We surveyed corporate travel managers at nearly 100 U.S. corporations to capture their perspectives on how COVID-19 will transform business travel even after the pandemic is over.
Conventional wisdom says business gets done face-to-face. However, most of us have worked from home for months now, using videoconferencing tools like never before. These tools existed before the pandemic, of course, but were not utilized to their full potential, largely out of habit. If anything, this prolonged experiment has made it clear that videoconferencing is effective at supporting business continuity. As a result, work habits will change—even after the pandemic—for two basic reasons: many business interactions can be handled effectively this way, and companies will be under increased pressure to reduce controllable expenditures.
Before you dismiss the notion that videoconferencing will replace business travel, know that our theory is it will affect some—but certainly not all—business travel. Face to face meetings remain critical in business dealings and relationship building. However, the combination of technology, internet bandwidth, and increased acceptance means that videoconferencing for work has finally gone mainstream.
This comes at a cost to the airline industry. Business travel drives profits at all network airlines, and a reduction in this travel segment will have profound implications on the post-pandemic recovery of aviation in the U.S.
To help the industry prepare, we surveyed corporate travel managers at nearly 100 U.S. corporations. We sought to capture their views on how the pandemic is affecting travel, what it will take for business travel to resume, and what business travel will look like in a post-COVID-19 world.
Here’s what we learned.
Companies have adopted videoconferencing tools to replace most travel needs during the pandemic
Nearly two-thirds of those surveyed said business travel will only resume once the pandemic is over. The same percentage will permanently revise travel policies to discourage day trips that can be done via videoconferencing.
Survey respondents traditionally relied on business travel to engage with clients, whether it was to develop business or to implement solutions. Not surprisingly, 57% of the companies surveyed have suspended all business travel due to the pandemic and 41% limited travel to essential business only. Almost all (96%) companies have instituted work-from-home policies. Surprisingly, a quarter of respondents indicated that their business activity has not been affected by the pandemic, and a majority stated that it is better than they had expected. In other words, many companies can conduct their work, or a meaningful portion of it, without the need for travel.
A vaccine or treatment is a prerequisite to resume business travel
Most of our survey respondents suggested that business travel will be curtailed for the foreseeable future, and nearly two-thirds said that non-essential business travel will only resume once we have a vaccine (or treatment). This depressed demand will certainly continue beyond August, and it’s more likely to extend by another 6 to 12 months. The mere presence of vaccine will not expedite the business travel timeline, as fewer than a one-third of adults said that they would be very likely to get the coronavirus vaccine as soon as an FDA-approved one becomes available. (Over 50% of those surveyed said they would wait at least 6 months to vaccinate themselves).
That said, few companies expects a return to pre-pandemic levels. Even once a vaccine is available, videoconferencing and other remote arrangements will replace some business travel.
Business travel will be reduced after the pandemic
In fact, two-thirds of corporate travel managers expect their companies to revise their travel policies to permanently reduce business travel. This will likely be a reaction to cost-cutting pressure given the expected lower economic growth. At least in the initial years, we can expect companies to place greater scrutiny on business travel expenditures and to favor technological solutions over the need for travel, particularly for “low value” or internal business travel. That said, we envision business development and “high value” travel to recover faster as companies may see face-to-face meetings as a way to differentiate themselves from competitors relying on remote meetings.
Though this paradigm will hurt airlines the most, other players in the value chain such as airports, hotels, and car rental companies will also feel the impact.
COVID-19's impact on airlines
Airline profitability has become more dependent on business travelers since the late 1970s, following the introduction of discounted fares to court leisure travelers. A common axiom is that leisure travelers cover the costs while business travelers bring the profits.
It all boils down to price sensitivity. Leisure travelers often look to the best deal and balk at high prices whereas companies are willing, albeit begrudgingly, to pay more for the same seat. (The value of a critical sales meeting is seen as greater than the fare required to accommodate last-minute travel plans.) For example, in 2019, Delta Air Lines reported that 30% of its total ticket revenue came from SkyMiles Medallion elite members, typically frequent business travelers. Thus, nearly one-third of its profits came from approximately 2½-5% of its passengers.
Given this “new normal” where corporate travel managers expect to limit business travel indefinitely, airlines will need to find ways to remain profitable with passenger traffic.
COVID-19's impact on airports
Airports are less dependent on business travelers, but certain businesses within the airports will continue to suffer, notably car parking and food and beverage. Leisure travelers, for example, typically seek economical parking options—including off-airport alternatives or rideshares—which reduces the demand for premium terminal parking. As for food and beverage, a recent ICF survey at select major U.S. airports showed that business travelers have a 20% higher average transaction value than leisure travelers for these types of sales. Consequently, the loss of business travelers will have a disproportionately high impact on airport commercial revenues.
While our survey centered on U.S. corporations, we have reason to believe other aviation markets across North America, Europe, the Far East, and Oceania will see the same trends. Any airline and airport that has, historically, relied on business travelers will need to rethink and adapt its business model to the post-pandemic reality.