C-19 Cyclical Impacts on
Business Air Travel Jul/Aug 2020

In determining the impact on business air travel of the C-19 challenge one should start with how long the C-19 recessionary bump in the runway will last?

If you believe in the V then you will probably hope that the C-19 impact will pass in a short period of time and therefore mitigate the short term damage and wait for the clouds to clear.

If you believe in the U (which could last anywhere from 4-8 quarters — preliminary comments from airline executive groups seem to be seeing the world in shades of U these days) simply patching current airline business models may not suffice, forcing a contemplation of more significant pivots that hopefully avoid becoming damaging pirouettes.

Finally, there are the real L sceptics who feel that 3 years or more of sustained harm to airline business models may result. The Ls probably feel that the new normal is unlikely to match the older normal and thus will be forced to search for new solutions to air transportation business model evolution. I am betting on a well-nourished U shape with 8 quarters of demand damage.

Looking back over the last 50 years, there has been a continual change in business air travel product offerings with the intention of trying to create the perception of a higher value product to cater to the higher yielding business traveller.

We saw the original business class develop in the 1980s, providing a little more space and offering a few more amenities than seats in the Economy cabin, but way below the luxury offered in First Class. Through the 1990s and 2000s the business class product evolved, through the introduction of cradle seats and then full lie-flat seats, to increase the differential with Economy and encroach on First Class further. More recently various forms of super, or “premium”, economy service products have introduced a fourth cabin (not too dissimilar a product to the early Business class) while all business class dedicated aircraft and airlines have all seen light in the previous recessions (see chart).

By 2020, we have seen all sorts of super premium airline offers — including privacy screens, double beds, sky cabins with onboard showers, etc. There may be little room for the development of new more luxurious offers. Does one then contemplate squeezing more value added features into the design of a super economy or the basic business class service profile?

This is probably more likely than a new version of the airborne apartment class of service. Will this C-19 induced downturn stimulate a new class of business service travel (super value class)? One could consider three factors that might mitigate against the creation of a new super business service line despite the fact it is a somewhat traditional option when coming out of recessions:

1. The fact that most corporations have been far more universally damaged by the pervasive threat of C-19 meaning that charging more for a better product would not seem to be indicated at this stage. How long will corporate travel budgets remain constrained? Airlines have suffered heretofore unseen revenue drops so they probably do not have anything left in their rainy day funds to support any R&D investments at this stage.
2. Many air carriers have gone to the à la carte service options structure allowing customers to exercise limited levels of customisation of their travel experience. (Do I get a basic business class or super economy product with 0-1-2-3-4-5-6 of the à la carte service add on elements or stick to the basic version?) Thus many options for new and improved service lines are already embedded in the array of sub offers contained within the traditional classes of service.
   It is perhaps more likely that we see aircraft re-configuration actions that would reduce or eliminate the first class cabin and add either business class capacity or super economy class capacity expansion.
3. If one compares 2008-2009 to 2020 a few parallel business communication and travel options have taken on more important dimensions. The inclusion of corporate jet services as an adjunct to airline premium business travel options means that this premium business travel air travel option is strengthened to compete with airlines‘ traditional business travel options — first and business classes. With every economic cycle since the 1980s a series of ground-based technologies have slowly captured business communications demand that has been taken off airplanes and replaced with video conference or other similar technologies. The cost of accessing these terrestrial business communications platforms has come down steadily while quality of experience has gone up and now represent a potent economic case for wider and wider application thus supplanting the business air travel rationale. One could argue, with a fair degree of persuasiveness, that this particular economic cycle will see a faster uptake on these less expensive or even freemium based business communications options simply because they are seen as safer than getting on an airplane. In addition to these business air travel demand fracturing alternatives you also have the fact that corporate air travel using lower seating density, higher performance corporate jets are becoming less expensive to access because of various condo (or cost sharing) options that have come to market in the last 10 years.

Helping airlines push back against these demand deflators we have the power of frequent flyer loyalty programs as an attraction to frequent and loyal business travellers demand protection. More importantly, airlines have now had a good 10 years to begin to harvest the analytical data in client profiles which should empower them to make more specific, better targeted offers to specific customer types thus avoiding the damage of across the board discounting to all business travellers or giving double, or triple frequent flyer miles instead of cutting price.

