Pummelled by Covid-19, corporate travel looks to the future

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It’s an understatement to say 2020 has been an incredibly challenging year. Covid-19 and the travel bans and lockdowns have decimated the once thriving corporate travel industry. Sobering data around our industry is emerging, particularly in what was formerly the world’s largest corporate travel market, the US.

Overview

•           Corporate travel makes up over 20% of global travel & hospitality.

•           It is worth USD1.4 trillion globally, with over half total concentrated in USA and China.

•           It is volatile, slower to recover than leisure/VFR travel after disruptions/downturns…

•           …and right now, it is deep in trouble.

We are seeing a fourth consecutive month of travel stagnation in the US – and corporate travel, as a component of the total, really has not recovered much ground since Mar-2020. If we consider the TSA checkpoint data for the overall US market, we can see there was some recovery until Jul-2020, which was encouraging.

In comparison to the 2019 levels of movements, we saw around 700,000 to 800,000 pax per day – still a staggering 66% decline year-on-year. Had there not been stagnation in July, the market would now be down by around one third, however the secondary spike in infections following the Memorial Day holidays resulted in the US recovery losing steam.

USA passenger screenings highlight just how far down passenger levels are in the US versus 2019 (Source: USA Transport Security Administration daily checkpoint data)

ARC have broken down the total by Leisure and Corporate segments, which demonstrates that business travel has declined by close to 90% year-on-year.

US travel agency air ticket volume by leisure and corporate demand highlights how business travel is lagging behind in the recovery (Source: Airline Revenue Corporation (ARC))

We anticipate US leisure travel will continue to re-emerge, but it is likely that corporate travel will continue to flatline, outside some key sectors of the economy, until we are deep into vaccine penetration.

It is important to consider some other regions, and there is a distinct recovery – specifically from a domestic perspective – in some markets that we need to keep in mind.

Domestic RPKs: Russia recovered pre-crisis levels, China almost, while Australia remains grounded (Source: International Air Transport Association)

Three separate IATA passenger surveys suggest a consistent 15% of the population won’t wait to travel for leisure travel and will travel now, so some encouragement there. On the flip side, globally, around 53% do not expect to undertake air travel within the next six months; delaying recovery and combining this with the imminent arrival of the northern winter and potential viral spikes, there lies some additional concern.

Consumer sentiment towards air travel did not improve in September (Source: IATA Passenger Surveys)

Passenger sentiment may well also be contingent on the opening of borders, which will impact overall passenger confidence, as would the potential availability of vaccines and/or effective therapeutics. This would no doubt have a positive impact on recovery and traveller sentiment.

Recent business travel sentiment surveys suggest only a small percentage of organisations expect any form of business travel to be undertaken in the near term, and this would be for domestic travel. Internationally, the expectation is further impacted with only one in ten expecting to undertake international trips.

Business travel sentiment remains weak (Source: GBTA Coronavirus Poll Results, 24-Sep-2020 – 1,383 companies responded to the poll)

Industry heavyweight, Skyscanner, goes further to suggest border entry will continue to be limited and, combined with the explosion of digital meeting connections, virtual events and conferencing, it’s not completely unrealistic to consider business travel “becoming a distant memory or certainly no longer the entity we once knew and enjoyed”.

A projection of planned trip reasons by month of travel intent shows the rise of leisure, mainly at the expense of business and travel for events (Source: Skyscanner’s ‘The new world of travel’ report, Sep-2020)

Skyscanner’s narrative is supported around the future for business travel where the percentage for total travel is more focused on leisure, which means travel intentions are changing and that ultimately impacts the entire mix of travel pillars.

Many suppliers are now questioning who their customer is.

American Airlines says the customer has changed disproportionately and the airline is, in fact, reviewing its business model on the very real basis that these core business travellers may well not return to business travel until well into vaccine availability, if at all.

 United Airlines, in its 2Q2020 earnings calls, posited that traveller demand may well return to just 50% of normal levels by end 2021 and then plateau. While leisure is the target market for now it’s important to consider, from an airline revenue perspective, the potentially crushing impact. 

United’s and American’s narrative is supported by World Tourism data suggesting that historically it takes longer for business travel to recover after economic downturns…and then, of course, dealing with the additional dynamic of a pandemic being involved.

The 2008 – 2009 GFC resulted in a -13% decline in international business travel from the US in comparison to -7% for international leisure. Further, it took some 5 years for business travel to make a full recovery.

Business travel is generally slower to recover than leisure after major downturns (Source: McKinsey, National statistical offices, UNWTO)

2020 looks set to close with a sputter. IATA has revised traffic forecasts in a downward direction for 2020. We’re seeing RPKs for the remainder of the year sitting around one third of usual levels. And the growth rate for Dec-2020 at a staggering negative 68% – worse than the July forecast, which sat around negative 55%.

IATA has again revised down its 2020 traffic forecast after an initial recovery has now plateaued (Source: IATA)

Earlier in the year IATA extended its industry recovery projection – by a year – to 2024. These compelling forecasts have seen IATA continue to implore global governments to support the airlines to stave off further impacts.

Earlier in the year IATA extended its industry recovery projection – by a year – to 2024 (Source: IATA)

CTC’s own air capacity projection model goes further in demonstrating flatlining in the US domestic market and a virtually non-existent international market – combined with the expectation that Covid-19 cases will soar in the US winter, according to a number of health models. 

US air capacity outlook – tough times are projected ahead (Source: CTC Air Programme Guide)

Compounding this is the pause of US government funding until post-election. This is devastating, in particular for airlines and the wider travel sector, further decimating the industry with job losses and indeed, resulting in the potential loss of a number of airlines themselves.

What parts of corporate travel will come back first? McKinsey believe green shoots will be found primarily in: domestic/regional markets, particularly in the pharma, manufacturing and construction industries; in-person meetings using ground mobility, rail, particularly in China with the availability with high speed rail options; and much later on, international conferences and trade shows, according to the consultancy.

Business travel for in-person sales/client meetings is expected to return first (Source: McKinsey & Company)

However, there will be some business movement in sectors such as energy and retail, which, according to McKinsey, may suffer subsequent budgetary constraints. On the flip side, construction, machinery and equipment manufacturers, real estate and pharma, together with some commercial blue-sky thinking, may well lead the recovery for business travel. Overall, it’s important now to foster constructive relationships in these sectors, with the overall decision makers to aid the navigation out of these stormy waters.

These are unprecedented times and a different future awaits. The world we live in now is vastly different from that of 12 months ago; as humans we have needed to become agile in our thinking and business delivery. The data doesn’t paint a rosy picture, and difficult times lie ahead for corporate travel industry participants.

There are, as we know, many moving and compounding parts to our current situation; the real possibility of an effective, safe vaccine is on the horizon, as well as the hopefully imminent antiviral medication.

The travel industry has shown its ability to recover in previous crises and adapt, and we will no doubt see a new corporate travel industry emerge.


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