Business air travel likely to remain at lower levels, for years – big impact on airline finances

The airline industry has largely been funded by business air travel, and those paying for premium seats, or very high air fares, bought at the last minute. Cheaper air tickets to get “bums on seats” would not themselves enable airlines to make profits; the expensive seats are what enable those cheap tickets to be offered. Now the demand for flights has collapsed due to Covid, and the decline in business flying is intense. Many companies do not see their level of business flying returning. Some think there may be a return in perhaps two years, though it may never happen. Will visiting clients/customers be as vital in future, to make deals or impress?  Business travel in the US makes up 60% to 70% of industry sales, according to estimates by the trade group Airlines for America. The standard and acceptability of internet communications, video-conferencing, and Zoom have shown many organisations that they do not need much air travel. Companies do not want to risk staff getting abroad and being stranded.  Business passengers travelling to big cities like London have created hotel, catering, conference, taxi etc demand, but that is all likely to reduce in future. Even if/when Covid is beaten, the impacts on business flying are likely to be long-term.



Business travel crisis starts to bite

Sabah Meddings and Jill Treanor (The Sunday Times)
Sunday July 19 2020



London City airport’s taxi drivers are among the millions whose livelihoods depend on the nine million international business travellers usually arriving in the UK each year….London City airport usually handles 5.1 million passengers a year, almost half of them travelling for business. Now, it is operating at about 10% of normal levels.

Diageo, Glaxo Smith Kline, Unilever and other giants have banned or curtailed international trips. As the virus took hold, JP Morgan told its staff to avoid aircraft. There are fears this could be lasting, with video calls replacing all but the most crucial face-to-face meetings.

Pascal Soriot, chief executive of Astra Zeneca, said in a BBC podcast in last month that the crisis had shown people they could travel less. “The way we organise our working lives will evolve, accelerating a trend that was already in motion,” he said.

For London, the economic impact could be devastating. Britain’s role as a hub for financial services depends on the ability of deal-makers, chief executives and investors to hold meetings, entertain and build relationships


A big number of corporate travellers come for events held in London’s exhibition centres. The industry in the UK supports 112,000 jobs.

Olympia in west London attracts 1.6 million visitors a year, many of them from overseas. It hosts the Infosecurity Europe event, which attracts more than 15,000 people — 15% of whom come from Europe and 28% from elsewhere in the world, most of them from America.

Alex Hill, president of AEG Europe, which owns venues including the O2 Arena in southeast London, warned that the exhibitions industry would not begin to book new events until ministers set a timeline for reopening. “Organisers need time to get things in the diary,” he said. On Friday, the prime minister lifted hopes by signalling that events would be allowed in England from October.

With the economy facing its biggest downturn in 300 years, the travel industry can make a difference. Business travellers fill city centre hotels and generate trade for local bars and shops.


Surinder Arora, whose Arora Group owns 16 hotels, had 70 guests a day staying at his 710-room Renaissance hotel at Heathrow last week. “It’s a disaster,” he said. “It’s costing me more money to keep it open than closed.”

Welcoming business travellers, said Arora, would be a “real way to kickstart the economy . . . We’ve got to get people back to work.”

The absence of business travellers from America is particularly painful for companies such as Arora. While the UK has lifted quarantine restrictions for 75 countries, including France, Italy and Belgium, the swelling Covid-19 tide in the US has kept it on the danger list. The impact is huge: one-fifth of Heathrow’s passengers fly to America.





U.S. Airlines Face End of Business Travel as They Knew It

U.S. airlines hammered by the catastrophic loss of passengers during the pandemic are confronting a once-unthinkable scenario: that this crisis will obliterate much of the corporate flying they’ve relied on for decades to prop up profits.

“It is likely that business travel will never return to pre-Covid levels,” said Adam Pilarski, senior vice president at Avitas, an aviation consultant. “It is one of those unfortunate cases where the industry will be permanently impaired and what we lost now is gone, never to come back.”

U.S. passenger totals plummeted more than 95% at the peak of the pandemic-related travel collapse.

At stake is the most lucrative part of the airline industry, driven by businesses that accepted — however grudgingly — the need to plop down a few thousand dollars for a last-minute ticket across the U.S. or over an ocean. While millions of customers fly rarely, road warriors are constantly in the air to close a deal, depose a witness or impress a client. Business travel makes up 60% to 70% of industry sales, according to estimates by the trade group Airlines for America.

