Corporate travel: The long road to recovery

Corporate travel is disproportionately important to the travel industry. Before the COVID-19 crisis, 12 percent of airline passengers were flying for business, but corporate travelers provided half the US airline industry’s profits as well as 70 percent of global revenues for high-end hotels. Now the business-travel sector—which encompasses travel for meetings, conferences, and events—faces an unprecedented challenge. During a McKinsey Live webinar, partner Vik Krishnan and associate partner Nina Wittkamp explained the current state of the sector, which segments of the global economy are likely to return to traveling first, and actions travel providers can take to survive the lengthy recovery ahead.

Rebound times will vary

According to an International Air Transport Association survey, most companies expect business travel for the remainder of 2020 to remain below 10 percent of precrisis levels and foresee it remaining well below precrisis levels in 2021, albeit with some growth.

Global corporate travel will return, but it will be in phases, and the timing will depend on the dynamics of industries and sectors as well as purpose and length of trips. In China, early lessons suggest industries can be categorized as early rebounders, market followers, and the long-term disrupted. Early rebounders include manufacturing, pharma, and others with global supply chains. Recovering less quickly are market followers, industries such as energy and finance, which tend to be more correlated with economic indicators. The industries his hardest by the pandemic affected and able to move part of their business online—healthcare and professional services, for example—are expected to remain disrupted in the long term.

Innovation’s effects on corporate travel

The safety of traveling employees is the top priority for companies, but the need for efficiency and effectiveness hasn’t gone away. In McKinsey interviews, business-travel managers expressed surprise at the effectiveness of virtual meetings and conferences and can’t imagine their employees traveling in the future for all the reasons they did before the crisis. Saving travel time and expenses, virtual meetings and collaboration have proved to be efficient and will permanently replace some travel for internal purposes. On the other hand, corporate travel providers can expect to see back on the road account reps whose customers prefer to see them in person and professional-services providers whose clients want to meet face to face.

Worldwide, almost 4,000 in-person industry trade shows, conferences, and exhibits have been postponed or canceled since the pandemic began. Although such events are slowly resuming (with health and safety cautions in place), many are being held online, and some are likely to continue to be.

How businesses manage travel—from who attends in-person meetings to how many vendors a company uses—is changing. With an emphasis on their duty-of-care obligations, many companies have implemented employee-tracking processes that show employees’ physical locations so that their company can alert them to any safety issues that might arise or provide emergency help when needed. Most companies have put robust processes in place to monitor vendors’ policies and countries’ restrictions, and they continuously communicate the changes to employees.

Riding out the storm

Facing a multiyear recovery, corporate-travel providers may want to consider these actions:

• Shift the commercial model in response to ongoing disruptions. For example, airlines can help address inconsistent and frequently changing quarantine and testing requirements by coalescing around a global protocol. Reducing uncertainty and inconsistency could help speed up the return of long-haul corporate flights.
• Understand the market’s microsegments and what will make customers feel safe. Developing a source of granular and data-driven information will improve the accuracy of predictions about the timing of sectors’ return to travel.
• Be thoughtful about improving the sector’s economics. For example, do six airlines need to offer flights between New York and Miami every day?
• Be more flexible, modifying operations and policies to accommodate customer needs. Airlines’ recent elimination of change and cancellation fees is a good start.
• Connect and communicate directly with key decision makers at top customers, who are making the tough decisions. They can offer deeper insights on their company’s future travel needs.
• Reorganize to improve agility. It’s a good time to break down organizational silos, for example.

Although some aspects of the corporate travel sector won’t return to the way they were, business travel isn’t going away. By adopting a flexible perspective, travel companies can adjust to the rapid changes in the sector and the industries they serve.

Questions and answers from the webinar

1. Do you see loyalty programs playing a role in business travel recovery?
   These programs have helped to retain business-traveler loyalty. Most companies have extended their customers’ loyalty status into 2021 regardless of 2020 flying patterns. In addition, some loyalty programs have supported the resilience of travel-company balance sheets by providing a source of liquidity in these challenging times. The loyalty programs and their cobrand card partners are critical to travel recovery.
   
   
2. How should we think about solving liability should travelers be affected by COVID-19 on a business trip?
   Companies are placing an even greater emphasis on their duty-of-care obligations to staff. This involves ensuring the safety of employees when they’re traveling for work. But it also requires companies to know the physical location of their traveling employees in order to inform them about any safety-related issues that arise or provide emergency help if required.
   
   
3. What actions can airlines take to bring back long-haul corporate travel volumes, given how critical it is for airline profitability?
   Long-haul corporate travel demand is inextricably linked to the recovery of the global economy and international trade. So, while these factors may not be directly in the airlines’ control, they can help address is the inconsistency in travel standards and frequent changes in regulations regarding quarantines and testing requirements. After 9/11, the industry coalesced around a security protocol that was largely global. Travelers showed they were willing to accept the time the security protocols added to their journey as long as they knew what to expect. Companies didn’t compete with each other on security standards. In this crisis, though biosecurity is no different, it is being handled differently. The uncertainty and inconsistency are a headwind to the return of long-haul corporate travel.

For more on this topic, please watch the webinar recording and read the article “For corporate travel, a long recovery ahead.”