On CNBC this morning United Airlines CEO Scott Kirby said he likes that pilot wages are going up, which is really saying he likes pilot shortages, because of what that does to competitors. Low cost carriers can’t hire pilots cheap, eroding their relative cost advantage against United.
He also revealed something interesting about business travel: it’s not continuing its recovery, and specifically that it has “plateaued”. In other words,
- A lot of small business travel has come back, while managed corporate travel ahs remained off by at least a third.
- Trips have changed. People working remotely may fly to the office monthly instead of commuting daily. That’s good for airlines. And business travel may get spread out more.
- The traditional consultant week, fly out to a client site on Monday and back on Thursday afternoon, just doesn’t exist in the same way anymore because companies that are back in office may not be in office every day, it isn’t necessary to work from a client’s site week-after-week for many.
This is a natural time for business travel to lull anyway, but as we head into a likely recession, one of the first things many big companies cut is their travel budgets. And with budgets being finalized for 2023 we may not see substantial further recovery in managed corporate travel in 2023.
It’s been a good time for airlines, with capacity still constrained in many markets and travel demand strong. That could soften for leisure without business travel making up the slack. But it also points to longer-term ways in which business travel may have changed.
To be sure, business travel may return to pre-pandemic totals (level) simply by virtue of growth, but it may not return to trend meaning it won’t be as high as it would have been had the pandemic not changed the nature of work for corporate middle managers.
As someone who spent a good part of my career on that “typical consultant week” travel schedule, I’ll add that my travel was diminishing even before the pandemic. As video meeting, screen sharing, cloud-servers and VPNs were all getting better, clients were revisiting whether it made sense to spend all that money on travel, even when the local employees were all in the office 100%.
By comparing current to pre-pandemic, you’ve got 3 years of that downward trend accumulating, So I’m not at all surprised that pattern of business travel is much reduced.
My company has frozen all travel globally. We’ll see how this goes for the airlines.
As we consider the probably perma-shrinkage of cost-no-object business travel, consider how business class has evolved over the past half-century. What passed in the ’70s as “business class” was really a kind of super-coach: a way to give frequent non-APEX business flyers a little extra when they couldn’t expense F. Now J/C is more sumptuous and expensive than 20th century F ever was, and — surprise! — cost-conscious business travelers are going to be looking harder at Y+ or Y when they go on the road at all.
If I were Scott Kirby or Ed Bastian I’d be asking my people to look at the wisdom of expanding Y+ capacity at the expense of business class.
From the consultant point of view, it’s not so much that clients aren’t always in the office so less reason to travel, but more that they figured out that going mostly remote is saving a ton of money by not having to pay expenses.
If business travel really is down, then why are business class fares skyhigh? Something doesn’t add up here.
“Zoom” videoconferencing and similar web-based applications now reign supreme after having been the “lifeline” of many businesses worldwide during the pandemic and withstanding the “stress” test (i.e., performing almost flawlessly despite a stratospheric increase internet traffic). It taught businesses that much can accomplished by working remotely and at a fraction of the cost that it previously took to travel to accomplish the same things.
The problem with “Zoom” videoconferencing and similar web-based applications is that it has led (at least at my job) to an explosion in meetings. Whereas in the past may might have had three or four in-person meetings, we now have at least half a dozen if not more “Zoom” meetings. Everyone who want to feel important now schedules his/her own meeting.
The “typical consultant week” comment being made is really significantly overgeneralizing. Most of the big firms are back on site M-Th each week. Trust me lol.
@Ed “business” fares are high due to demand from upmarket leisure travelers.
@Ed — that is not a “problem” with Zoom et al. It is a problem with users of those applications. Whether it is a ‘problem” even then is unclear to me, as meetings are typically held by consensus, and more such inexpensive meetings might be beneficial in many cases.
@DSC, the more meetings the less work gets done.
@Ed – it depends on the type of “work” that needs to be done…
Meetings: the practical alternative to work.
Gary, how about doing an expose about the scammy state of European airlines and their refusal to compensate passengers promptly for delays, cancellations, and downgrades.
Whereas USA based airlines are typically quickly to spend funds to make good, European airlines are the lowest of the low and drag their feet purposedly until slapped with a court order.
People here continue to conflate and confuse work from home which implies being able to do some, but not necessarily all of your work, at home vs. business travel which is the necessity of leaving your city to meet w/ other people which may or may not be internal to your company.
Very few companies are or will return to the level of internal company travel but there is a significant amount of customer contact travel that is necessary because customers in many cases want to see you in person more than people within your own company.
