It’s been a long wait – business travel is expected to return in phases, spurred by proximity, reason for travel and sector, with travel for in-person sales and client meetings emerging first

20 August, 2020

The Covid-19 pandemic has presented an unprecedented challenge to the entire business travel sector, but companies that are "agile and keep a pulse on customer needs" will emerge as leaders in the post-crisis recovery, explains McKinsey & Company in an article published last week on its website. While that statement may seem obvious it is a message that is easily forgotten in a time of crisis as is the fact that business travel is critical to so many different industries.

The extensive report from the American management consulting firm follows what has become the set understanding for corporate travel in that business travel will take a long time to return to previous levels after the Covid-19 pandemic eases. Historically, business travel has been more volatile and slower to recover than leisure travel after economic downturns and other disruptions and there is nothing to suggest that will change, albeit it may look rather different when it does return.

However, the 'For corporate travel, a long recovery ahead' article does provide some very interesting observations on how the consultancy firm sees the potential structure of the recovery and those areas that will see the quickest revival.

The travel and tourism sector accounts for more than 10% of global GDP and a similar level of global jobs and business travel makes up a significant portion of that - around one in every five travel trips is work-related - and had been expected to grow into a USD1.6 trillion industry this year.

But as we all know, the new decade started with a bang, but rather than delivering growth it was the sound of an industry deflating as emergency measures brought in by governments across the world to combat the spread of Covid-19 effectively brought travel to a standstill.

For businesses those long discussed plans to make greater use of teleconferencing platforms that practitioners had claimed would change the work landscape forever were pulled out of the pending trays and actioned with immediate effect. No longer able to have physical meetings with colleagues, customers and spending much of their time on aircraft, in airports or city hotels, corporate travellers found themselves sat in front of computer screens quickly 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 for a period cuts in travel spend were reflected both in the volume of air travel and a downgrading in cabin class.

From what was initially a minor inconvenience to what has become an unprecedented tragedy there is now major concerns when business travel will start to recover. After previous crisis it took to two to three years, but those did not entail the months-long shutdown that global travel has witnessed this year and the shadows are deepening with fears of second spikes when some countries have not yet cleared their first.

McKinsey & Company believes that given the volatility of business-travel patterns on top of significant modern technological and connectivity advancements, the economic disruption from the Covid-19 pandemic will have "critical implications for the rebound of business travel" and indicates "a long road ahead for the sector".

Once the landscape allows travel to return and restrictions and quarantines lifted, there remains the question on whether companies and their employees are prepared to return to using the likes of airports, aircraft and hotels. Fear may be one factor, but changing lifestyle is another - many have actually enjoyed not being on the road as often and having valuable time with loved ones. The work-life balance has now shifted considerably.

McKinsey & Company says its own research with travel managers indicates that the return will take place in phases. Travel planners have identified the segments of business travel that are likely to return first, as determined by the length and purpose of a trip and the sector in which travellers work, but importantly note that even those travel segments likely to return first are on "a slow, long timeline for recovery" that is subject to geographical considerations (such as stabilisation of Covid-19 outbreaks and governments' readiness to open up travel).

CHART - Business travel is predicted to return in phases, spurred by proximity, reason for travel and sectorSource: McKinsey & Company

The distance side of the recovery is already evident in many regions with regional and domestic trips seeing a return before international travel does. This has not just been influenced by international travel restrictions, but also by the ability for personal ground travel to potentially place public rail or air options. Naturally, international travel will take longer to rebound because of the complexity of government regulations, albeit business corridors, similar to the leisure travel bubbles will increasingly make this possible.

McKinsey & Company's observations over the purpose of travel also provides some insights into the shape of the business travel recovery. Its research shows that other than for "mission-critical use cases, travel for sales and client-related meetings is most likely to be among the first to return". The timeline for travel for internal in-person meetings to resume "is longer, with higher levels of scrutiny on what is considered business critical and can't be accommodated with technology," says the consulting firm.

Travel to interact with physical assets - data centres and IT infrastructure - "will take priority," it says, but economic constraints across industries, especially those hit hardest by the pandemic's economic disruption, will "decimate internal travel as budgets get disproportionately cut," it suggests.

Travel for internal MICE and other off-site gatherings "may not return until well into 2021 or later," and some travel for internal purposes "will be permanently replaced by virtual meetings and collaboration," it adds. Meanwhile, business travel for major industry events will "most likely be the last to return," as it requires "a higher degree of confidence in public safety".

CHART - Business travel recovery is expected to vary across sector as evidenced by the experience seen in China where business travel spending has changed significantly between Mar-2019 and Mar-2020Source: McKinsey & Company: based on Ctrip business travel management whitepaper

Industries use business travel for different purposes, and their ability to replace it effectively with technology varies, says McKinsey & Company. Looking to China's still-nascent recovery, it observes that if this is indicative of how sectors will return to travel, "then other regions will probably see a slower return, based on their industrial mix". Europe and the United States, it says, "have a higher proportion of business-travel spend concentrated in professional and service sectors and less in the industrial sectors that are showing early resilience in China".

The consulting firm believes that industrial and production-oriented sectors (such as construction, real estate, machinery and equipment makers, and pharmaceuticals) may lead in the return to business travel. Again looking to China, it observes that service and knowledge sectors (such as science and technology research) lagged behind in returning to business travel but indicated more ability to replace travel with technology, a trend that would also be likely in other countries.