May 25, 2022

Ipass Business Travel’s Decimation Could Have Wide-Reaching Consequences

In 2019, Clint Scott flew 46 times for work, staying in hotels, dining at local restaurants, and sometimes seeing tourist sights such as the Liberty Bell.

In 2020, he flew just three times. what is a short term loan?

Scott, CEO of Alloy Labs, a consortium of community banks, has American Airlines Executive Platinum status, Marriott Gold Elite status, and membership in not one but three premium airport lounges. He has 350,000 miles, which he can use to travel his whole family for free around the globe.

However, by being compelled to remain at home during the epidemic, Scott experienced a new way of life in which he spends more time with his family and is just as successful at work. He’s even convinced banking colleagues who had previously opposed moving meetings online. The speeches he formerly traveled across the nation to make to boards of directors are now more regularly aired online, as are the sessions that used to take two or three days in a bank but are now spaced out over two or three weeks in brief Microsoft Teams huddles. And lo and behold, he and his coworkers are achieving more productivity.

“This is not about cost savings alone. This is about boosting efficacy,” adds Scott, who anticipates traveling once a month after the epidemic, rather than weekly.

Tens of thousands more road warriors like Scott — and their employers — are coming to the same conclusion, bringing the already damaged leisure and hospitality industry to a halt. According to Deloitte Insights, travel expenses for US businesses would decrease by 90 percent or more in 2020. Even if the pandemic subsides, businesses seeking to become more environmentally sustainable are unlikely to resume previous levels of travel; Several companies, including Zurich Insurance Group AG, Bain & Company, and S&P Global, have declared intentions to drastically cut business travel emissions over the next several years, with Zurich seeking to achieve a 70% reduction by next year.

This might result in significant losses for airlines, hotels, car rental agencies, and other businesses that cater to business travelers. Business travelers account for just 12% of passengers traveling yet generate 75% of revenue on some routes. They provided hotels with consistent income by attending conferences and events and then staying an additional few days to vacation with their families.

According to Lindsey Roeschke, managing loan director for travel and hospitality research at Morning Consult, some CEOs expect business travel to recover to 85 percent of pre-pandemic levels. That, she believes, is an optimistic assessment. “Even if I am mistaken, and we do see a return to those levels,” she adds, “that is still a tremendous loss for the business.”

The hotel business is very aware of this. Several rental car firms like Hertz, hotels like the Fairmont in San Jose during the outbreak, and international airlines like Aeromexico, LATAM, and Virgin Atlantic sought bankruptcy protection. Government subsidies that aided the survival of the US airline sector expired on September 30. According to the American Hotel and Lobby Association, the hotel sector is predicted to generate $59 billion less in business travel income this year compared to 2019. Airlines are expected to incur a loss of $51.8 billion in only 2021.

“We’ve been losing cash for 18 months,” says Dave Harvey, Southwest Business’s vice president of business development. And now, the government’s assistance has come to an end. “At this point in the fourth quarter, we’re all flying nude.”

It might be difficult to visualize such losses in billions of dollars. However, it may be simpler to see the rippling consequences of hundreds of thousands of Clint Scotties traveling less—businesses closing, employees being laid off, airlines canceling flights.

The cascading impact of less business travel

Boston was one of Scott’s favorite business trip locations; he and his family lived there years before, and he still had acquaintances with whom he could meet for supper after a day of meetings. For example, he’d stay in Back Bay, at the Marriott Copley Place, and rise early to go for a long run down the Charles River before work.

He has not visited since October of this year.

Several locations where he used to assemble with pals have now vanished. He’d have supper at Eastern Standard in Kenmore Square or oysters at Island Creek. Still, both establishments are now permanently shuttered after a breakdown in discussions between the restaurant owners and the real estate firm that controlled the sites.

He generally travels American Airlines, but the carrier has curtailed certain flights and is contemplating others in the wake of the epidemic. American is experiencing personnel shortages due to furloughing flight attendants and granting buyouts to pilots during the epidemic; the airline now employs around 16,000 fewer people than in 2019.

Scott primarily stays at Marriott hotels due to his elite status with the company. In September, Boston’s flagship Marriott, located in downtown Copley Place, lay off 230 staff. According to earnings reports, Marriott hotels in the United States and Canada had a 45 percent occupancy rate for the three months ended June 30, down from 80 percent in the same time last year. Since the epidemic began, at least four Marriott hotels in New York City have permanently shuttered.

Not only large corporations are hurting. Lena Larson worked as a maid at Boston Copley Place for 26 years until being evacuated in March 2020 due to the epidemic. The firm continued promising her they’d contact her back when business picked up, until September 2020, when it phoned her and hundreds of other employees and informed them their employment had been terminated. “It was quite difficult for me,” admits Morales, 51, who cares for her elderly parents. She applied for thirty jobs before finding one a few months ago. Local 26 of Unite Here initiated a boycott of the Marriott, arguing that the hotel outsources functions to firms who pay lower wages.

