Arthur D. Little senior advisor Patrick W. Diemer is the former is the former managing director of AirPlus International. He now sits on several advisory boards and works as an investor in B2B travel and payment innovation.
Our industry’s CEOs, who are paid to manage their stakeholders’ expectations, have stopped forecasting the recovery of business travel post-Covid-19. It is a risky exercise, because the odds to be wrong are very high. We moved from early statements like ‘2023’ to ‘2024’ to a truthful ‘we do not know.’ And I do not know either.
We are in the worst crisis of business travel globally since World War II. 9/11, SARS, the global financial crisis of 2018, volcanoes, all of these have not brought down business travel for such a long time. In spite of this situation, the business travel industry, companies and investors, still pose questions on the future size of business travel activity. A key question continues to linger: When will it come back? Looking at institutions brave enough to make forecasts, my eyes fell on:
• The World Travel and Tourism Council, which looks at business travel as part of their economic analysis
• The Global Business Travel Association, which contracts Rockport Analytics to produce its Business Travel Index
• FitchRatings, which forecast business travel recovery when they assessed CWT’s long-term debt
The analysis and forecasts cited above were published in 2021. I would consider them the latest findings.
Any recovery scenario struggles with the question, how much of business travel will be replaced long-term by virtual meetings. You do not have to believe an extreme position like Bill Gates’ “over 50 percent of business travel … will go away.” Yet, every travel manager acknowledges and appreciates that a substantial part of business travel will be replaced by Zoom, Teams and the like.
For the purpose of my own forecast, I assume that 30 percent of business travel will be gone for good, and I have nothing but anecdotal evidence to proof this.
Taking these three pillars of available forecasts plus anecdotal projections, here are the major learnings:
1. Nobody believes in a recovery by 2024.
2. In an unlikely optimistic best case, we might see a full recovery by 2025, more realistically in 2026.
3. If, however, travel managers are correct about ‘minus 30 percent,’ and one applies a normal annual growth rate on this plateau, we will see 2019 levels of business travel activities only in 2028.
There are many interesting learnings from these observations.
2019 is history and it will not come back. This crisis has lasted too long for our industry for any pre-crisis scenario to provide meaningful guidance for decisions managers need to take today. Whether 2019 business volumes will be back in 2025, 2026 or 2028 becomes unimportant, because it is too far away in the future to be of any relevance today.
Suppliers do not need a comeback of 2019 levels. As a matter of survival, business travel suppliers have cut fixed costs substantially. British Airways now has 21 percent less staff than a year ago, Lufthansa minus 19 percent, Marriott minus 30 percent, just to name a few. When borders open again, likely later this year, these efficiencies will be sustainable at least to some degree. As a result, many suppliers will observe their pre-pandemic profits to come back well before their revenues will reach all-time highs again.
There is a bright light at the end of the tunnel. WTTC reports 2020 business travel activity worldwide to be at 39 percent of the previous year. At the moment, we are even below 2020. IATA reports international air travel in April 2021 to be at about 20 percent of pre-crisis level. From this very low level, the growth the industry will experience will be stunning. Travel restrictions will be lifted in the foreseeable future. Even with the most conversative assumptions, the next two to three years will see travel double.
Expect low capacity and high prices. Suppliers will have little incentive to ramp up their capacity to pre-crisis levels. In particular, airlines will continue to park significant parts of their fleets. This will limit choice for buyers, and it will increase prices to pre-crisis levels well before we should come back to pre-crisis travel volumes.
Expect less cross-subsidization from business to leisure travel. Locations, events and providers that cater to business and leisure travelers alike will observe business travel to come back much slower than leisure travel. Their ability to charge high prices to companies that effectively subsidize lower-paying tourists will suffer, because the number of business trips will be so much lower going forward. Hence, hotels in big cities like New York and other suppliers will see their margins shrink.
The unpredicted and incomparable crisis we find ourselves in will end soon but will have long-lasting effects to our industry—most of which we will only start to understand in the months to come. The question as to when we will see pre-crisis business volumes will be the least of our worries.