Business travel as it was before the COVID-19 pandemic is a thing of the past. From Pfizer, Michelin and LG Electronics to HSBC Holdings, Hershey, Invesco and Deutsche Bank, businesses around the world are signaling that innovative communications tools are making many business trips obsolete.
For example, consider Kazoo Nobel, Europe’s biggest paint maker. At its Amsterdam headquarters, CEO Thierry Vanlancker has spent the past year watching his manufacturing head, David Prinselaar, flap his arms, madly gesticulate and seemingly talk to himself while “visiting” 124 plants by directing staff with high-definition augmented-reality headgear on factory floors. A task that before meant crisscrossing the globe in an airplane is done in a fraction of the time and without jet lag. For Vanlancker, there is no going back.
“Trips to drum up business could drop by one-third, and internal meetings by even more,” he said in an interview. “It’s a good thing for our wallets and helps our sustainability targets. Our customers have had a year of training, so it’s not a social no-no anymore to just reach out by video... There’s an enormous efficiency element.”
A Bloomberg survey of 45 large businesses in the US, Europe and Asia shows that 84 percent plan to spend less on travel into the future. The majority of respondents cutting travel budgets see reductions of 20 to 40 percent, with about two in three slashing internal and external in-person meetings. The ease and efficiency of virtual software, cost savings and lower carbon emissions were the primary reasons cited for the cutbacks.
Spending on corporate trips could slide to as low as US$1.24 trillion by 2024 from a pre-pandemic peak in 2019 of US$1.43 trillion, the Global Business Travel Association (GBTA) said.
Business travel has “forever changed,” Greg Hayes, CEO of jet engine maker Raytheon Technologies, said in an interview with Bloomberg Radio last month.
About 30 percent of normal commercial air traffic is corporate-related, but only half of that is likely mandatory, he said.
While the market might eventually recover, sophisticated communication technologies have “really changed our thinking in terms of productivity,” Hayes said.
Having saved billions of US dollars from slashed travel budgets during the pandemic with only a marginal effect on operations, companies, banks, consulting firms and government offices would be hard pressed to explain why they would return to their old ways.
Chocolate maker Hershey said the pandemic showed that online meetings were a more efficient use of time and financial resources.
THE BOTTOM LINE
Companies are grappling with questions about what one accomplishes with a trip that cannot be done virtually, Pfizer global travel operations director Tina Quattlebaum told the GBTA Mid-Year Virtual Summit last month.
“We don’t think business travel will ever return to 2019 levels,” said Will Hawkley, the global head of travel and leisure at auditing company KPMG. “Corporates are looking at their bottom line, their environmental commitments, the demand from employees for more flexible working and thinking: Why do I have to bring that back?”
That is a blow to the airline and hospitality industries — among the biggest casualties of the pandemic. Business travelers, who buy premium-class or more-expensive refundable tickets, rang in as much as three-quarters of airlines’ pre-pandemic profits, while accounting for only 12 percent of seats, PricewaterhouseCoopers said.
The hotels sector, which draws about two-thirds of its revenue from business travelers, could see a dip of as much as 18 percent by next year as virtual meetings replace 27 percent of corporate travel volumes, a study released by Morgan Stanley showed.
The world’s biggest airlines collectively lost a whopping US$126 billion last year and are set to lose another US$48 billion this year, said the International Air Transport Association, lobbyist for the industry.
As airlines wrestle with the losses and huge debts racked up after the virus punctured a decades-long boom in travel, the last thing they need is for corporate customers to cut back. Carriers such as Lufthansa, Air France-KLM, Delta Air Lines and American Airlines, with thousands of staff and overhead to support, depend on business travelers returning.
“The effect of this structural decrease in business travel will be enormous for the industry, and especially for the airlines that are the most exposed to this category of traveler,” said Pascal Fabre, managing director in Paris for consulting firm AlixPartners.
Airlines are trying to stay optimistic.
Delta CEO Ed Bastian said that about 80 percent of the carrier’s large corporate clients have indicated that as much as 90 percent of their pre-COVID-19 business travel would eventually return.
“I don’t expect we’re going to see a degradation in the aggregate of business demand over time,” he said in an interview. “The more people are connected in person, the more opportunities are created. I don’t see this being a significant body-blow to the industry, as prognosticated by some.”
Traveling thousands of kilometers to meet with customers to discuss key issues across a table or over a meal made business sense before the pandemic and that has not changed, said Warren East, CEO of Rolls-Royce Holdings, which makes aircraft engines.
“COVID-19 has definitely taught people that some of the mad regular dashes across the Atlantic hither and thither aren’t necessary,” he said, speaking at a net-zero event on June 17. “But when you peel back beyond that superficial analysis, you realize people were doing it because they thought it delivered real benefit to them.”
OUTSIDE PRESSURE
There could be competitive pressure to keep flying, Air France-KLM CEO Ben Smith said in an interview.
“I hear many of our corporate customers saying that the day they lose an account because they weren’t somewhere face-to-face will immediately bring them back to the way operations were before,” Smith said.
Airlines are banking on a recovery sparked by pent-up demand after about 18 months when executives could not visit customers — hopes that are being dented by the spread of the Delta variant of SARS-CoV-2.
