First came the leisure travelers. Now, prepare for business travelers to make flying and vacationing even more crowded than it already is.
Southwest Airlines and other carriers are taking a harder look at business travel efforts, as the global industry expects to surpass its pre-pandemic levels of spending to $1.4 trillion in 2024.
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According to the Global Business Travel Association’s Business Travel Index Outlook report released on Monday, spending will continue to accelerate to $1.8 trillion by 2027. In 2022, global business travel spending rose 47% to $1.03 trillion, as pent-up demand accelerated the travel recovery and more workers returned to the office. Business travelers, a group carriers have been trying to woo throughout the pandemic, are often some of the big spenders at airlines when it comes to upgrades, perks and last-minute, expensive flights. They’re a key demographic airlines can tap into to make some extra money.
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“We can cautiously say that we are through the worst of the pandemic,” said Suzanne Neufang, CEO of the Global Business Travel Association.
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Airlines, hotels and the overall hospitality industry took a large hit during the pandemic when corporate and leisure travelers were held up by pandemic-related restrictions. Now, these industries are feeling the demand for corporate travelers as businesses make larger pushes for returning to office, amid recessionary pressures that placed a halt on travel spending.
At Dallas-based Firehouse, an advertising firm with 30 employees, the definition has shifted to what constitutes a business trip, but there’s still great value in being in-person with clients, said Steve Smith, CEO of Firehouse.
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“I think we’re back to what our normal pace was,” Smith said. “It’s probably a few groups (of people), a couple of times a month. So, we’re not traveling constantly, but there’s someone going somewhere every month.”
Smith said, the company is looking to accelerate growth and will take every opportunity to do so.
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Many of Southwest Airlines’ corporate business customers are just now “getting off the bench,” said Dave Harvey, vice president and chief sales officer at the carrier. That’s come as more companies have called employees back to the office this year, he said.
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“You may work for one of these large professional services, banking, insurance, health care, whatever it is, but may have not had a reason to travel,” Harvey said.
But workers are still wrestling with workplace flexibility policy. A lot of travelers have adopted the idea of “blended” travel, mixing a business trip with some leisure, which could look like using your own dollars to extend a hotel stay and site see. According to Kastle Systems, a property technology firm that tracks office occupancy, office usage in Dallas is at about 53% of what it was pre-pandemic.
“The blended leisure travel was already going on,” Harvey said. “It just accelerated with people having more flexibility. It’s still heightened, but I’d say it’s actually normalizing a little bit.”
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Southwest added 18 new markets between 2020 through the end of 2021, including Chicago O’Hare, Houston Intercontinental, Colorado Springs, Miami and Syracuse. But the carrier still has an eye on corporate growth in Texas. Austin is a booming spot for business travelers, and Southwest is already at an all-time peak with its markets in Dallas and San Antonio.
Ryan Green, executive vice president and chief commercial officer at Southwest said the Dallas-based carrier has been monitoring travel patterns post-pandemic. There are “more unique travelers” traveling for business under a managed account than pre-pandemic, following the carrier’s second quarter. Those unique travelers, he said, are the ones Southwest hopes will start to take more trips.
“There are more humans traveling under a managed account today than what they did before,” Green told The Dallas Morning News. “Their frequency has not come back, so we’re monitoring those patterns.”
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In the carrier’s latest quarterly earnings call, Southwest told investors that small and medium business, government and education sectors are strong points for the carrier. Its largest segments, however, have reduced their frequency of business trips.
“There’s no substitute for a handshake and a face-to-face meeting to get to get business done,” Green said.
The industry will continue to grow with the economy, but the company is bullish on its ability to continue to pick up more market share with its investments, Green said.
According to a July report from Melius Research, consumer spending has trended favorably towards goods with experiences. But business travel has still remained an outlier, that can accelerate in the future.
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“The missing piece is large corporate travel, and there are mounting green shoots as corporations push for return to office — crucial to high-frequency business travel,” said the report. “Although the explosive growth witnessed in the early recovery phase is now normalizing, growth is still expected to continue.”
Southwest started the year reaffirming its commitment to this demographic of travelers. When a disruption happened in December that displaced thousands of passengers and canceled flights all across the network, Southwest met directly with its business customers to maintain the relationship and reaffirm the commitment that it wouldn’t happen again.
“We’re fortunate that our customers have stuck with us since then,” Green said.
Fort Worth-based American Airlines has also readjusted its mindset with corporate travel. In June, American told The Wall Street Journal that over 60% of the carrier’s corporate deals aren’t hitting their goals.
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In American’s latest earnings call, Vasu Raja, chief commercial officer and senior vice president at American said that the carrier has seen a mix of 35% leisure, 30% business travel and 35% blended travel. He said there are two groups of business travel, those that are managed through a company and those that don’t buy their travel centrally.
“We’ve seen that those customers who are managed, they buy their travel centrally has — it’s recovered to 80% of historical levels,” Raja told investors. “That’s been pretty much plateaued for several quarters now. However, unmanaged demand continues to grow in our system. And indeed, total business revenues have really regained their 2019 composition in the system.”
The nature and structure of business trips are changing too. Videoconferencing has replaced the need for short trips for a few hours of meetings.
“The reality is same-day corporate business trips, which used to be 3% to 4% of our traffic is less than 1% of our traffic,” Raja said in January.
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Deloitte’s 2023 corporate travel study also mentioned that climate concerns would put a cap on business travel gains, as a third of U.S. companies need to reduce travel per employee by more than 20% to meet 2030 sustainability goals.
October and the fall season is a busy travel window for corporate travelers, and carriers have continued to prepare for what is to come ahead of the holidays.
Business trips are back as return-to-office fuels record spending forecast for work travel
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