Europe’s airlines lose grip on business travel rebound

Europe’s long-awaited recovery in corporate travel keeps getting pushed back.

Since the end of the coronavirus pandemic, the region’s biggest airline groups have been counting on corporate warriors to head back to the skies. But so far, many business clients have sat out the travel rebound.

Just two years ago, Deutsche Lufthansa AG Chief Executive Officer Carsten Spohr boldly predicted a 90% rebound in corporate travel, saying people had grown tired of video conferencing. Yet Europe’s biggest airline group has so far recovered only about 60% of pre-Covid business volumes, and is targeting 70% by year-end.

British Airways is seeing similar trends. Luis Gallego, CEO of parent company IAG SA, says progress is happening “more slowly than we thought at the beginning of the year.”

Air France-KLM Chief Executive Officer Ben Smith said he doesn’t expect the French domestic market to ever fully recover.

“We’re not going to get there,” he said.

‘Revenge Travel’

The reasons are varied, but stacked together they form a wall of obstacles airlines haven’t been able to scale. It’s a major challenge because business fliers typically pay more even if they’re filling an economy seat — flying on shorter notice and choosing pricier tickets that afford them more flexibility.

That makes them more profitable customers than the leisure passengers who largely drove airlines’ comeback from Covid lows. And airlines are counting on business travelers’ return, as the “revenge-travel” boom that has powered the leisure segment is starting to waver.

In Germany, smaller companies that make up the heart of the manufacturing base are back on the road but major players have pulled back in ways that appear to be structural.

Zurich Insurance Group AG, a company headquartered in one of the Lufthansa group’s hub cities, has said it wants to keep its staff’s flying 70% below pre-pandemic levels as part of its push to lower operational emissions.

During the crisis, large corporations gutted travel budgets to survive, and found out that the ease and efficiency of conferencing software made some trips unnecessary. Now, facing cost inflation and pressure to cut greenhouse gas emissions, they see no need to change course.

Although most airlines didn’t expect business travel to fully recover post-pandemic, they predicted it would bounce back to as much as 85%, said Neil Glynn, an analyst with Air Control Tower. Instead, corporate traffic is at around 60% in Germany, 70% in Japan and 80% at most in the US. This is partly because of a remote work culture, as well as carbon consciousness and more awareness for employee wellness, he said.

The concerns about business travel in Europe mirror weakness seen in the US, where American Airlines Group Inc. and Southwest Airlines are among the carriers that have made changes to adapt to lower corporate demand. United Airlines Holdings Inc. CEO Scott Kirby has described a “business recession” in the US, while expressing confidence in a comeback.

At IAG, CEO Gallego said corporate travel has bounced back more strongly at Spain’s Iberia than at BA, because Spanish workers are returning to the office sooner than those in the UK. He also said longer multi-day trips are recovering more quickly than quick turnarounds over shorter distances.

German Firms

In Germany, the small and mid-size businesses that are collectively known as the Mittelstand still need to travel because they lack the international office networks that larger multinationals have. Large public companies face regulations and public pressure to curtail unnecessary trips, as well as increasing requirements to disclose their emissions.

On lucrative routes to Asian powerhouses like China and Japan, pandemic border clamp-downs are over. But air-space bans tied to Russia’s invasion of Ukraine have forced Lufthansa and other carriers onto costly detours that lengthen journeys and make them less appealing to travelers.

Based on surveys and customer feedback, “we forecast increases in the remainder of the year,” driven by the reopenings in China and Japan and the gradual recovery of the world economy, Lufthansa said on an Aug. 3 conference call. Glynn said China traffic had slowed some recovery rates and there was still room for business travel to catch up.

Air France-KLM’s Smith said that while the group saw an increase in business travel volumes immediately after the pandemic, growth in corporate bookings has nearly ground to a halt. He pointed out that Air France has always had a high proportion of leisure travelers in its premium cabins, “and that balances out quite nicely with the corporate traffic.”

Airlines said they’re seeing progress. IAG’s Gallego expects some corporate customers to return this quarter as the risk of summer airport chaos subsides. Executives are also encouraged by so-called bleisure travelers combining holidays with business trips.

Duty Free

Dufry AG, which manages more than 5,500 shops in airports, rail stations and gas stations around the world, sees a “progressive return” of business travelers as well as a trend of shorter breaks boosting already strong leisure demand, CEO Xavier Rossinyol Espel said in an interview. That should be enough to offset a potential slowdown of the global economy in the coming quarters, he said.

Abu Dhabi flag-carrier Etihad is bringing back double-decker Airbus A380s in a bid it can fill premium cabins with leisure travelers. Business travel continues to edge back, said Ed Fotheringham, Etihad’s vice president for Europe and Americas.

“The mix is slightly different, so rather than your traditional corporates flying again, it is that mix of traditional business plus the growth of SMI enterprises,” Fotheringham said, referring to small and medium-size industries.

Bleisure trips are helping to prop up business traffic through London Heathrow airport, said outgoing CEO John Holland-Kaye. Still, corporate passengers make up just 30% of the mix at the UK hub, down from 34% pre-pandemic.

“We might have some headwinds, but there are also tailwinds, which are going to win,” Dufry’s Rossinyol said. “Especially in certain geographies including China, where we are seeing little numbers so far, but we know there is only one way to go, it will keep growing.”