The public will fly again, but fares will be higher
Business travel makes up 12pc of passengers but accounts for up to 75pc of airline profits
Are we now all going to be flying ‘responsibly’ ?
IMAGINE an airline advertisement that asks potential customers the question: “Do you always need to meet face to face? We all have to fly now and then. But next time think about flying responsibly.”
It doesn’t sound like an ad that would make it past a board meeting at Ryanair. Maybe it sounds like something that might be produced in response to the Covid-19 pandemic. Even at that, it seems a stretch than any airline would come up with such an advertisement.
Like responsible drinking advertisements, it starts with the supposition that too much alcohol (or flying in this case) is a bad thing.
But KLM put out that ad in 2019, long before the coronavirus had hit. It was the airline’s contribution to what it said was “creating a more sustainable future for aviation.” The ad had to be pitched to the board of the airline three times before they approved it.
The entire aviation industry is reeling from the impact of the virus. Tens of thousands of job losses around the world, idle planes and different views about when international air travel can bounce back, all point to enormous uncertainty.
In Ireland we have seen Aer Lingus receive a €150m loan from a state investment fund and airline trade unions are warning about irreparable damage with thousands of jobs.
Returning to international travel in huge numbers is a given once the impact of global vaccine programmes is felt. We can’t wait to get on plane and go somewhere when we are confident it will be safe to do so.
But what about business travel? When will that be back?
Airlines are caught in a perfect storm with the future of business travel. It typically accounts for just 10pc to 12pc of airline passenger numbers but 55pc to 75pc of profits for top airlines, according to McKinsey consultants.
Microsoft founder Bill Gates believes 50pc of preCovid business travel will disappear for good. For some airlines that’s a third of their profits gone. Less high margin business travel will result in higher fares for the rest of us.
Business travel is in the eye of the perfect storm. Successfully working from home has transformed the attitude of many executives. If you don’t need to go to the office, you don’t need to travel as much either.
Virtual meetings have been shown to work – up to a point. But the bigger issue is sustainability and carbon footprint. More big corporations are making commitments to go carbon neutral and even carbon negative. The pandemic has accelerated that process.
Consultancies Deloitte and PwC said last year that sustained business reductions in travel would be central to meeting their net zero goals. EY recently announced a commitment to being carbon negative globally.
Chief financial officers (CFOs) in big corporations will make decisions about what travel is necessary, based on their budget allocation.
A CNBC Global CFO Council survey found that over 50pc of CFOs in Europe and North America believe business travel will never return to preCovid levels.
The figure for Asia Pacific was 34pc. The combined total put the global figure at just under half.
The CNBC survey for tech executives showed they were a lot more optimistic with just 20pc believing business travel would never return to pre-Covid levels. But the tech industry is different. It is full of people who work for super profitable or at least super-valued companies, that have not had to do a serious cost-cutting exercise in years - if ever.
McKinsey found there were certain sectors where business travel would recover better than others. It identified Europe and North America as being hardest hit.
Those of us who don’t do business travel, might not give a toss what happens. But wait until the collapse in business travel starts affecting how much you pay for your holiday flights.
In Ireland, before Covid, we had a strong level of inward business travel. Even during the dark days of the last recession, the fact that FDI was sustained and grew, shielded it from the worst.
In 2007 at the height of the last boom we had 8m foreign visits to Ireland, with 1.2m of those for business travel. In 2015 we had 8.6m visits of which 1.44m were for business purpose, according to CSO figures. In 2019 we had 10m visits of which 1.48m were business travel.
Business travel globally has grown in recent years despite the availability of online alternatives like Skype, FaceTime and email.
Business people are divided about the future of corporate travel. Some believe the absence of business travel, which is down 95pc according to some airlines, has underscored where relationships matter the most. `
Management teams have to ask themselves can they continue to operate successfully and in a sustainable way without forging new relationships. It is easier to Zoom people you have met before. Somebody might need to go and see them some time.
Could that deliver a postCovid boost for business travel? It might be overstretching it, especially in sectors which have been badly hit and budgets will be shot to pieces.
If business travel never reaches pre-Covid levels again, it raises questions about the future model for the airline industry. Some business trips will be essential. Companies will not care too much about the price if it has to be done.
We could see the return of fewer, but more expensive business travel journeys. The day of the elite “high flyers” could return.
Short haul, low cost carriers like Ryanair, should be least affected.
But even industry body IATA estimated that air fares could go up by 54pc as the industry struggles to regain financial stability.
Of Ireland’s 10 million visits in 2019, 1.48 million of those came on business