Airlines Face New Crisis as Crucial Business Travel Market Experiences ‘Structural Decline’

Business travel is expected to drop 15-25% through 2025 compared to before the pandemic

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As the airline industry struggles to recover from a deep, pandemic-induced recession, another crisis is looming in the crucial business travel market, according to a new report.

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Businesses are expected to keep travel under control for years to come, resulting in a 15-25% “structural” drop through 2025 from before the COVID-19 pandemic, consulting firm AlixPartners said on Wednesday. The loss could trigger a major overhaul of full-service carrier strategy, as business demand accounts for up to three-quarters of their profits and nearly a third of sales.

“Business travel will be hit harder than leisure,” said Pascal Fabre, managing partner of the firm in Paris. “Hybrid work and reduced corporate travel spending will have a lasting effect. “

Hybrid work and reduced corporate travel spending will have a lasting effect

Pascal Fabre

European airlines like Air France-KLM and British Airways from IAG SA have benefited from a rebound in regional travel this summer and are adding more capacity after the United States lifted border restrictions this week. Still, a full recovery to pre-crisis levels of global theft in the world is not expected until mid-decade, AlixPartners said.

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Airlines, financially weakened and in debt after the COVID crisis, remain hopeful. Shai Weiss, CEO of Virgin Atlantic Airways Ltd., said this week that he expects a full rebound in business travel by 2023. But IAG chief Luis Gallego said that it would likely remain up to 15% below 2019 levels by then.

Cost reductions, tariffs

In the meantime, the industry is moving forward with more cost cutting, aggressive fleet deals and simplification, and the sale of non-core assets. Consolidation could also be on the horizon, as stronger carriers exhaust weaker ones with lower prices.

“They are trying to maintain discipline over capacity, but there is a high risk of a struggle for market share,” Fabre said. “The conditions are ripe for tariff wars. “

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For the lucrative business travel segment, the biggest threat comes from the reduction in in-house meetings – which account for about 40% of business travel – while trips to meet clients are more likely to be sustained.

“It’s going to be very complicated for some airlines,” he said, predicting an overhaul of networks and cabin configurations.

Bloomberg.com

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