Your Vacations Could Cost More Until Business Travel Returns
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As travel returns, you might start feeling some airfare sticker shock.
It's not necessarily because more people are vacationing again, though they certainly are. It’s more likely because fewer people are doing trips for business.
And when business travelers don’t travel, leisure travel can get more expensive. It may seem counterintuitive, but these premium-paying travelers generally help subsidize leisure travel.
The impact of business travel demand on leisure travel
There are two key areas where leisure travelers and airlines feel the absence of business travel.
Revenue: Business travelers spend more
While leisure travelers seek out basic economy airfares for cheap Las Vegas getaways or jump on deals for trips still a year out, business travelers typically buy at the last minute and spend significantly more.
And it’s not even necessarily because they’re more likely to fly first-class. According to an analysis of International Air Transport Association data by American Express Global Business Travel, business travelers spend more for the same economy seats than their vacationing counterparts.
By looking at spending on economy class flights between the U.S. and Europe in 2019, American Express Global Business Travel found that business travelers spent 63% more than leisure travelers for the same type of ticket.
There are a couple of reasons why business travelers spend more.
Business travelers prioritize flexibility
These are the folks willing to pay for peace of mind that their tickets can be changed or canceled at the last minute.
For example, a fall 2020 NerdWallet analysis of Southwest airfares found that Southwest Business Select tickets — which are fully refundable and can be changed for same-day travel if seats are available — are, on average, 349% more expensive than the airline's lowest cost Wanna Get Away fares for the same flight route.
While Wanna Get Away fares can be canceled, refunds are issued as Southwest travel credits, rather than money back.
Business travelers tend to book last minute
"Leisure travelers tend to plan — and book — vacations farther out, but most corporate travelers book a month or closer," says Jeremy Quek, a principal consultant for American Express Global Business Travel.
While last-minute travel deals exist, most experts agree that booking in advance, especially airfare, means better deals.
Availability: Business travelers increase route demand
With business travelers paying more, airlines lure in vacationers with deals to fill the remaining seats. But that’s not the only reason why business travel is beneficial: There’s also flexibility.
Increased demand from business travelers means airlines offer more routes. More routes mean leisure travelers can choose more favorable times to fly — perhaps an earlier flight to avoid paying extra for late checkout from a hotel. Vacationers might fly into a smaller, regional airport closer to their resort. Flexible vacationers might choose the route with the cheapest airfare.
But COVID-19 forced airlines to cut many routes. Another study from American Express Global Business Travel looked at the number of routes between two airports: Boston Logan Airport and New York-LaGuardia Airport, which Quek said is a strong route for business travelers. In 2021's second quarter, the number of flights available was 78% lower than the same period in 2019.
"Historically, in that market, leisure could have expected 25-30 flights per day in each direction," Quek says. "It’s not just about price but also timing."
What’s holding back business travel?
A June analysis by the U.S. Travel Association discovered that about 35% of U.S. businesses are currently conducting business-related travel.
Business travel fell, and has struggled to come back, for reasons like border closures, quarantine mandates and COVID-19 test requirements. The U.S. Travel Association also cited confusing regulations and an uneven patchwork of state and local guidance governing large gatherings as contributing to the decline.
And here’s a big one: fewer conferences and other professional events.
Spending on travel for large, in-person professional meetings and events dropped 76% in 2020 versus 2019 — a $97 billion loss — according to the U.S. Travel Association’s report. According to a survey conducted in 2021 by research firm APCO Insight, 81% of people who attended work-related events and conventions pre-pandemic said they now miss doing so.
Business travelers will be exacting when they come back
When business travel returns, it will be complicated. Employees are demanding benefits in the name of COVID-19 safety, including the ability to choose direct flights, stay in four- to five-star hotels and select premium seating, like first or business class, according to responses from a survey of 3,850 business travelers conducted in the spring by Wakefield Research for travel company SAP Concur.
Many of those demands come from younger workers, over half of whom said they would ask to limit business travel or search for new positions if their company doesn't implement policies that protect their health.
And those aren’t the only demands that could complicate business travel. Of those surveyed, 62% of respondents said they would demand full vaccination of the clients or colleagues they visit.
The silver lining
With fewer business travelers booking business- or first-class seats, it may be more likely that you get an upgrade if you have elite status or points to use.
And even though business travel has been slow to return, travel as a whole is coming back. Over the Fourth of July weekend, the Transportation Security Administration saw more than 10 million passengers travel through the nation's security checkpoints, with some airports surpassing 2019 travel volumes. Similarly, the U.S. Travel Association predicts that domestic leisure travel will reach 99% of its pre-pandemic peak by 2022.
"People’s confidence to travel again has improved significantly," Quek says. "We are absolutely confident business travel will come back. The bigger note is just the pace at which it will."
As far as where and when travelers might expect rising prices, look at the competitive landscape.
"Watch out for routes where there’s been significant change in capacity or schedules," Quek says.
On routes where competitors or schedules have been cut, expect prices to go up.
So far, a busy summer vacation season has resulted in airlines adding routes. Southwest says it will resume flights to all of its previously served international destinations by Nov. 7, focusing on flights to beach destinations including Hawaii, Costa Rica and Florida. Delta is leaning into international routes with relatively few travel restrictions, including Croatia, Greece, Iceland and Italy.
But business travel may not return to pre-pandemic levels by the end of this year. And if it doesn’t, then the airfare business model is in jeopardy.
"Fewer competitors, fewer routes and fewer choices means prices will go up," Quek says. "Business travel is absolutely critical to the health of overall travel."
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