Business travel will not return to pre-pandemic level

RIO DE JANEIRO, BRAZIL – Managing partner of Machado Meyer Attorneys, Tito Andrade was well known by the São Paulo Congonhas Airport employees. Before the pandemic, he used to see them at least twice a week: on the way to and from his business trips. With offices in Brasília, Rio de Janeiro, and Belo Horizonte, the firm frequently sent its attorneys to these cities for meetings.

However, over the past 12 months, Andrade traveled only five times. Flights should return to Andrade’s routine as soon as possible, he says, but not with the same frequency. The attorney believes the reduction could be as high as 40% compared to pre-pandemic times.

Andrade’s estimate is a little more drastic than that of Bain & Company consulting firm, which projects a permanent slump of 35% for the corporate travel segment, which will affect airlines, hotels, travel agencies and an entire chain related to the sector.

Data from the Global Business Travel Association (the sector’s international association) indicate that this industry moved US$1.4 trillion in 2018 globally – just over half of that in the U.S. and China alone. In Brazil, it was US$30 billion in 2015.

Responsible for paying for more expensive airfare and luxury hotel stays, corporate tourism will undergo deep transformation stemming from the need for companies to save money and after they have perceived that that much travel is no longer required with the popularization of videoconferencing.

“The effect of this acceleration of remote work will cut about 35% of business travel permanently. This is our first estimate, but it could be higher,” says consultant André Castellini, partner at Bain.

Those who manage to survive in this sector will experience a slow rebound. A study by McKinsey consultancy shows that international business travel originating in the U.S. took 5 years to fully recover after the 2008 crisis, while leisure travel took only 2 years.

Bain & Company’s Castellini says that in meetings with corporate executives, when asked about the positive side of quarantine, most mention the fact that they are traveling less and spending more time with the family. According to him, at Bain, reduction in travel should reach 40%. Today, employees are traveling 15% more than they used to.

The cut will occur mainly in internal activities, such as recruitment, says Castellini. Before the pandemic, in the 3 rounds of interviews the company conducted with candidates from abroad, an employee was sent to make the selection. After the pandemic, the first 2 rounds will be conducted online. Of training trips, 25% in consulting should be eliminated.

At Machado Meyer, trips that aimed to build relationships with clients should be resumed. But those in which an attorney would waste the whole day commuting to hold only one meeting will be eliminated.

“Some face-to-face meetings are important and enable quicker decisions, as well as a clearer understanding of what the interlocutor is thinking. On the other hand, there were meetings and trips that were unnecessary and that we will probably continue to conduct by video,” says Andrade.

In addition to his weekly domestic trips, the attorney used to travel abroad 6 times a year for work. Europe and the U.S. were the most frequent destinations, but Asia also appeared in the itineraries and, in this case, the trip was in business class.

Airline sector

The corporate sector is the main driver of demand for business class tickets and overnight stays in luxury hotels. Before the pandemic, first and business class tickets were on average 5 times more expensive than economy class.

As a result, these tickets were crucial in the companies’ revenue, representing 30% of international companies’ profit. Now, according to the International Air Transport Association (IATA), the difference in price between premium class and the cheapest class is only double. These cheaper fares should hinder the recovery of the airline industry, according to the association.

In the case of Gol, as the company had few international flights, this business class impact is limited. Still, there is concern over the reduction in the number of business passengers.

A report from Itaú BBA points out that before the pandemic, 70% of the company’s revenue with ticket sales was generated in the corporate segment, although it represents only 30% of the number of passengers. Today, this revenue share represents 25%.

In an interview to the newspaper O Estado de S. Paulo in December, Gol’s CEO Paulo Kakinoff acknowledged that a third of corporate travel should disappear. “But engineering inspections and sales meetings will remain face-to-face. A face-to-face meeting will ultimately be a competitive differential,” he said.

For Azul, between 60% and 65% of passengers were corporate before the pandemic. Questioned about a permanent reduction in this market, the airline’s CEO John Rodgerson said that other demands may replace the previous one, such as professionals traveling to the coast to work remotely.

“Of course the market will be different, but the airline industry is growing in Brazil. In the U.S., where the market was stable, the recovery is occurring fast. Imagine here, where there was growth.”

In a statement, LATAM said it is “a fact that corporate travel has a relevant and direct impact on the sector’s revenues, because, historically, they present a higher average ticket and this contributes in large scale to the company’s margin.”

“LATAM continues to monitor this scenario and believes that there will be, in the future, a more hybrid journey, enabling the gradual return of the corporate passenger.”

Source: Infomoney

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