Business travel may never fully recover from COVID-19, analysts warn

April 20, 2021, 4:28 PM UTC

With more than a billion vaccinations already administered against COVID-19, there’s the tantalizing sense that we might soon return to our former traveling lives. In just the past few days, Greek Prime Minister Kyriakos Mitsotakis has said that his country would soon reopen for tourists, including Americans, and French President Emmanuel Macron told CBS News that France would allow vaccinated Americans into the country during the summer tourist season—“with a special pass, I would say.”

But it will take a lot more than “a special pass” to stanch the bleeding in one industry: aviation.

Even if tourists begin hopping on planes again to far-off destinations, analysts say that business travel, the real moneymaker for airlines, will take years longer to recover—if it ever does.

“Corporate travel might not get back to normality, perhaps ever,” says Mark Manduca, managing director in equity research at Citigroup in London.

That leaves some of the airline industry in perilous shape, as it tries to figure out how to survive a pandemic that has lasted far longer than expected just a year ago.

The end of business travel?

Corporate travel is essential to most airlines’ very existence. Manduca estimates that until the pandemic hit, about $300 billion of the global industry’s $800 billion revenues came from corporate travel, and it represented about 50% to 70% of its profit basis.

Recovering all of that could be almost impossible. In February, the Global Business Travel Association predicted that corporate travel would not recover until the end of 2024, and would even remain under its 2019 level of about $1.43 trillion worldwide.

But Manduca is even less optimistic. He says that COOs in major sectors like pharmaceuticals, financial services, and tech are targeting the heavy travelers among their employee base—those two-thirds of business travelers who took more than five trips a year in pre-pandemic times.

“Most people are saying they want to cut that two-thirds in half,” he says. “So that’s going to be an impairment of about 30%.” Even if some of those business trips slowly pick up, he believes business travel will shrink by about 25%, with short-haul flights recovering by 2023, and long-haul flights only by about 2027. He calls it a “disaster for the airlines.”

Companies, for their part, have spent the past year running Zoom meetings—with far better success than they had predicted. Much of that could remain as a semipermanent part of doing business.

“Corporations have saved millions on travel,” says John Grant, senior analyst at aviation data company OAG in Luton, U.K. They will be “much more judicious” on authorizing it in the future, he says.

On ‘life support’

Even the global vaccination rollout has failed to bring the uptick the industry was expecting. Last November, Alexandre de Juniac, CEO of the International Air Transport Association, or IATA, called the airlines’ pandemic losses “devastating and unrelenting,” and said most were “on life support” from government aid. Yet he predicted that with mass testing and vaccinations, airlines would turn “cash positive” in the fourth quarter of 2021.

That now seems highly unlikely. “The optimism we had that there would be positive signs of recovery in the second half of 2021, and the beginning of 2022, is beginning to disappear,” Grant says. “The vaccination rates are not moving quickly enough. Infections are reappearing.” Now, he estimates airlines will recover only in late 2024 or early 2025.

That impact has been felt not just by airlines, but also by airports themselves. Heathrow Airport is currently losing £5 million ($7 million) a day through the loss in revenue from depressed passenger numbers, the airport’s CEO said last week.

In the meantime, the airlines’ “life support” has steadily grown. The U.S. COVID-19 rescue plan signed last month by President Joe Biden included $14 billion in direct aid for the airlines. As a result, American Airlines canceled plans to lay off 13,000 employees, while United Airlines said it would not lay off 14,000 people—for now. And two weeks ago, the French government offered Air France–KLM a rescue package worth €4 billion (about $5 billion), giving it a stake in the company of nearly 29%. That followed a bailout in May last year of €7 billion ($8.4 billion).

But government generosity has its limits. “You cannot keep pouring government money into all of these airlines,” Manduca says. “At some point, countries will work out what they actually need.”

The plans have also come with conditions. Under Biden’s rescue plan, U.S. airlines will be barred until September next year from stock buybacks—a widespread strategy in recent years—and from raising dividends. As part of last year’s rescue of Air France, the French government compelled the airline to cut short-haul domestic flights on routes that are served by high-speed trains.

All that could well leave the global industry struggling for years to come. “You have massive questions around long-term recovery,” Manduca says. “You had an industry that was growing. And now it is shrinking.”

Airlines could face permanent shrinkage in the post-covid world