Discover more from Essays by Matthew Sattler
Theories on the future of corporate travel
Why corporate travel demand could surpass pre-pandemic demand.
Cover photo credit: Matthew Sattler, Boston Logan (BOS) September 2018.
Demand shocks are normal in the airline industry. September 11, the 2008 financial crisis, SARS, and the COVID-19 pandemic all torpedoed demand for air travel. The COVID-19 pandemic was by far the worst. Passenger demand plunged lower than in other shocks and remained depressed for longer.
In the US both leisure and corporate travel were annihilated early in the pandemic. Regional leisure travel has almost fully recovered. Corporate travel, though, remains far below its 2019 levels. Its return appears less certain—from both a timing and demand perspective.
Will the historic corporate travel demand base return? How will the pandemic transform corporate travel over the long term?
My hypothesis is that corporate travel demand will actually outpace pre-pandemic demand for three reasons:
Long lasting migratory patterns.
Geography flexible and agnostic hiring.
Increased productivity enabled by technology solutions.
Travel that won't return
Some travel isn’t coming back. McKinsey classifies corporate travel as either internal or external. Internal travel is for intracompany purposes. This includes team building, training, or inspection of field operations. External travel refers to engagements outside the company. This includes in-person meetings with clients or partners, trade conferences, and sales calls.
Content-heavy and routine trainings can likely remain remote in the long term. So too can the earliest sales call prospecting. Often first relationship meetings are with the wrong teams. That's because business developers often start with the teams they can contact. Early prospecting conversations conducted virtually save time and travel expense.
Travel that will return
Technology allows business developers to see clients in many time zones on a single day. Client managers can work on deals in different stages and product lines. This is the sales model perfected by SAAS. By necessity it was also the one adopted by all business developers during the pandemic.
Business developers realize they can create value via remote connections, but they also understand that enduring relationships benefit from in-person visits. Sussing out the details of joint-business activities is easiest over discussions with subject matter experts. Meals and social outings deepen bonds and lead to more profitable outcomes.
In short, the pandemic should supercharge business developers’ abilities. The critical first step is incubating partner discussions remotely. Then deal makers can maximize the value of in-person visits to shorten closing times. In essence, the efficiency of remote prospecting should actually increase deal flow and therefore travel demand.
Colleagues, teams and whole companies have on-boarded remotely over the past two years. The pandemic has taught all of us that remote-first is possible. But, strategic planning, steering and working sessions seem far more effective in person. As restrictions ease, teams will also likely desire to connect frequently for high-impact discussions.
The pandemic has raised the stakes for travel. To justify the expense and risk of travel, organizations should raise the stakes on prep work. This shift resembles Jeff Bezos' famous "narratives". When pitching a new idea, Amazon employees come armed with 6-page narrative. Executives read the narrative during the meeting and discussion follows. This process ensures that employees conduct exhaustive analysis and make concrete recommendations. Applying similar pressure for limited in-person interactions will also maximize strategic planning outcomes.
New sources of travel enabled by geography
Technology and the pandemic have made work remote and distributed, while the realities of long term leases mean employers remain physically headquartered in major metros. Bringing employees back to the office - even for just occasional internal networking - presents a new source of demand, and from new geographies.
McKinsey estimates that 40% of jobs can be remote into perpetuity. The technology allowing this phenomenon has existed for some time. Companies are now accepting remote-first work because of its efficacy in the pandemic.
Unbounded, people are moving in droves to more affordable and better lifestyle cities. The fastest growing US cities in the pandemic haven't been coastal tier 1s. Instead, the list includes cities like Phoenix, Denver, Austin, Nashville, and Charlotte. The pandemic accelerated a trend from the previous decade.
These moves are likely to result in sustained increased demand for air travel. Companies are likely to shift spend to internal travel for remote workers. Something that can be offset by reduced rents in expensive geographies. It should also mean lower labor costs as pay begins to reflect that of lower-cost jurisdictions.
What this means for airlines and travel providers
Industry consensus seems to represent a bear case for corporate travel. McKinsey estimated a 20% reduction in corporate travel demand by 2023. A GBTA survey from September indicated that 47% of managers had canceled "most trips".
Despite the current data, I'm bullish on the future of corporate travel. The pandemic has induced structural changes to how humans work. Business travel will come back - it will just be in different geographies and benefit different airline operating models.
US airlines are likely to see improvements to both volume and yields on regional routes. Spurred by shorter and more frequent trips from new home cities to headquarters. Mid-sized cities like Charlotte and Denver are already well positioned to accommodate increased local traffic. They are home to large connecting hubs but as higher-margin local traffic increases, connecting traffic can be shifted elsewhere in the system. This shift will be accelerated by more efficient regional aircraft which are the lowest hanging fruit for hydrogen, hybrid and electric solutions.
As for long haul travel, the jury is still out. Structural changes to where people live will benefit secondary long-haul markets - like Air France’s Denver to Paris or Turkish’s Dallas to Istanbul routes. Though, the underlying reasons for travel have changed less for long-haul than regional travel. Long haul has always had a higher bar because of its expense and time requirements. As nations ease their entry and exit restrictions, the demand base will likely return to near pre-pandemic levels. This return of transoceanic capacity could be accelerated because of ever-worsening supply chain congestion and increasing demand for belly cargo.
Demand for travel has historically outpaced analyst expectations. We should expect the same trend on the return of corporate travel. If only one thing is certain - the post-pandemic world will not look the same as it did before.