Lufthansa puts 10-20% as the scale of corporate travel loss, but it is not overly concerned about the impact

9 March, 2021

When we talk about the importance of corporate travel to airlines, Lufthansa is often used as an example of one that relies on business travel. However, Lufthansa Group chief executive Carsten Spohr last week noted that the importance of this market has actually been following a downward trend over the past years.

As the group revealed its 2020 annual results, he acknowledged that between 10% to 20% of corporate travel will not return, but that a “smaller, more agile and more sustainable Lufthansa Group” will still be well-placed to weather the biggest crisis to hit the airline sector.

“We current expect that the global demand for air travel will no longer grow as dynamically in the long term as it did in the past years. People's travel behaviour will change, both in terms of leisure and business travel. As a result, global air transport will have to restructure itself. We expect a global transformation of air transport,” he said.

Lufthansa Group reported a net loss of EUR6.7 billion in 2020, a shift from a EUR1.2 billion profit in 2019. Group revenues fell just under two thirds, down -63% from EUR36.4 billion to EUR13.6 billion with traffic revenues declining -68% to below EUR10 billion.

For the full year 2021, the Group expects capacity on offer to increase to 40-50 % of 2019 levels, and the expectation remains that positive operating cash flows will be generated when capacity on offer is above 50%.

Looking further ahead, a reduction in the group fleet will help ease the burden as all of the airlines in the Lufthansa Group remain downsized. “Lufthansa will be a different and smaller Lufthansa after the crisis,” explained Mr Spohr. This will see aircraft numbers decline to 650 aircraft in 2023. By the middle of the decade, the Group expects the capacity level to return to 90%.

There is a optimistic outlook. “Whenever restrictions are eliminated, bookings tend to increase steeply in the respective traffic area,” believes the group. Similarly, Keith Barr, CEO, InterContinental Hotels Group, has said he too is confident that business travel will bounce-back in the long-term, but also that in the medium-term business travel would also return.

“I think the death of business travel has been exaggerated by a number of pundits out there, people saying it's going to be down 50% or 30%,” he said during the company’s 4Q 2020 earnings call with analysts.

He explained that his view is that demand is “going to be impacted on the margin” with only “some business trips” being replaced by technology. “I think the vast majority of business travel is going to come back, but it's going to be a measured recovery over a number of years. It's not all going to come back at once because some of these things take years of planning for conventions and conferences and big groups,” he said.

“And travel budgets will gradually increase as people have more and more confidence to travel. So I'm confident in the long term, I'm actually confident the medium-term business travel will come back,” he added.

That positive medium-term outlook could be just a few years away. “It's a couple of years until we normalise this industry, said Mr Barr. “Like I think business travel is going to come back. It's going to take a few years for it to come back. I think leisure travel is going to continue, and then things will begin normalizing in that mix of business in future years. So I think you have to sort of look at '21 and '22, at least, as significant transition years out of the pandemic.”

Meanwhile, Evan Konwiser, executive vice president of product and strategy for American Express Global Business Travel, has also painted a future world where business travel remains a vital ingredient. In an interview with Bloomberg, he acknowledged that while “it’s become very trendy to talk about business travel not needing to come back,” the sector will return, but he warned it will be changing forever.

Mr Konwiser said “there’s some truth there that we should acknowledge and adapt to,” in terms of discussions about a reduced return in corporate travel levels, but highlighted business travel “exists for really important reasons – it helps businesses conduct business successfully.” He, like many, sees a re-envisioning of business travel that prioritises experiential meetings – in-person bonding opportunities for scattered remote workers and trips that feel more like work perks than obligations, according to Bloomberg.