Business Travel Seen in ‘Structural’ Decline in Post-Covid Era
As the airline industry struggles to recover from a deep, pandemic-induced slump, another crisis is looming in the crucial business travel market, according to a new report.
Companies are expected to keep a tight rein on trips in the coming years, leading to a “structural” decline of between 15% and 25% through 2025 from before the Covid-19 pandemic, consultancy AlixPartners said Wednesday. The loss could trigger a broad strategy overhaul for full-service carriers because corporat demand makes up as much as three quarters of their profits, and nearly a third of sales.
“Business travel will be hit harder than leisure,” said Pascal Fabre, a managing partner at the firm in Paris. “There will be a long-lasting effect from hybrid working and reduced corporate spending on travel.”
European airlines like Air France-KLM and IAG SA’s British Airways benefited from a rebound in regional travel this summer and are adding more capacity after the U.S. lifted border restrictions this week. Yet a full recovery to pre-crisis levels of overall flying worldwide isn’t expected until around mid-decade, AlixPartners said.
Airlines, financially weakened and debt-laden coming out of the Covid crisis, are holding out hope. Shai Weiss, chief executive officer of Virgin Atlantic Airways Ltd., said this week that he expects a full rebound in business travel by 2023. But IAG chief Luis Gallego said it is likely to remain as much as 15% lower than 2019 levels by then.
Cost Cuts, Fares
In the meantime, the sector is pushing ahead with more cost cutting, aggressive fleet deals and simplification, and the sale of non-core assets. Consolidation could also be in the offing, as stronger carriers wear down weaker ones with lower pricing.
“They are trying to keep discipline on capacity but there is a high risk of a market-share fight,” Fabre said. “The conditions are ripe for fare wars.”
For the lucrative business-travel segment, the biggest threat comes from cutbacks in internal meetings — which make up roughly 40% of corporate travel — while trips to meet customers are more likely to be maintained.
“It’s going to be very complicated for some airlines,” he said, predicting a rethink of networks and cabin configurations.
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