That’s under threat in the wake of an unprecedented collapse in passengers that started four months ago. Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19, according to Fortune magazine.

Even industry leaders such as Delta Air Lines Inc. Chief Executive Officer Ed Bastian are bowing to the inevitable.

“I don’t think we’ll ever get back entirely to where we were in 2019 on the volume of business traffic,” Bastian said July 14 after the company reported an adjusted quarterly loss of $2.8 billion, a record. United Airlines Holdings Inc. discloses results Tuesday, followed by Southwest Airlines Co. and American Airlines Group Inc. on Thursday.
Even after 18 to 24 months, business travel will remain at least 25% below pre-pandemic levels and may stay down by as much as half, said Bruno Despujol, a partner at consultant Oliver Wyman. Trips for internal purposes, which account for as much as 40% of business demand, is most likely to decline.

‘Locked Down’

At Sunnova Energy International Inc., travel next year may prove to be just half of 2019 levels and possibly as little as a quarter, said Chief Executive Officer John Berger. The Houston-based residential solar company, which used to put executives in premium seats or coach depending on the length of the trip, is planning to hold more meetings by video conference.

“We’re pretty much locked down right now,” Berger said. “We’re not doing much travel — really rare. Now, I’m starting to get worried if we’re going to do much travel in Q1” of next year.

Premium domestic demand collapsed in April with the rest of the market, and those fares cratered in May to the lowest in data going back to 2008. This week, a last-minute ticket for American’s luxury first-class service between New York and Los Angeles listed for $3,322, compared with $8,000 when those flights began in 2014.

Warren Buffett, who returned to airline investing in 2016 after years of shunning the stocks, exited his stakes in American, Delta, Southwest and United earlier this year as the novel coronavirus caused a collapse in flying.

“The world changed for airlines,” Buffett told Berkshire Hathaway Inc. investors in May.

Carriers are now weighing job cuts after $25 billion in federal payroll aid expires at the end of September. Southwest said Monday that about 28% of its employees have agreed to leave the company temporarily or permanently. American said last week it would warn 25,000 employees, or 29% of its U.S. workforce, that they’re at risk of losing their positions. United has sent notices of potential layoffs to 45%.

The airline industry is well-versed in failure, with bankruptcies dotting the first two decades of the 21st century after years of heedless growth. Predictions of business travel’s demise proved premature after the Sept. 11 attacks and again after the Great Recession of 2008-09.

Consolidation and job-cutting at the airlines helped drive those comebacks, and some carriers predict the eventual return of their cash-cow customers.

“We believe business travel will come back and come back strong as ever,” said Andrew Nocella, United’s chief commercial officer. “But it will take about six to 12 months to work through the system once a vaccine or treatment becomes widely available.”

Video Conferences

What’s different now isn’t just the depth of airlines’ travails, however. It’s also the opportunities for technological workarounds at the banks, technology giants, law firms and other professional-services companies that once shelled out for first-class seats.

U.S. passengers counts plummeted more than 95% at their worst, with virus-fearing travelers of all types shunning the tight quarters that airlines relied on to maximize revenue from each flight.

Even with some leisure travel perking up, the numbers aren’t enough, and Wall Street is offering a clear verdict: The six largest U.S. airlines ended last week with a combined market value that’s less than the $70 billion of Zoom Video Communications Inc., whose software has made “Zoom calls” a byword in households as well as boardrooms.

Improved video conferences further lower the chances of returning to the heyday of corporate flying as companies look at travel budgets as ripe for cuts, said Eric Bernardini, a managing director at consultant AlixPartners.

“It won’t replace the need to go visit your customer, but there will be an impact on how many people are going to travel and how often,’ he said.

Wary Customers

For now, big U.S. carriers are orienting their schedules toward leisure destinations and domestic trips. Meanwhile, companies are grappling with a changing web of government travel restrictions at home and abroad because of the pandemic.

Columbia Sportswear Co. is revising its policies, evaluating the safety protocols of hotels, rental-car companies and ride-share providers. Health risks are joined by concerns an employee could get stuck in two-week quarantines when traveling to other countries and returning to the U.S.

“Face-to-face contact and visibility is important. That said, no one’s going anywhere,” said Peter Bragdon, Columbia’s chief administrative officer. “It’s pretty easy to imagine how something that was meant to be a few days of travel turns into five weeks of being caught in a snarl.”

— With assistance by Jonathan Roeder, Edward Ludlow, Naureen S Malik, and Edward Dufner