Three short years ago, business travel spending exceeded $1.4tn and scooped up more than a fifth (21.4%) of the global travel and hospitality sector.
Back in 2018 the global business travel market had doubled in value since 2000, and the next year it contributed 0.7% to GDP, according to the World Travel and Tourism Council.
At its 2018 peak, business travel accounted for 20% of the total spend in the travel and hospitality sector, and this brought with it an extra 70% share of global revenues for high-end hotels. In a nutshell, while work travellers only make up 10% of the total, they generally spend far more, accounting for 55-75% of profits.
Then in early 2020 the travel industry was all but grounded and SP Global says its probability of default soared to 6.41% by August. Recovery, while achievable, has tended to be slower in business than for leisure travel.
For instance, following the 2008-2009 global recession, international business travel from the US – which alongside China accounts for more than half of all business travel in the world – declined by more than 13%, compared to just 7% for leisure. But while leisure travel recovered within two years, it took the business travel sector more than five.
By April 2020, passenger numbers were estimated to have dropped 60-90% and many airlines received financial support from governments, including high-profile names such as Air France-KLM (€10bn), United Airlines ($5bn) and Lufthansa Group (€10bn). US airline capacity had plummeted 70% from the previous year, a decline four times greater than after the 9/11 attacks.
As airline business models are based on load factors with a break-even of between 75% and 81%, the large majority of seats need to be sold for the business to stay afloat.
Airborne social distancing
So how is the sector going to recover? Even if the global vaccination programme leads to the lifting of travel bans, will people be keen to travel for work as they did pre-Covid? Unsurprisingly, a PwC survey indicates safety is the primary concern for respondents, with 43% willing to spend more to ensure social distancing on their next flight, which rose to 55% for 18-to-40-year-olds.
The obvious way to increase passenger space would be not to sell the middle seats, but that presents problems with achieving the load factor. Take an average A320 aeroplane with 168 seats. If the middle seats are left unsold, the load factor would be 62%, far below the break-even target. And while around half of passengers say they would pay a little more for their safety, would this play out if all business travellers had to stump out a significant extra cost for the foreseeable future?
One tool in the industry’s arsenal would be to capitalise on brand trust. Of those surveyed by PwC, more than half said they would avoid staying in rental properties (37%) than in branded hotels (16%). And almost 75% said seeing staff in PPE and third-party hygiene reviews added to the sense of security. Notable brands can regain public confidence by upselling a strict adherence to Covid safety procedures.
For all travellers, business and leisure, there’s a keen interest in improved communications. This was largely based on March 2020, when there was an urgent need for journeys and stays to be cancelled or postponed, and many companies were criticised for their handling of the situation. According to the latest UK Customer Satisfaction Index, the number of problems surrounding organisations in terms of not seeing through on their promises rose four points to 18.1%.
A new journey
However, business travel players may do better to focus on identifying new revenue streams. Although business travel is unlikely to return to pre-pandemic levels for many years to come, Accenture says the leisure market is strong so companies should refocus their assets to suit the only market they currently have.
For example, airlines could target their business class pricing and marketing to high-end leisure travellers, while MICE hotels could repurpose their facilities as shared workspaces for those companies running on socially distanced reduced capacity in their own offices.
“While we continue to face challenges for our industry, there is light at the end of the tunnel and projections for a return to some normality remain positive,” says Dave Hilfman, interim executive director of Global Business Travel Association.
In a January 2021 poll by GBTA, 13% of respondents expect employees to resume non-critical business travel within the next four months, with one in three expected to resume in five to eight months. And China, the first to be hit by the pandemic, is already experiencing improvements, with domestic business almost at pre-pandemic levels. It appears recovery is the direction of travel; but business travel may look different when we do get there.