BLOOMBERG, JULY 20, 2020
Impact of virus threatens industry’s engine of sales, profit | Road warriors turn to video conferences while CEOs eye budgets
U.S. airlines hammered by the catastrophic loss of passengers during the pandemic are confronting a once-unthinkable scenario: that this crisis will obliterate much of the corporate flying they’ve relied on for decades to prop up profits.
“It is likely that business travel will never return to pre-Covid levels,” said Adam Pilarski, senior vice president at Avitas, an aviation consultant. “It is one of those unfortunate cases where the industry will be permanently impaired and what we lost now is gone, never to come back.”
At stake is the most lucrative part of the airline industry, driven by businesses that accepted — however grudgingly — the need to plop down a few thousand dollars for a last-minute ticket across the U.S. or over an ocean. While millions of customers fly rarely, road warriors are constantly in the air to close a deal, depose a witness or impress a client.
Business travel makes up 60% to 70% of industry sales, according to estimates by the trade group Airlines for America.
That’s under threat in the wake of an unprecedented collapse in passengers that started four months ago. Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19, according to Fortune magazine.
Airline stocks head for the biggest drop in data going back three decades.
Airline stocks head for the biggest drop in data going back three decades
Carriers are now weighing job cuts after $25 billion in federal payroll aid expires at the end of September. Southwest said Monday that about 28% of its employees have agreed to leave the company temporarily or permanently. American said last week it would warn 25,000 employees, or 29% of its U.S. workforce, that they’re at risk of losing their positions. United has sent notices of potential layoffs to 45%.
The airline industry is well-versed in failure, with bankruptcies dotting the first two decades of the 21st century after years of heedless growth. Predictions of business travel’s demise proved premature after the Sept. 11 attacks and again after the Great Recession of 2008-09.
Consolidation and job-cutting at the airlines helped drive those comebacks, and some carriers predict the eventual return of their cash-cow customers.
“We believe business travel will come back and come back strong as ever,” said Andrew Nocella, United’s chief commercial officer. “But it will take about six to 12 months to work through the system once a vaccine or treatment becomes widely available.”
What’s different now isn’t just the depth of airlines’ travails, however. It’s also the opportunities for technological workarounds at the banks, technology giants, law firms and other professional-services companies that once shelled out for first-class seats.
U.S. passengers counts plummeted more than 95% at their worst, with virus-fearing travelers of all types shunning the tight quarters that airlines relied on to maximize revenue from each flight.
Even with some leisure travel perking up, the numbers aren’t enough, and Wall Street is offering a clear verdict: The six largest U.S. airlines ended last week with a combined market value that’s less than the $70 billion of Zoom Video Communications Inc., whose software has made “Zoom calls” a byword in households as well as boardrooms.
Improved video conferences further lower the chances of returning to the heyday of corporate flying as companies look at travel budgets as ripe for cuts, said Eric Bernardini, a managing director at consultant AlixPartners.
“It won’t replace the need to go visit your customer, but there will be an impact on how many people are going to travel and how often,’ he said.
For now, big U.S. carriers are orienting their schedules toward leisure destinations and domestic trips. Meanwhile, companies are grappling with a changing web of government travel restrictions at home and abroad because of the pandemic.
Columbia Sportswear Co. is revising its policies, evaluating the safety protocols of hotels, rental-car companies and ride-share providers. Health risks are joined by concerns an employee could get stuck in two-week quarantines when traveling to other countries and returning to the U.S.
“Face-to-face contact and visibility is important. That said, no one’s going anywhere,” said Peter Bragdon, Columbia’s chief administrative officer. “It’s pretty easy to imagine how something that was meant to be a few days of travel turns into five weeks of being caught in a snarl.”
— With assistance by Jonathan Roeder, Edward Ludlow, Naureen S Malik, and Edward Dufner
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