Changed future for air travel with likely 20 -30% (or more) fall in business passengers
For airlines other than low-cost, business passengers – paying hugely more than those in economy class – have been vital for revenues. Business travel may have generated over 75% of airlines’ revenue on some international flights. Due to the huge rise in Zoom and other internet calls, due to the pandemic, there is very likely to be a fall in business air travel. Nobody knows how large this fall could be – perhaps 30% or more. Without the large income from premium business travellers, ticket prices would rise overall. Economy passengers would have to pay more. That could mean a reduction in the size of airlines. The growth in business travel had been slowing globally, according to the Global Business Travel Association. In the UK, the fourth-biggest economy in terms of business travel expenditure, for example, data from the Office for National Statistics shows that while international air travel for leisure increased 3.4% per year between 2000 and 2019, international business travel grew just 0.2% annually. Companies have been hit by Covid. One survey indicated m any will reduce discretionary spending such as travel even further in 2021.
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Lufthansa chief says fleet and failures can offset corporate travel slump
By Lewis Harper (Flight Global)
4 March 2021
Fleet adjustments and the failures of other airlines are likely to offset the impact of an accelerated fall in demand from business travellers in the coming years, according to Lufthansa Group chief executive Carsten Spohr.
Predicting that “10-20% of… corporate travellers will not return” to air travel post-pandemic amid the rise of online conferencing in particular, Spohr noted during a full-year results briefing today that the group’s passenger mix was shifting towards “private” travellers already in the lead-up to the pandemic.
Indeed, going into the crisis, “we had 30% of corporate travellers on board our aeroplanes”, Spohr states, with leisure and other private travellers making up the remainder. While that 30% accounted for 45% of revenue, those figures had been trending downwards “over the past years”.
Spohr is therefore not unduly concerned by an accelerating trend away from high-yield corporate travel, saying that in the coming years, “many other things will happen” to offset its impact.
Among them, “the largest aircraft in the Lufthansa Group will be taken out”, he states, citing Airbus A380s, A340-600s and Boeing 747-400s. That means it will “have smaller cabins to fill, which usually helps the yield”, he states.
At the same time, “I’m very convinced not all airlines will survive this crisis”, Spohr continues. The likely “passive consolidation” in the airline industry means “competitors fading away”, increasing opportunities for Lufthansa Group to take a greater market share.
He cites South Africa as one example, where struggles experienced by flag carrier South African Airways mean Lufthansa Group is unlikely to face the same level of competition for passengers as it did pre-crisis.
In the meantime, amid signs of shifting priorities towards leisure markets, Lufthansa recently announced 20 new destinations from its Frankfurt hub and a further 13 from Munich, focused on the Canary Islands, the Caribbean and Greece.
The group is also beginning long-haul leisure flights in June with its new Eurowings Discover unit – launched under previous name Ocean – using Airbus A330 jets.
The new unit’s first destinations will be Anchorage, Mombasa and Punta Cana, and it might also expand into short-haul flights in the coming months, Lufthansa states.
Eurowings Discover is based on the model of Swiss’ low-cost leisure unit Edelweiss, according to Spohr.
In filing a full-year 2020 net loss of €6.7 billion ($8 billion) today, Lufthansa Group said it expects to return to around 90% of pre-pandemic capacity by 2024.
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Business travel: ‘We don’t know how many people will choose to fly’
The sector lost an estimated $710bn of revenue in the pandemic. Will hotels and airlines ever claw that back?
by Alice Hancock and Philip Georgiadis in London (Financial Times)
JANUARY 14 2021
… Zoom announced in December a 485% year-on-year increase in clients with more than 10 employees.
… business travel, which can generate as much as 75% of airlines’ revenue on some international flights according to PwC, faces a severe crisis.
… Together with a greater focus on sustainability and post-pandemic cost cutting at financially straightened companies, the uptick in virtual gatherings is likely to have long-term consequences, industry executives say. Some have likened the disruption in corporate travel to the accelerated decline of bricks-and-mortar retailers at the hands of their online rivals.
… 75%. The percentage of airlines’ revenue generated by business travel on some international flights, according to PwC
… Bill Gates told CNBC in November that “over 50 per cent of business travel and over 30 per cent of days in the office would go away”
… Jeffrey Goh, chief executive of Star Alliance, the world’s largest airline group, predicts there will be a “structural change in terms of the business travel segment” that could leave the sector up to 30% smaller.
… People cannot travel at present but “[What] we don’t know, is how many people will choose not to [travel] when they can.”
… The explosion in air travel during the 1950s and 1960s triggered exponential growth in the number of executives criss-crossing the globe. They have long propped up the industry by expensing higher priced, refundable airfares and more expensive hotel rooms with space for work and, more recently, Wi-Fi facilities.
A seat in business or first class is on average five times more expensive than in economy, according to the global airline trade group Iata.
… the drop in revenues will push up prices for leisure customers. “A lot of [the travel industry’s] business model revolves around corporate and business travel, and because of their ability to generate higher margins and profit [in that sector] it allows them to extend opportunities to the more [bargain hunting] and leisure traveller”
… Yet the growth in business travel had been slowing globally, according to the GBTA. In the UK, the fourth-biggest economy in terms of business travel expenditure, for example, data from the Office for National Statistics shows that while international air travel for leisure increased 3.4% per year between 2000 and 2019, international business travel grew just 0.2% annually.
… The McKinsey report predicts that intra-company travel for training or inspections is likely to be “decimated” as corporations look to minimise costs, and that major business conventions, including the exhibition and trade show industry which was valued at $81bn in 2018, will be the last to return.
… A feasible way to dress up cost cuts is to rebrand reductions in travel as environmental initiatives that will bring companies closer to net-zero emissions targets…
… a Deloitte survey of 90 finance directors across the UK’s largest companies in January showed that 44% expected to reduce discretionary spending such as travel even further over the next 12 months.
… One of the beneficiaries of this rebuild could be rail. When the French government agreed to a state aid package for Air France it stipulated a 50% reduction in CO2 emissions on medium and long-haul routes by 2030 and required the airline to cut emissions by half on short haul routes where trains could offer a journey time of two-and-a-half hours or less. The air bridge between Barcelona and Madrid, operated by Iberia, is also under threat of being cancelled by officials in favour of trains.
https://www.ft.com/content/867a5342-c94c-43f6-9783-a817443c9471
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See also
Between about 20 and 35% of future business travel may never return, post Covid
A study by some travel experts looked into the various sorts of business travel, how much of the total they make up, and how likely they are to decline, with the change in behaviour after Covid. They see various categories: 1. Internal corporate purposes, the most likely to decline. They make up around 20% of business air travel, and might fall by 40 – 60%. 2. Commuting by air, about 5% of business travel; might fall by 40 – 60%. 3. Travel for external purposes will fall a bit. 4. Travel aimed at sales and securing clients, makes up 25% of total business travel is probably the most resilient, but might fall by 20%. 5. Travel to conventions and trade shows, comprise around 20% of all corporate travel, and could decline by 10 – 20%. The finding that as much as perhaps 35% of future business travel demand may disappear holds huge implications for legacy airlines, which depend on the segment for a large chunk of their revenues. Low cost airlines will be less affected. The longer the pandemic stretches on, the more firmly ingrained new work habits and technologies will become.
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.
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