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onsensus is growing that global air travel demand is unlikely to fully recover until around mid-decade. Although short-haul and leisure travel will probably rebound sooner, it’s apparent that business travel is unlikely to fully return for several years – and may even be permanently impaired.
The most obvious consequence is lower yield, because those traveling for work often fly in premium cabins and seat products and tend to purchase more-expensive flexible tickets. But reduced travel by business customers requires new strategies stretching far beyond revenue management.
Upgrades
Changing aircraft seat configurations is probably an overreaction for most carriers, especially on aircraft with limited economic service life.
Although first and business class demand may be depressed in the intermediate term, the high cost of LOPA (Layout of Passenger Accommodation) changes is likely to outstrip the revenue upside of increased economy capacity in the interim.
More intelligent options include greater use of upgrade bidding tools during booking and check-in – and even “surprise and delight” upgrades for randomly selected passengers.
"The high cost of LOPA (Layout of Passenger Accommodation) changes is likely to outstrip the revenue upside of increased economy capacity in the interim."
Some carriers offer free upgrades to elite-level frequent flyers, but such policies may be dilutive to revenue if customers with higher willingness to pay discover they can book economy and consistently get upgraded for free.
Status Matches & Loyalty Schemes
To be sure, there will be some early returners like salespeople and consultants. Unless their employers are tied to corporate contracts, these travelers will be up for grabs in the “new normal.”
How can a carrier compete for their spend without unnecessarily cutting fares or adding operational costs?
A key pillar will be status matches from other airlines’ programs and even hotel loyalty schemes, even if such status expired since the pandemic began.
Many airlines have given loyal customers free time extensions or reduced qualification requirements for elite status. Such moves make sense in an environment where pre-pandemic elites don’t yet have authorization or sufficient budget to resume their previous levels of travel.
But no travel company wants to reduce key customers’ incentive to spend, and top customers don’t want crowded priority check-in queues and customer service hotlines.
"One possible answer is to shorten the period that elite-status privileges are granted to, say, six or even three months. This allows an airline to adjust requirements more dynamically as demand recovers in its key markets."
One possible answer is to shorten the period that elite-status privileges are granted to, say, six or even three months. This allows an airline to adjust requirements more dynamically as demand recovers in its key markets.
Where customers have restricted ability to travel – and diminished ambition to travel long distances – an airline may struggle to keep customers tied into its loyalty ecosystem.
Mileage accrual is a key cash flow source for many airlines, so it’s vital to keep them spending with co-branded credit cards and merchant partners. One answer may be to allow customers to spend their miles or loyalty credits directly with merchant partners.
Yes, non-air redemptions require more cash burn than award travel, but they may be necessary to keep customers from switching to cash-back credit cards or non-travel loyalty schemes.
Sales Management
Similarly, airline sales teams will be fighting to retain key accounts and win new ones. Buying market share with deep discounts and large incentives may be effective but also expensive. Understanding forthcoming changes in business travelers’ habits will be vital to negotiating profitable agreements.
Frequent contact with corporate travel managers is essential, especially regarding where staff will need to fly during a post-pandemic recovery and how often.
Short-term, rolling agreements will likely prove optimal for both sides, allowing an airline to lock in some volume commitment while giving the corporate account flexibility to ramp requirements up or down as the medical and business environment requires.
One emerging trend is the growth of remote workers based in cities far from their colleagues. It’s likely that such workers will be required to travel to company offices periodically for training, team building, etc.
"Frequent contact with corporate travel managers is essential, especially regarding where staff will need to fly during a post-pandemic recovery and how often."
If such events are large enough, corporate sales managers can capture the resulting traffic by offering special-event-style pricing and volume agreements like those offered for conventions.
Especially in short-haul markets, full-service airlines will be fighting tooth-and-nail to fend off low-cost carriers vying for the business traveler.
Branded fare products and ancillary options can help, but only when the traveler can see all fare options when they book – which is often not the case for corporate travelers booking via a GDS.
A full-service carrier can level the playing field by offering perks like free bags, preferred seats, or even a dedicated corporate check-in area when negotiating in LCC-competitive markets. These perks increase corporate traveler satisfaction and offer a point of differentiation many LCCs won’t match.
Alternate Competition
On business-heavy routes under two hours, both full-service and low-cost carriers may find themselves pitted against renewed competition from automobile and rail travel.
Passengers are shifting to these modes of transportation to avoid delays imposed by airport medical requirements. One playbook to combat this can be found in Alaska Airlines’ Seattle-to-Portland “shuttle” experience.
Passengers on the 129-mile (207-kilometer) flight get time-saving features like express security screening, gate assignments close to the security checkpoint, and the ability to deposit one bag on a plane-side cart just before boarding. Bags can be reclaimed plane-side on arrival, allowing customers to bypass baggage claim.
Any airline looking to capture returning business travelers must examine its pricing, sales, and operations to seize opportunities like the ones described here.
It requires planning and cooperation across the organization to ensure every facet of a business traveler’s interaction with the airline is considered.
But carriers making a head start today will find themselves taking a larger share of business traffic tomorrow – and without giving away too much revenue.
