October 21, 2022

The five headwinds threatening business travel this winter and 2023

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By Amon Cohen:
Corporate travel was resurgent heading into the summer 2022 holiday hiatus as companies found themselves released from the shackles of Covid. “From mid-February we saw an exponential growth in demand when the UK border reopened and restrictions fell away,” says Pat McDonagh, CEO of travel management company Clarity. “That was a surprise.”

But will that recovery persist once bikinis, buckets and spades have been packed away and business travel heads into its traditional September-November peak? Or will a series of political, economic and environmental “headwinds”, as McDonagh describes them, slow demand and perhaps even blow it into reverse?

The answer is complicated. There is little doubt that underlying demand remains strong. “Travel is coming back much faster than we all thought because of the sheer amount of people wanting to enjoy the human connection again,” says Yvonne Moya, global head of travel for the Netherlands-based human resource services firm Randstad. “We are almost back to 2019 levels, which was never the plan.”

Among Clarity clients, business travel recovery varies quite sharply by sector. Legal and professional services are still 40-50 per cent below pre-Covid levels, while academia is 20 per cent down. Engineering and heavy industry are now only 0-10 per cent lower, and elite sport travel is tracking ahead of 2019 volumes.

Yet Moya and McDonagh both expect momentum to slow after the summer break. “We are at the point where for some good reasons it will go back a little bit,” says Moya.

What are those reasons? At least five headwinds appear to threaten further business travel recovery this autumn.

Travel disruption
Chronic labour shortages and associated industrial action have made delays at best and outright cancellations at worst the norm for travel in recent months, whether by air or rail. Six per cent of flight schedules for the first two weeks of July were axed in Germany, according to the travel intelligence platform Mabrian, a figure that doesn’t even take into account last-minute cancellations. In the UK, schedule reductions amounted to 3 per cent.

The constant disruption is taking its toll. “We see a little bit of travel fatigue hitting,” says Moya. “In Amsterdam you need to be at the airport four hours before departure. We have had travellers not making it on to the flight if they arrived three hours ahead. And you can be almost sure your luggage won’t make it.”

Hans-Ingo Biehl, executive director of German travel managers’ association VDR, agrees. “The chaos caused by flight disruptions and lack of personnel across the travel sector is making some travellers think about not going on the road and meeting through web conferencing instead,” he says. “If you’ve had a bad experience, you are ready to postpone your next trip until the situation eases.”  

It remains unclear how long the pain will last for travellers. “Some airlines are more bullish than others that they will have a grip by the autumn,” says TripActions general manager for Europe Michael Riegel. “Others say it will take longer: until spring next year for things to be running properly again.”

Businesses are looking at how much they spend and how frequently they travel, and potentially that will create a long-term challenge”

Price rises
In late June, BTN Europe reported that intra-European business class fares had risen 33 per cent for the third quarter of 2022. That same week, Sabah Kahoul, general manager of consultancy Business Travel Purchase, told a Business Travel Show Europe audience that car hire rates have more than doubled in some cases.

Prices are rocketing owing to a combustible combination of surging demand, capacity restrictions and soaring costs for suppliers, including wages and fuel. “There are no cheap deals out there because airlines are limited in what they can sell,” confirms McDonagh. “Naturally, businesses are looking at how much they spend and how frequently they travel, and potentially that will create a long-term challenge.”

A travel manager for a Danish company, requesting anonymity, reads the situation similarly. “Companies may switch into savings mode with more stringent approval processes,” the buyer says.

Yet for air fares TripActions takes a much more optimistic view. In recent weeks price “is going more into a reverse direction,” says Riegel. “What we see right now, especially in the US but likely more and more in Europe, is that prices start going down again. Airlines have increased capacity and all indications we have seen point in that direction.”

TripActions believes the EU preparing to scrap its Covid-era relaxation of “use it or lose it” rules for airport take-off and landing slot retention will increase supply and deflate fares even further.

Energy crisis
Russia has reduced the flow of gas through the Nord Stream 1 pipeline to Germany and other European countries in recent weeks. Russia’s weaponisation of gas supply has triggered fears that some industrial businesses may have to curb production and citizens may be unable to heat their homes this winter, not to mention driving greater inflation.

All these consequences could affect demand for corporate travel. “We may see governments issue restrictions on energy usage as we approach winter,” says the Danish travel manager. “That could lead companies to scrutinise the value of the flights they book even more, both to economise financially and to conserve fuel. Even if the government doesn’t say ‘fly less’, it could be implicit.”

In Germany, “this issue is on the table for every single person,” says Biehl. “Every household and company is thinking about how it can cut costs. If the government says we have to reduce consumption of gas, then of course travel will be part of it.”

More Covid closures?
McDonagh puts this headwind “at number one because potentially it has the highest severity. If we ended up with more border closures and additional restrictions on travel going into the winter season, that naturally drags demand as well. Until we have a business-as-usual winter, I don’t think we can say this crisis is behind the industry.”

However, the Clarity boss is hopeful lessons have been learned that closing borders does little to inhibit the spread of Covid-19 and that, with vaccines proving so successful at preventing fatalities, travel will not be shut down as it was in the first two years of infection spikes.

Environmental fears
There were many forecasts after the first lockdown that mounting fears about climate would suppress business travel demand permanently. Following the first flush of post-lockdown reunions, VDR’s Biehl believes minds have been refocused on sustainability by a summer of unnaturally hot weather and extensive fires. “It will make sure more than ever that companies only travel when justifiable,” he says.

Moya agrees. “I think we have reached a peak. Sustainability is a hot topic,” she says. “It’s making us ask: do we really need to go?”

VDR’s understanding of forward bookings is that they are strong for September but significantly weaker for the fourth quarter of 2022. However, this view is not unanimous. Riegel says industry figures he has looked at remain strong.

“We believe that overall travel will continue to recover,” he says. “Yes, it will be a bit less due to the difficulties around air operations and so on but what we see from all the data points is that recovery will continue in the autumn.”

Small wonder with such disagreement, then, that Moya is reminded of the early months of Covid when her crystal ball stopped working. “I’m feeling like this again for other reasons,” she says.

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