DBEA55AED16C0C92252A6554BC1553B2 Clicky DBEA55AED16C0C92252A6554BC1553B2 Clicky
April 19, 2024
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News:

Everybody is now aware that the coronavirus has virtually shut down the global economy and is having a major negative impact on our industry. While nobody knows when this will end, the depth of this situation is such that bouncing back to what we had before is unlikely to occur. There might be permanent changes in the ways we do business.

This is the first in a series of pieces that will examine potential changes in our industry and their impacts on industry participants. Our first topic is the demand for travel.

The coronavirus crisis has most of the non-healthcare and essential services workers conducting business from home, utilizing the internet and technology to continue business operations remotely. As companies and employees become more familiar and more comfortable with this technology, they will discover that some tasks previously handled through travel can be accomplished without getting on an airplane. Saving time and money will be important to companies post-recession, and new demand limits on travel are likely.

Many industry conventions and events that have been canceled may face lower turnout, as some participants will fear crowded spaces, particularly if the disease is not completely eradicated. I can’t imagine a lot of folks attending seminars on cruise ships soon, given the difficulties a confined environment creates.

The result could be a permanent decline in business travel. The size of that decline would have major implications for the entire travel industry, as business travelers purchase the highest priced airfares and make up a disproportionate share of airline revenues.

Analysis

The impact of a drop-off in business travel will be devastating to airline economics. A 5% drop in high yield customers translates to a 7% drop in revenues. Eliminating 1 in 20 business trips is not out of the question, and even eliminating 1 in 10 is a realistic potential outcome in today’s environment, as companies want to recover and pay off any additional debts they incurred during the crisis. Curbs on business travel are currently in place at most companies. As travel recovers, it might the perfect time for companies to adjust travel approvals to tighten their belts.

Conventions and major events may or may not return with the same intensity as before. An event like the Farnborough or Paris Air Shows that draws more than 100,000 professionals from around the world has a major economic impact. That impact will reach far beyond airlines to hotels, rental cars, restaurants, and caterers from event cancellations. While we anticipate these events will rebound, companies in financial distress may tighten their belts with respect to their participation and the number of people attending the events.

Lower traffic levels mean a slower rebound for the airline industry, and potentially a one-time step-function reduction in business volume. While that change could be lost within the data post-coronavirus, it may impact future industry growth rates, slowing the 4 to 5% growth we’ve seen in RPKs over the last decades.

Insight:

Travel is often not immediately productive in ROI terms. By the time one gets to the airport, clears security, waits to board, completes the flight, disembarks and reclaims luggage, arranges ground transportation and reaches a destination, it is difficult to accomplish meetings in one, or possibly two, cities, within a day. Given the tight space on a flight, it is difficult to utilize a laptop unless you are in business or first class.

Using the Internet, we can interact with each other as easy as placing a phone call using live video. It is almost as good, and an order of magnitude more productive in ROI terms. The days of carte blanche for business travelers to hop on an airplane may be over. Airlines will need to grow market share to continue the revenue growth shareholders demand, and this could result in fare wars or another round of consolidation, both domestically and internationally. I’d bet on the latter.

Ironically, the low-cost carriers of the world may be better positioned coming out of the crisis than legacy carriers, with a different audience for their product and typically better balance sheets.

The Bottom Line

Things may never be the same again for business travel, with a profound impact on the airlines, and the number and types of aircraft they fly.



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President AirInsight Group LLC

Everybody is now aware that the coronavirus has virtually shut down the global economy and is having a major negative impact on our industry. While nobody knows when this will end, the depth of this situation is such that bouncing back to what we had before is unlikely to occur. There might be permanent changes in the ways we do business.

This is the first in a series of pieces that will examine potential changes in our industry and their impacts on industry participants. Our first topic is the demand for travel.

The coronavirus crisis has most of the non-healthcare and essential services workers conducting business from home, utilizing the internet and technology to continue business operations remotely. As companies and employees become more familiar and more comfortable with this technology, they will discover that some tasks previously handled through travel can be accomplished without getting on an airplane. Saving time and money will be important to companies post-recession, and new demand limits on travel are likely.

Many industry conventions and events that have been canceled may face lower turnout, as some participants will fear crowded spaces, particularly if the disease is not completely eradicated. I can’t imagine a lot of folks attending seminars on cruise ships soon, given the difficulties a confined environment creates.

The result could be a permanent decline in business travel. The size of that decline would have major implications for the entire travel industry, as business travelers purchase the highest priced airfares and make up a disproportionate share of airline revenues.


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