Ironically, such cutbacks may also make travel less pleasurable for everyone when they resume. To some extent, business passengers support other travelers, and as they decline, airlines are scrambling to minimize expenses. They’re eliminating routes to locations predominantly frequented for business, increasing airline routing via hubs, and talking a lot about efficiency. 

These cost reductions also imply a decrease in available pilots and other flight crew, which means that weather delays and maintenance concerns may create a cascade of delays, like last week when Southwest canceled about a quarter of its flights due to weather problems in Florida. Other airlines may see similar difficulties, particularly as travel becomes more crowded over the holidays. 

“We’re concerned about the holiday travel season—they say we’ll fly more in the winter than we did in the summer, but we’re concerned they won’t have the capacity to fly that many planes,” says Capt. Sherman Meyer, a spokesman for the Allied Pilots Association, represents American Airlines pilots. (American did not respond to a request for comment, citing the company’s quiet time leading up to its earnings announcement on Oct. 21.)

Scott has become aware of the alterations. On a recent trip to Harrisburg in August, Scott was informed on a Friday that the airline would be unable to transport him home until Tuesday due to weather delays and technical concerns. (This summer, Americans canceled many flights due to weather, technical matters, and crew shortages.) 

Rather than wait, he leased a vehicle and drove to Philadelphia, hoping to catch a flight the next day, only to discover that Marriott’s website had collapsed and the hotel at which he believed he’d made a reservation was sold out. He knocked on doors until he found a vacancy at the Homeaway Suites, but it was almost 11 p.m., and there were no neighboring eateries open, so his meal consisted of a Bud Light and a bag of chips. He returned home the next day. “The system has weakened in its resilience,” he asserts.

Certain businesses continue to believe that business travel will resume.

Certain hospitality firms dispute the notion that business travel will never return. “We are hopeful that we have turned the corner,” Marriott CEO Anthony Capuano stated during an August earnings call, even though special corporate reservations were down 45 percent yearly. On a recent earnings call, Delta said that it expects business travel to return to 60% of total traffic by the end of this year and to 80-100 percent by the following year.

Southwest Airlines has increased its commitment to business travel throughout the epidemic, adding 18 airports with hundreds of sales personnel and making it more straightforward for firms to book trips via their travel systems.

“There is an unmet need for face-to-face business meetings, conferences, events, and networking—people are starving for it,” Harvey of Southwest Business explains. He adds that Southwest hopes to recruit such customers by enticing businesses seeking cheaper rates but still requiring travel. He further believes that as companies hire more distant workers, a new class of business travelers has emerged who must fly to headquarters a few times a year.

However, even those who have spent decades on the road acknowledge that the epidemic has highlighted that technology has now made it possible to communicate effectively without traveling. Tina Perkins, who worked for Epic Systems, an electronic medical records business located in Madison, Wisconsin, for 20 years, says she enjoyed traveling to different cities once or twice a month to assist hospitals in implementing Epic software. However, “I’ve been surprised at how well we’ve adapted,” she adds. 

“We are just as successful in this hybrid environment, which was unexpected given how long we had done things one way.” She anticipates traveling once every 4-6 weeks in the future, rather than every 2-4 weeks. Other Epic travelers have followed suit; staff now travel around 1,000 miles each month, down from 3,500 before the epidemic.

The hotels and airlines that can make their business models work without business passengers will be in the most significant position moving ahead, according to Anthony Jackson, Deloitte’s US Airlines Sector leader. Airlines extended their premium economy seats during the previous recession to attract economy passengers ready to pay for an upgrade but not first-class and cost-conscious business travelers. 

According to Alan Lewis, managing director of L.E.K, airlines are now likely to extend premium economy further to provide passengers concerned about COVID-19 with a means to pay for more elbow space. Consulting. Delta said on October 13 that it earned a profit in the three months ending September 30, with premium cabin tickets accounting for the majority of that profit. The business said that business travel has not yet rebounded to a level of more than 50%.

As with airlines, hotels will need to find new methods to attract visitor money, according to Roeschke of Morning Consult. They may opt to court digital nomads who are no longer need to pay rent and are free to roam the nation while working. Alternatively, they may provide “leisure” – business leisure – packages to those interested in combining work and vacation in a single trip.

This may entice travelers such as Scott, who must nevertheless make sure business travels. Scott attended a weeklong meeting of the American Banking Association in Orlando on his final professional trip before the epidemic. Due to the proximity of his in-laws, he utilized miles to fly his wife and children to Orlando as well. They leased an Airbnb in the vicinity of the conference, and he commuted by Lyft. Nonetheless, the American Banking Association is hosting the same conference in Tampa this year, but neither Scott nor his family will be in attendance.

There is a silver lining to Scott’s reduced trip frequency; he reports spending more money locally. He and his family are dining at local establishments and exploring areas and companies that he would have been too burnt out to dig during his years of constant travel. He expects this to result in a renaissance of Main Street businesses, the kind of establishments that business visitors may have shunned.

“Normally, I travel so much that when I get home, I want home-cooked meals,” he explains. “Right now, I’m spending a lot of time at home. Thus, dining out may be enjoyable once again.”