While tourism is making a timid comeback, business travelers are still nowhere to be seen. In the last week of July, itineraries purchased by corporations were down 97% from a year earlier, according to Coupa Software, a California-based business-spending management firm.
The spending lost in airfares, hotel bookings, restaurants and entertainment around the world in 2020 will probably amount to north of $2 trillion, based on pre-pandemic estimates by the Global Business Travel Association. Its polls find that only 10% of companies have definite plans to green-light international travel in the next one-to-three months. That suggests that 2021 could also be mostly a lost year.
What truly troubles investors, though, is that companies’ embrace of technology could prove durable. Silicon Valley videoconferencing darling Zoom has doubled its revenues this year. Users of Cisco’s Webex service and Microsoft’s Teams workplace collaboration software have also more than doubled.
How much of the business-travel market could be lost forever? Some industry insiders have gravitated toward a best guess of 15%.
“It’s probably a permanent 10%-to-15% impact in the medium- to longer-term,” Sébastien Bazin, chief executive of French hospitality group Accor, said last week. “We can substitute different offers, but we have to be lucid.”
Big hotel chains typically make most of their revenue and even more of their profits from business travelers. Similarly, full-service airlines are only profitable because of the markup they are able to charge for premium cabins on international routes.
Corporate fliers make up only 15% of passengers, but 40% of revenues and as much as three-quarters of airline profits in some flights. German carrier Lufthansa wants to make up for some of the lost business with a dedicated brand called Ocean that will pitch international routes exclusively to tourists. Yet the ill-fated attempts of Norwegian Air Shuttle to exploit the low-cost long-haul market suggest that many routes may simply be unfeasible without strong corporate demand.
Some analysts, such as Mark Manduca at Citi Research, believe business travel could shrink by even more—as much as a quarter. GBTA polls reveal that 60% of European corporate travelers travel more than four times a year, with 32% of trips dedicated to visiting their company’s offices in another city. The temptation to trim such spending will be strong, particularly given that finance departments have already tasted the windfall.
In the past three months, 81 earnings calls have referenced a fall in travel expenses and none mentioned an increase, according to transcripts compiled by FactSet. In normal times, both get equal—although far less frequent—mentions.
“Some…efficiencies will stick,” said General Motors CEO Mary Barra. “Examples include efficient marketing spending, reduced event expenses and reduced travel and facilities expenses.”
To be sure, the trend can be exaggerated. Futurologists expected remote working to disrupt corporate travel and disperse people across the countryside when high-speed internet was adopted 15 years ago. Instead, the role of personal relationships in a more services-heavy economy has only strengthened the importance of megacities relative to towns and rural regions.
Yet even a small decline in corporate spending will make it difficult for full-service airlines and hotels to regain their former size, long after tourism has returned to normal. Video won’t kill the travel star, but it could certainly dim it.