Top News



aviation

American Airlines cancels 1% of July fli...
June 22, 2021
Air Arabia to resume flights to Baku
June 21, 2021
Boeing's biggest 737 Max model complete...
June 20, 2021

SMEs and domestic demand to lead business travel recovery, industry experts say

June 10, 2021
aviation

Border rules, duty of care, corporate budgets, fewer routes, tech alternatives and sustainability concerns will impact the recovery

Small-and-medium enterprises and domestic trips for work are among the potential drivers for a near-term recovery in business travel, a segment hit hard by the pandemic, according to industry experts.

Factors that could speed up business travel's recovery include reopening borders, accelerating Covid-19 vaccine campaigns, brighter global economic growth, so-called 'Zoom fatigue' and companies seeking face-to-face meetings with clients to get a competitive edge over rivals, Derek Sadubin, managing director of CAPA Centre for Aviation, said during a CAPA Live event on Wednesday.

On the flip side, employers' hesitancy to get back on the road, employee duty of care, tighter corporate travel budgets and companies' paying greater attention to their carbon footprint could drag down the segment, he said.

'CFOs are taking to travel budgets very carefully and looking at how some of the savings that have been accrued through the pandemic can be locked in for the longer term,' Mr Sadubin said. 'There's also the question of rising costs and complexity of travel that's going to flow from the reduced number of airline frequencies and city pairs that are available for business travellers.'

Business travel has been hit hard by the Covid-19 pandemic that shut borders, forced millions to work remotely and prompted companies to slash costs.

Corporate travel is vital for airlines. While it makes up just 12 per cent of airline passenger traffic, it accounts for roughly 20 to 30 per cent of airline revenue, according to CAPA.

In 2020, global business travel spending shrank to just under $700 billion, down from $1.43 trillion in 2019. The Star Alliance group of airlines estimated that 25 per cent of business travel is at risk in this environment, creating a $50bn black hole for the corporate travel industry. For airlines, who collectively earned $700bn in passenger revenue in 2019, losing a quarter of their revenue from this premium travel segment translates to $400bn to $500bn in lost sales.

SMEs, which have more flexibility and faster decision-making than larger corporations and multinationals, could drive a near-term recovery for business travel, according to a panel of SME representatives at the CAPA event.

'SMEs will start to travel before the large corporates because corporates will have a more sophisticated plan, they have to get approvals and they like to play it more safe than SMEs,' said Danny Lau, managing director of Kam Pin Industrial. 'SMEs take more flexible arrangements and they’re ahead of the curve to go visit overseas clients if the location is open for travel.'

Further complicating companies' decision-making for air travel is the price volatility of plane ticket fares, said Elise Weber, co-founder of London-based Skytrax.

'This price volatility is a challenge and means more uncertainty, it means travel budget planning is more challenging than before,' she said.

Predictions for the slow and difficult recovery for business travel have been wide-ranging.

Understanding the future of offices and the return to work will help provide some clarity, Neil Glynn, managing director at Credit Suisse and head of its European Transport team, said, noting that 2022 will be a transitional year for many companies.

Internal company travel will likely take a 'significant haircut' compared to external-facing business travel, he said.

There is some evidence that younger employees are eager to travel, Richard Clarke, managing director and senior analyst at Bernstein, said.

'It gives them the headspace of being away from [the] office and meeting clients,' he said. 'If companies don’t allow business travel, they may have a problem attracting talent.'

Companies are unlikely to significantly cut business travel spending due to environmental concerns, Mr Clarke said.

Firms will likely find other ways to reduce their carbon footprint but they're unlikely to make sweeping changes to their air travel plans in the next two- to-three years, especially with long-haul trips that are carbon culprits but also important for organisations, Mr Glynn said.

thenationalnews