McKinsey: Business Travel will return in phases
When economies around the world shut down because of the COVID-19 pandemic, most large corporations instituted sweeping restrictions on travel and set high thresholds for exceptions. By April 2020, US airline capacity declined about 70 percent from that in 2019, a decline nearly four times greater than seen after the September 11, 2001, attacks and six times greater than seen after the 2008–09 financial crisis.
Once companies and their employees are prepared to return to the use of airports and hotels, our research indicates that they will do so in phases.3 Global travel managers and directors told us that they are closely monitoring local indicators of public health and government regulations, vendors’ health and safety policies, and employees’ willingness to travel. All three areas can help inform decisions on easing travel-policy restrictions. Several interviewees indicated a need to institute one to three months of buffer time on top of any government guidance to ensure safety.
Travel planners also identified the segments of business travel that are likely to return first, as determined by the length and purpose of a trip and the sector in which travelers work (Exhibit 2). Importantly, even those travel segments likely to return first are on a slow, long timeline for recovery, subject to geographical considerations (such as stabilization of COVID-19 outbreaks and governments’ readiness to open up travel).
Regional and domestic business travel will return first
Looking first at the distance of business travel, regional and domestic trips will likely see a return before international travel does. According to a Global Business Travel Association survey of its member organizations, companies are twice as likely to have halted international travel as have halted domestic travel as of July 2020. Within domestic travel, trips that can happen in personal or rental vehicles may replace short regional flights until companies’ comfort with sending employees via airplanes increases.
Travel managers with operations in Asia–Pacific say they have begun to see a slight uptick in domestic travel in countries where outbreaks have stabilized (for example, one organization we interviewed noted that domestic China travel was at 70 to 80 percent of prepandemic levels as of June) but that it’s nowhere near a full return to scale in any region.
International travel will take longer to rebound because of the complexity of government regulations, mandatory quarantines, and the high risk of fast-changing policies. In Asia, to help facilitate economic development, some governments (such as Malaysia and Singapore) are exploring the creation of business-travel corridors under strict protocols that allow exceptions to quarantine measures.
Business travel for in-person sales and client meetings will return first
Examining next the purpose for travel, other than for mission-critical use cases (such as supply-chain-related travel that have continued throughout the pandemic), travel for sales and client-related meetings is most likely to be among the first to return as domestic travel resumes and more travel is permitted, according to those we interviewed.
Sales-focused organizations expressed an urgency to return to face-to-face meetings, with the understanding that doing so will require both parties to be comfortable with the travel required. Whether client offices will reopen to workers and allow guests will be a major indicator of the likelihood of that type of travel returning. Other interviewees expressed a need to keep up with their competitors: once peers begin traveling for sales meetings or pitches, companies will face increased pressure to return to travel to win business among key customers.
The timeline for travel for internal in-person meetings to resume is longer, with higher levels of scrutiny on what is considered business critical and can’t be accommodated with technology. Travel to interact with physical assets—data centers and IT infrastructure—will take priority. But economic constraints across industries, especially those hit hardest by the pandemic’s economic disruption, will decimate internal travel as budgets get disproportionately cut. Travel for internal MICE and other off-site gatherings may not return until well into 2021 or later. And some travel for internal purposes will be permanently replaced by virtual meetings and collaboration.
Business travel for major industry events will most likely be the last to return, as it requires a higher degree of confidence in public safety. Although conferences and trade shows are critical networking opportunities and difficult to conduct virtually, they are also high-risk, given the number of attendees, which can range from several hundred to more than 100,000. When surveyed about what measures will most boost confidence in business-travel bookings for major MICE, US travel planners ranked the availability of a COVID-19 vaccine highest, above stable-public-health indicators and lifted government restrictions.
Once events do resume, they will look different. Sales-oriented conferences and trade-show exhibitions may be the first to return to in-person formats. But many events will offer virtual, hybrid, or multilocal models with abbreviated in-person schedules, and they will move from destination cities to regional industry hubs. Venues will need to be modified to allow physical distancing.
