

Enhanced security measures produced a reduction in landside offers and enlarged post-security airside areas. Future needs could now effectively see the entire terminal building becoming an airside environment as non travellers are restricted from the building and kerb-side drop-off areas become the only landside environment. Whatever the specifics, airports will need to rethink the entire methods of passenger processing.

Then there is ground transport, and accommodation

Like never before the airline industry will in future be forced to address this issue of the customer journey, the door-to-door travel experience, if it is to lure corporate business back. The passenger experience has long been the core of marketing slogans, but in future it will need to be addressed squarely.

Even where standard and safe procedures can be established across the airline industry - a massive task in itself - that will fall far short of what a corporation requires to fulfil its duty of care in sending forth its road warriors. Boarding and disembarking through airports, travelling from airport to accommodation by car or train and then the hotel, Airbnb or other ground experience - all must meet a minimum common standard. Even the venues for doing business and entertainment are potential danger zones and all will have to be carefully prescribed by corporates and travel management companies in order to discharge their duties of care effectively.

Navigating the new environment will entail many new challenges

Multiple factors will influence the return of business travel, but the overwhelming consensus is it will remain subdued for some time. Notwithstanding the potential impact from technology, corporate travel budgets are expected to be very constrained as companies continue to be under financial pressure as the global recession bites, even as the economy improves.

While pent-up demand exists for VFR (visiting friends and relatives) and leisure travel, consumer confidence remains generally weak in the face of concerns over job security and rising unemployment, as well as risks of catching COVID-19. Some 55% of respondents to IATA's Jun2020 passenger survey said they didn't plan to travel in 2020 at all. For corporate travellers the level of frequency, flexibility of tickets, total journey time and timing of flights have a significant impact on business travel demand. But, with frequencies significantly reduced this offer will not be as attractive to business passengers.

At the route level, an airline operating a greater number of frequencies should, in principle, be able to attract a greater proportion of (higher yielding) time-sensitive passengers. It is therefore a given that the ability of airlines to attract business traffic, and in particular corporate contracts, is greatly influenced by the scope of its network and relative frequency of flights. But, what comes first?

Traveller habits, and broader shifts in the corporate landscape, mean that while it may still be grounded, the business travel sector is still evolving behind the scenes and perhaps at a faster pace than ever before as travel management companies, corporate travel managers, and travel suppliers adapt to the new realities of life.

The shape and size of the airline industry will change dramatically in 2021; LCCs may expand faster and challenge traditional full service airline pre-eminence in both pricing and network/frequency, as FSCs fall short without the volume of business traffic needed to sustain their operations and the ability to manage revenues effectively. Many former assumptions will be reassessed in the next few years.

The sector will rise again, but predicting what role teleconferencing will play and how corporates adjust to the new environment will be a brave step; it may not become clear for months, even years. All that can be predicted with confidence is that the future will be very different from the way it was a few long months ago.