As the peak summer season that never was begins to fade, airlines in Europe and North America would ordinarily turn their thoughts to autumn, that season of mellow fruitfulness. In airline terms, the mellow fruitfulness so poetically expressed, might be used to describe the mix of revenues from the last embers of summer leisure traffic combining with the onset of resurgent autumnal business traffic. A potent combination for airlines tapping into both segments, assuring some of the most profitable months of the year and providing the bedrock of annual profitability for many. But this year things look very different. Zero summer leisure traffic and almost no hope of the usual autumnal business travel comeback.
I have worked for a number of airlines for whom these factors have been of critical importance and in my view we may be witnessing the begining of a fundamental structural change.
What defines business travel
It has long been a mantra of airlines that business travel was the holy grail, but definition is all important. The key is business travel willing to pay a substantial price premium. Many businesses have no choice but to travel as cheaply as possible and indeed as competition has placed downward pressure on prices and low cost airlines (LCCs) in particular have offered low fares, they have been able to do so.
Indeed the number of customers actually travelling in business class on short haul flights is a shadow of what it was in the days before LCCs became established players. It is still possible to convince customers who are more typically travelling on business to pay a premium, even when travelling in economy, for all important elements of flexibility and convenience. Even LCCs extract extra revenue, for example, from the ability to make changes to reservations, to skip security and boarding queues, to choose the best seats or check in an overnight bag. LCCs like easyJet go out of their way to offer competitive frequent schedules precisely to attract premium paying business customers and offer higher flexible fares with ” all the trimmings.” In short words, business travellers are still highly important on short haul, just not particularly from travelling in business class.
Big bucks to be made
Long haul is a different matter. Here is where business travel and especially in business class, is core to the profitability of many full service carriers who are selling convenience , choice and overall experience. There are many long haul airline routes where business class cabins run at sell out or consistently high occupancy levels for large parts of the year, especially in the autumn. Revenues generated can mean that an aircraft the size of a 747 or A380 could operate with only the business cabin occupied and still deliver a profit!
Seats and champagne
Airlines make huge investments in their long haul business class products. Cabins and seats are all important attributes, selling privacy and comfort, not least the ability to sleep. Add to this high quality foods, wines and attentive cabin service and on the ground, exclusive lounges and fast track facilities. All represent significant fixed costs but with a handsome pay back to the bottom line.
The Covid crisis has dealt a harsh blow to all of this. No packed business class cabins this autumn, indeed most long haul air travel remains grounded.
A likely structural shift
Several factors will result in an immediate and dramatic fall in business travel. Widespread corporate travel bans have been put in place for reasons of health and cost. With many countries facing recession and economic weakness, there will be company failures in multiple sectors of the economy, so further travel will be lost.
Similar things have happened before and are potentially reversable but I believe that this time there are deeper seated structural aspects which will make a big dent in the amount of future business travel and particularly to the demand for long haul business class.
The fact that we are seeing airlines permanently retiring their largest aircraft, A380s and 747s, which tend also to have the biggest business class cabins, some recently refurbished, says a lot about how they see the trajectory of business travel in the coming years.
I remember having a similar view after the 9/11 attacks in 2001 but was proved wrong. It took some years, but lucrative long haul business class travel returned to and exceeded, its previous levels of buoyancy. LCCs began to make a successful pitch for short haul business travel, itself representing a structural shift, killing off much business class demand.
Why might it not all come back?
Unlike previous crises which were geographically bounded, this is global. There are far reaching consequences for humanity, giving pause for reflection on so many aspects of our lives today. There is and will be, much questioning about how and why we do things and that is going to extend to how we do business.
Video conferencing was available 20 years ago but with nothing like the variety, ease of access, affordability and reliability of the options at our disposal today. It has been a revelation just how easy it is to continue much business activity and to meet colleagues and clients without even leaving the desk.
This is not to say that business meetings are going to stop, nothing can beat face to face for bonding with colleagues or building trust and relationships with clients, but the reality is that there are many occasions where travel can easily be substituted using video technology.
There is too, the question of life style. How many people enjoy getting up at 4 a.m. for a dawn flight for a one day business trip? Do long haul road warriors relish travelling every month or even more frequently, no matter what comforts business class may offer? Many people will simply be pleased to travel less for business.
Lastly, I believe there is the fundamental question of the environment. It was not high on the agenda during previous crises but is certainly now top of the list. Airlines are in the spotlight, many businesses are eager to show their green credentials and what better way than to trumpet the fact that they are no longer putting executives on those long haul flights as frequently as before? This is certain to have a permanent downward impact on the volume of business travel.
Winners and losers
A significant reduction in business travel can be anticipated. In the short term there could be some deep discount price offers to fill long haul business class seats, they cannot simply be taken out overnight and airlines will also want to wait, while the dust settles, to assess what long term demand levels may actually look like before reviewing cabin size.
Longer term, there will be winners and losers. LCCs can reinforce their assault on short haul business travel, adapting their offers to potentially take a larger share of a smaller pie. In the longhaul arena there will still be demand from fewer customers for business class travel.
In certain cultures, business class will remain important for reasons of status. Health considerations and the desire for more space when travelling could become a new driver of demand and airlines may look to adapt their products, if this proves to be a new opportunity.
Even before the Covid crisis, some airlines such as Emirates and Finnair were already testing the concept of “business class lite”, employing the concept of pay as you go, providing a business class seat but with elements such as seat choice or lounge access being paid for as extras. Premium leisure may also be an area of growth but at potentially lower fare levels. Ultra long haul, still in an embryonic form at present and reliant on higher fare levels to justify the investment of aircraft and crews, may gain attractiveness due to its ability to avoid transit stops and the avoidance of further interaction with crowds of people at airports.
Lastly, a strengthened role for premium economy, already successful in achieving “trade up” from the economy cabin, may become a mechanism to avoid a complete loss of revenue from some who no longer use business class for reasons of cost.
The immediate outlook is bleak as airlines head into the autumn season of 2020 but necessity is the mother of invention and those airlines who apply innovative thinking and are willing to experiment, may yet salvage something from what remains of the business travel market and even create some profitable new opportunities.