In China and South Korea, major domestic automotive and construction trade shows hosted more than 40,000 attendees as early as the end of April 2020, when positive COVID-19 cases were fewer than 50 per day in each country. The Hunan Auto Show, which opened April 30, drew a crowd of around 60,000 attendees and instituted health and safety requirements, including temperature checks, mandatory wearing of masks and gloves, and physical distancing throughout the event.
The hardest-hit sectors will be the last to resume corporate travel
Sector, too, will play a significant role in determining the trajectory of business-travel return. Industries use business travel for different purposes, and their ability to replace it effectively with technology varies. Additionally, while all industries were affected by the COVID-19 crisis, some sectors (such as energy and retail) were hit harder than others and may face more budget constraints, which could slow their pace of travel recovery.
Industrial and production-oriented sectors (such as construction, real estate, machinery and equipment makers, and pharmaceuticals) may lead in the return to business travel. Comparing business-travel dynamics by industry in China prior to the COVID-19 pandemic and during the early travel rebound shows that those sectors rebounded sooner than the rest of the market did (Exhibit 4). Meanwhile, service and knowledge sectors (such as science and technology research) in China lagged behind in returning to business travel but indicated more ability to replace travel with technology.
If China’s still-nascent recovery is indicative of how sectors will return to travel, then other regions will probably see a slower return, based on their industrial mix. Europe and the United States have a higher proportion of business-travel spend concentrated in professional and service sectors and less in the industrial sectors that are showing early resilience in China.
How travel providers can prepare
Business travel has a long, multiyear recovery ahead. Travel players that depend on it need to act now and act quickly to weather the storm. Since the global outlook on travel is changing at an unprecedented pace, the critical first step is to develop a deep understanding of when different segments will return. To inform decision making, industry players will need a painstakingly granular, data-backed, flexible perspective on how travel will return across key customers and use cases.
To achieve that perspective, industry leaders should connect directly with their top customers’ relevant decision makers rather than engage through the procurement channels in which they may have stronger relationships today. Decision makers hold critical information that can feed assumptions on the timeline for travel recovery and offer deeper insights on customers’ future needs.
Business-travel players must evaluate the economics and pivot where needed. Airlines, for example, may choose to shift their business-class pricing and marketing to appeal to high-end leisure customers. Hotel operators may choose not to operate all their facilities or amenities or perhaps keep entire properties closed until demand returns. Trade associations and event planners, too, must pivot, bracing for a slow return to travel for in-person events or investing in technology to create high-quality virtual experiences to generate revenue. Alternatively, players may realize that they need to seek new revenue streams to survive. For instance, hospitality companies may choose to repurpose event and meeting spaces as shared-workspace options for companies that have reduced capacity at their own office sites.
As the business-travel sector does recover, its providers must modify operations and policies to accommodate new customer needs. They should overinvest to ensure 100 percent compliance with health and safety measures and seek global accreditations. Proper execution will make or break customer confidence at a time when traveler reluctance is high. Hotels and airlines must innovate the customer experience specifically for the business traveler. Airlines should evaluate loyalty-program benefits (for example, future business travelers might prefer upgrades to empty rows over upgrades to premium seats). Hotels can reevaluate amenity offerings by partnering with digital players in the food-service and fitness spaces.
Last, business-travel players should shift their commercial models to accommodate disruption. With limited resources and a slow recovery, travel companies must ensure lean, efficient models in the near term without sacrificing long-term capabilities. They must identify opportunities for cross-industry collaboration to minimize losses through resource sharing, when permitted by regulators. MICE sales cycles, in particular, are long—from six to 18 months or longer. Hotel chains and event spaces will need to maintain frontline sellers to stimulate long-term demand but may need to centralize or share resources across properties and adjust incentives and targets. Many industry players have announced deep organizational restructuring, which may prompt a resegmentation or reallocation of resources against changing priorities.