These options are limited by the fact that the airline industry as a whole is not as sophisticated as some of the better digital or bricks & clicks retailers. It may not be able to fully leverage customer analytics to the extent they would need to now. We also hope to have in the coming 3-5 years some smaller supersonic airliners that will add the ultimate luxury to business air travel — SPEED of trip completion. This is something that we have not had since Concorde retreated to the hangars of history.

We note that DE-DENSING is the new watch word that creates the perception of a safer inflight experience. Coincident with that, an increasing interest in more point-to-point services and less hub connected trip itineraries. We note that the 747 and now the A380 are seemingly less interesting as fleet options flying between dense hubs. As the A380 becomes less attractive the on board space will shrink/seat/flight — so replace that with a FAST transit experience where the shorter the trip in a less densely populated aircraft would seem to command a safer, healthier transit experience perception in many consumers’ minds. One also notes more recent data and market research studies that try to highlight the value of the in person business connectivity predicated client relations vs selling with the digital you.

Recent research from Oxford Economics reveals that companies realise $12.50 in incremental revenue for every dollar invested in business travel and that an estimated 28% of current business would be lost if business travel were suddenly cut off. Despite the existence of some interesting metrics on the value of in person business travel and communications ACTE reveals that only 13% of corporate travel managers actively measure trip success rate and trip ROI. Other supporting data related to growing importance of in person business travel would include:

• Global business travel was expected to grow to $1.6 trillion in annual spend by 2020 (GBTA).
• US travellers took 462 million domestic business trips, a figure forecast to rise to 499.4 million by 2022 (Statista).
• 30% of European corporate travellers fly once per month, 62% travel once a year, 5% travel 21 to 40 times per year. 44% of European corporate travellers fly to visit a customer; 32% fly to visit another company office in a different city (Fly Aeolus).

Finally, as in the case of all premium products and services, the perceived trustworthiness of one’s brand will play a key role in shaping the way business travel consumers decide to re-engage in business communications and travel. The smart airline managers realise that any premium service conveys much of its perceived value through brand.

The C-19 challenge now means that the words “travel safety” take on a much more significant importance in influencing the speed with which digital communications replaces physical business travel. For those who are more comfortable in re-engaging in business air travel early they are likely to pay attention to the brands that seem the safest and most precise in the science around a C-19 proof inflight experience, if such an option can exist in the coming quarters. As is depicted in the chart, there will be a shift in most valued brand attributes from strength to brand trust and reputation for safety.

So, what is the formula for leveraging whatever recoverable demand one can in the coming 6-8 quarters of business air travel activity? A hybrid recipe of the following should help:

• Leverage your best customer analytics to precisely target offers to specific business travel consumers in your database to recapture that slice of your airlines demand profile that can be brought back at a lesser cost that offering across the board discounts. Use your loyalty program to make more unique targeted offers to your most profitable client profiles.
• Look to add value to your existing business travel service lines (first class, business class and super economy classes) so that you might gain short term differentiation vs your competition. Maybe something as simple as providing a higher value added a la carter series of options to your highest value most loyal customers. De-densing seating configurations may offer some temporary solutions until leisure discretionary demand returns in significant enough volume to re-densify cabin configurations.
• With the advent of the A321-XLR, 787’s, A350-900 and plenty of used 757-300LR’s floating around consider how you can de-densify the inflight business air travel experience while using smaller capacity airframes to cost effectively provide more point-to-point O&D flight options that reduce elapsed trip times and reduce the amount of exposure business air travellers have to the air transport infrastructure — at least until there is a viable global solution to the C-19 problem.
• Consider investing the biggest luxury that air travel can offer: SPEED. Get into the supersonic mid-size jet fleet option as soon as technically and fiscally possible. (if this upcoming crop of new designs actually make it off the design boards onto the runways for the worlds airports). This is still the ultimate exclusivity-conferring element air travel has ever had to offer. When one wraps SPEED into a less dense, shorter trip time — SAFER — travel experience then maybe all the business air travel deflators will have less impact during this upcoming air travel recession? One can only hope.