What's Up With Business Travel?

It's no news that business travel has plummented during the recession. Economy travel, which comprises 90 percent of airline ticketing, has also taken a hit, but the decline of business travel has been far more precipitous, as corporations discover other ways to prospect for new business, hold meetings, and make connections — or decide to just do without.

The thing is, none of the business travel substitutes hold a candle to the real thing. Still, the real worry for the major U.S. air carriers — all of the travel service providers that are part of the road warrior supply chain — is whether former business travel levels will come back at all, and, if so, when.

The reason for airlines' concern about the rebound of business travel is that the loss of these higher-paying road warriors has been a real drag on ticket prices. As Dallas Morning News' Terry Maxon points out, business travelers are "the key to airline profitability."

Worldwide the number of premium tickets sold in September — the latest month for which figures are available — declined 13.9 percent from a year ago. Premium tickets are purchased primarily by business travelers, who, as MarketWatch reports, "have been absent most of the year" from the air travel picture as companies have sought to slash discretionary spending. In fact, premium travel figures for 2009 have plummented about 19 percent vs. the same period the previous year, according to the International Air Transport Association.

In one promising note, recently Continental CEO Larry Kellner observed that business air traffic is starting to stabilize. But, Kellner noted, "one data point doesn't make a trend." Overall, travel has declined for 12 straight months, according to the U.S. Air Transport Association. At the same time, the airlines' cargo volumes, which have a big impact on the airlines' profitability, have declined for 14 consecutive months. So, while an economic recovery may be under way, historically, rebounds in business travel are tied directly to lower unemployment levels, and thus always lag the recovery.

Buttressing this point is Dan Reed in USA Today, who says that analysts are predicting that it may be 2011 before U.S. carriers return to decent profitability, that is, when business travel is projected to rebound sufficiently to cover the airlines' higher fuel and other operating costs.

The bottom line is that air traffic figures may look better this month, but, until the premium-ticket-paying road warrior returns, the airlines' bottom lines will continue to show little improvement.



Road Warrior • Miami • www.us.amadeus.com

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2 Comments

  • Michael Valkevich

    Jeannie,

    Sorry it took me so long to respond, I just went through a bunch of comments and saw that I missed this one.

    Incidentally, I work for a company which uses high-res, Tandberg video conferencing technology quite frequently. However, your last sentence is a bit out of sync with my understanding of things ... business travel is not slated to "continue to decline", it is improving. The correction we're seeing is about 10-12% YoY in the Americas and 6-8% in Western Europe, based on q12010 figures. Furthermore, your implication that quality video conferencing was in any way responsible for any amount of the decline in business travel we experienced over the past two years is just off-base. No one cancelled meetings because they had video gear, the cancelled them because they lost budget. If I wanted to go further and play devil's advocate, I wouldn't call video/web conferencing tools "travel alternatives", I would call them "Really Expensive Conference Calls."

    I don't really know about 50% of business travel being unnecessary, either. Personal experience aside, those of us who do travel are under more scrutiny than ever to make good use of time and bring home the bacon, so to speak.

  • Jeannie McPherson

    Hi Michael,

    Regarding your comment that "none of the business travel substitutes hold a candle to the real thing," I'm curious how much experience you have with using business quality video conferencing and/or telepresence technology? While I certainly agree that there are times when getting on a plane to sit in a room with colleagues or customers is vital, I would argue that at least 50% of business travel is unnecessary and could just as easily and effectively be handled with video conferencing. The fact that both small and large businesses are flocking to implement visual communications solutions is an indication that they would agree. Just having returned from a business trip myself where I was crammed into a plane next to a heavy man with bad breath for 5 hours straight only to land at my destination to find my luggage did not make it (I still haven't received it 3 days later from Delta), I can honestly say that I am ecstatic that I work for a company with a very robust video conferencing program that encourages less travel and more video. Sadly, it seems that my business travel experience is the norm currently. Until this changes, I just see more and more people continuing to look for travel alternatives. I invite you to come into a TANDBERG Executive Briefing Center to experience true business quality video conferencing and telepresence and then you’ll see why business travel is expected to continue to decline.

    Cheers!
    Jeannie.McPherson@TANDBERG.com