Even if there is an initial burst of activity, it would likely begin to stabilize and the structural change to business travel would become evident by about 2024, Fabre said.
“In the past, it was seen as a good thing to go to the other side of the world to shake someone’s hand, but not anymore,” said Augustin de Romanet, CEO of Aeroports de Paris, which operates dozens of airports around the world. “Many things that have been done by conference call during the pandemic will stay that way, especially when it comes to far-flung countries. This will be for costs and the environment, as well as people’s well-being.”
Company executives travel for many reasons — from business development and customer support to trade shows, conferences and meetings with local staff.
Trips for intra-company activities are likely to bear the brunt of the cuts “because client relationships aren’t at stake,” Fabre said.
“We have learned how to work, develop products, sign contracts without traveling,” he added.
Drew Goldman, global head of Deutsche Bank’s Investment Banking Coverage and Advisory, said that while the bank’s client-related business travel would return to about 90 percent of pre-pandemic levels, trips for internal meetings would likely be a shadow of what they were before — at 5 percent to 30 percent.
Volkswagen AG is making employees jump through hoops before they can fly. Internal booking software steers them toward alternatives to flying, the most carbon-intensive form of travel. They are also asked to justify why they cannot conduct the business online.
At French defense and tech giant Thales, “trips will be for longer and probably less frequent in order to optimize costs, environmental impact and well-being,” CEO Patrice Caine said.
In Singapore, United Overseas Bank, Southeast Asia’s third-biggest bank, plans to cut its travel budget by as much as 50 percent and limit trips to cases “where face-to-face interaction is essential,” group human resources head Dean Tong said.
Marsh & McLennan CEO Dan Glaser told investors in a second-quarter earnings call that “companies, not just Marsh McLennan, will travel with more purpose and will be more thoughtful about traveling.”
Sophisticated technologies are enabling companies to do things they never imagined doing remotely.
At French tire maker Michelin, new tools are eclipsing the automatic reflex to make a trip, CEO Florent Menegaux said in an interview.
The company has used a drone for a virtual visit of its Campo Grande plant in Brazil by the top manufacturing brass in France.
“We start machines remotely, have used drones to visit factories and train people from home,” Menegaux said. “We will continue to travel because human bonds are absolutely necessary to our activity, but we will most certainly have an overall reduction of about 20 to 30 percent in our travel costs.”
Royal Dutch Shell has created online control rooms with interactive 3D simulations of oil platforms and plants, giving engineers virtual access from home.
In Troy, Michigan, Kevin Clark, CEO of Aptiv, a former auto parts unit of General Motors, is using drones and Oculus augmented-reality headsets to show customers the performance and manufacturing run rates of plants in Mexico, Hungary and China.
“We won’t travel as much,” Clark said. “I think it’ll be more that when we need to travel, people will travel — versus, it’s nice to travel.”
WELL-BEING
For most companies, cost savings will be the primary driver to scale back, but carbon-footprint worries and employee well-being are not far behind, Fabre said.
Businesses globally are under pressure from investors and regulators to shrink their carbon dioxide emissions.
Last month, the European Commission introduced an ambitious climate plan to force all industries to shift away from fossil fuels.
Aviation has long been a target, even though it accounts for only about 2.4 percent of global human-induced carbon dioxide emissions. That is because the sector was growing rapidly before the pandemic and has other negative effects on the Earth’s upper atmosphere.
“Companies have acknowledged that reducing the level of flights is one way of reducing climate change,” said Andrew Murphy, aviation director at advocacy group Transport & Environment. “For the next 10 years, the best way to reduce emissions from aviation is to fly less.”
Airlines are providing companies tools to blunt the impact of carbon dioxide emissions with carbon offsets and refreshing fleets with newer, more efficient planes, but with the tonnes of carbon dioxide they spew, airlines cannot do much to show that flying is a sustainable way to get around. Hydrogen-fueled planes and electric commercial jetliners are decades away, and alternative aviation fuel is not widely available and jacks up ticket prices.
Carriers might need to modify aircraft configurations to cut business class seats and add more premium economy places. Premium economy costs less to operate than business class and takes up less space.
For example, Air France is developing its so-called “leisure-business category” for passengers who buy premium-class tickets for holiday travel, group CFO Steven Zaat said.
Thirty-two Air France 777s are fitted with “quick change” systems that allow the airline to reduce the size of its business-class cabin.
The airline remains confident about a rebound in business travel, but “we can always reconfigure our planes if necessary,” Zaat said in an interview with Bloomberg TV.
While airlines grapple with the possibility of fewer business customers, some of those clients are happy not to be zipping around the world all the time.
“A nice side-effect of fewer long-haul business trips is less stress for the people who fly,” Hans-Ingo Biehl, head of VDR, Germany’s business travel association, said in an interview.
A study by the Baylor College of Medicine found that frequent fliers have the same cancer risk as obese people, while companies have found that jet lag hurts productivity.
“There are a lot of myths and fantasy about travel, but it’s really very tiring,” Menegaux said. “We should do it only when it’s absolutely necessary. I travel a lot and I can tell you it’s physically grueling and takes a heavy toll.”
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