Also, total revenue the airlines are receiving for their services is more important than the percent return of business travel. There are more and more “blended purpose” trips happening so it is much more difficult to categorize travel as fully business or fully leisure. And “business travel” that involves a weekend might be entitled to lower fares or fewer restrictions.
The reason why Scott Kirby wants high pilot wages is because the legacy carriers will do better at attracting fares necessary to support high wages than low cost carriers; so, yes, United sees a competitive advantage in high fares. However, United low-balled its pilots with a contract offer that was worth half per year that Delta just agreed to with its pilots. Maybe United could have paid much more than they offered but they might be squeezed as other airlines also will be – just perhaps not to the same degree a low cosst carriers.
Let’s see how soon United gets a new contract with its pilots. If Delta really set the standard, it shouldn’t take United’s management a whole lot of time to copy the Delta contract proposal.
I would like to think that Corporate America wising up to huge scam that is the big-name consultant business is why some travel is not resuming–but that is probably and unfortunately not the case.
I can only speak for my company. I am in upper mgmt. at a large Fortune 50 company. Since 2022 is almost a full year now…I can tell you that travel here is at about 20% of what it is was in the last full non-covid year (2019).
Without “some” decent biz travel in 2023, no doubt I may see my elite status shrink. I’m still where I was due to the covid rollover. But, with those ending, it will be extremely tough to maintain status for 2024.
Companies now see they don’t have to send folks everywhere, all the time. My two cents? I don’t see that new trend changing anytime soon…if ever!
While they too have noticed a plateau, they seem to be assuming market concentration — and their oligopolist power — will make them more or less immune to any upcoming potential drop in business travel.
Given how big the healthcare segment is in the US economy, someone should check out what is going on with travel demand from the healthcare industry. I’m seeing signs that suggest there could be a drop coming up there even before we formally end up in a recession.
@Ed Just by looking at a significant portion of the passengers in Transatlantic business class, they are older couples … not business people. They book way ahead, just look at the seat map;s, and will pay accordingly.
Speaking for myself as a 600K a year pre-pandemic business traveler, most of which was long-haul international — well thanks to the CCP my business was decimated — LOL, I wish it were just 10% — and will never recover IMO. So that market’s gone.
As someone who actually does pay for Flagship First on AA — yes we do exist even though AA execs say we don’t — business these days has a lot of wide-eyed oldsters spending their childrens’ inheritance. I like a bit more room and don’t care for AA business class seats.
The airlines have made their bed now they can lie in it. If Dougie at AA hadn’t bought back so many shares to pimp his bonus they might have a bit more cash for creative pricing. Let alone pay his DUI fines… Ohhhhh… low blow. Sorry. Not sorry.
Good. OPM work flyers stay home.
Leave the premium cabins to us true elites going on vacation.
Hopefully biz travel picks up because it provides incentive for the airlines to deliver a better product, especially in business class. A lot of biz travelers are frequent travelers and make the airline a lot of money. Making them happy is more important than the occasional leisure traveler that flies in business a few times per year.
@ Woofie,
The last business class flight from Europe I was one (BA), a large fraction of business class was actually occupied by families with children. Perhaps families get a discount when traveling? Otherwise, it’s gonna be an expensive joke.
We learned during the pandemic that sales performance is much higher when salespeople WFH than when they are on the road, so our salespeople are still mostly WFH. This saves a whole lot of costs too.
In retrospect, this makes a lot of sense: anyone who has been on the road a lot knows just how much lower your productivity is, not only during the trip, but for days afterwards.
Asia travel is still impossible to many places and tech companies that used to fly these routes have slashed budgets. So the result is that biz and leisure travelers are stuck with Europe and South America and hence packed cabins.
With recession hitting I predict demand will subside at tech hubs, and we will see a drop in loads and fares (once the tech bros exhaust their severance pay and miles).
Otherwise the key # to watch is the summer 2023 advance bookings for Europe. If these tank then you will know recession is starting to bite.
North America demand will remain strong as normal travel continues to ramp up.
The business class model is dead at airlines , they don’t need them anymore anyone can travel now and do. That’s why their all changing , they don’t cater to business people anymore. The Airlines are way ahead of you.
@Ed, I agree with you wholeheartedly about meetings. Zoom meetings are getting out of control. So much so that our company now has set aside a “Zoom Free Friday” once a month. It’s absolutely crazy that such even needs to exist but it has to because folks feel like they need to schedule a meeting for the silliest of things now.
Meetings tend to be the biggest time waster of my day. I loved when we were all in the office and every meeting was a “stand up” meeting. Half the office is over weight, they hated standing thus had very little to say that wasn’t necessary because their knees would start killing them or arthritis would kick in.
Those meeting were quick and to the point because most of them couldn’t wait to get back to sitting on their asses at their desk.