Shaken by the relentless summertime spread of Covid-19 through the United States and some other countries and the dire implications that holds for business travel, suppliers—airlines, especially—are recognizing that the worst-case recovery scenarios of March increasingly are becoming the new normal of August.
The coronavirus' alarming march through the U.S. South and West, Brazil, India and Russia, along with flareups in Japan and other parts of Europe, shattered any industry faith in a quick recovery to pre-pandemic patterns and persuaded many that a true return to business travel could well depend on the development of a Covid-19 vaccine.
It's true that not all business travel has been entirely scuttled; domestic drive-to business has held up to an extent, fueled by essential workers and industries like logistics that have weathered the pandemic in ways others couldn't. Choice Hotels even reported its extended-stay WoodSpring Suites brand in the last week of July matched the occupancy levels of the year prior.
But a recovery that tilts toward leisure travel and lower-tier hotels within driving distance leaves out huge swaths of the business travel industry, and airlines in particular are adjusting their expectations as a result.
The International Air Transport Association, for example, late last month announced it now did not expect full recovery of global air demand to pre-Covid levels until 2024, a year later than it projected a few months before. Lufthansa Group chairman and CEO Carsten Spohr this month also pointed to 2024 as his company's projected date for full recovery.
"Domestic traffic improvements notwithstanding, international traffic, which in normal times accounts for close to two-thirds of global air travel, remains virtually nonexistent," IATA director general and CEO
Alexandre de Juniac said in a statement. "Summer—our industry's busiest season—is passing by rapidly, with little chance for an upswing in international air travel unless governments move quickly and decisively to find alternatives to border closures, confidence-destroying stop-start re-openings and demand-killing quarantine."
Governments have not found alternatives. In fact, the United Kingdom in recent weeks expanded the roster of countries from which travelers must self-isolate for two weeks—including one, Spain, with only six hours or so of advance notice, infuriating travelers and suppliers alike. In the United States, intrastate quarantine guidelines have advanced, with New York and New Jersey, among others, requiring two weeks' self-isolation for visitors or returnees from dozens of other states.
Meanwhile, the United States continues to forbid entry to travelers from Europe, China and other locations, with some exceptions, and the rest of the world largely has barred Americans entry. In contrast with IATA, Delta Air Lines CEO Ed Bastian, during an interview on NPR, suggested governments' top priority should not be fighting such restrictions, and instead should be restoring traveler confidence by finding a Covid-19 treatment.
"The bottom line is we've got to restore confidence amongst our consumer base in air travel," Bastian said. "We need demand back. We need a medical cure. We need a vaccine. We need therapeutics. And I think that's probably where any government focus ought to go," he said.
Until there's a vaccine, whenever that may be, air demand won't exceed even half of pre-Covid levels, United Airlines EVP and chief commercial officer Andrew Nocella predicted during the carrier's second-quarter earnings call last month.
"We continue to believe a full recovery is contingent upon effective therapeutics and a vaccine," Nocella said. "Our best guess is demand, as measured by revenue, will recover over time to be down approximately 50 percent [year over year] and then plateau at that level until a vaccine is widely distributed."
Masking Agreement
While they wait for such a vaccine to be developed and rolled out, U.S. carriers have focused on one way to help limit the spread of Covid-19: expanding face covering requirements on their airplanes and in airports. Seemingly frustrated at the unwillingness of a portion of their clientele to willingly do so, carriers throughout the summer have broadened their regulations, stiffened penalties for noncompliance, and in some cases refused to consider any exception for passengers over the age of 2 years old.
"It is a distinctly small minority that don't want to wear a mask," United CEO Scott Kirby said during United's earning call last month. "The vast majority of our employees and customers already follow the mask policy because they recognize it's the right thing to do for the safety of everyone."
Several hotel chains, too, have introduced mask requirements for guests in public places, in conjunction with an American Hotel & Lodging Association guideline. And while most hotel chains are in the same dire financial straits as airlines, at least one CEO didn't quite share the carriers' pessimism regarding future business travel demand.
"When you wake up in two to three years, we'll have a raging debate that business travel will never be the same, and it will look like that because businesses have been hobbled, and it will be lower for a while," Hilton Worldwide president and CEO Christopher Nassetta said this month during the company's second-quarter earnings call. "But I think we'll find in three years it will be more like it was in ‘18 and ‘19 than it is now. … One way or another, we will have similar levels of demand both for business transient and group. People will want to congregate."
Whether business travel will ever be the same remains to be seen, as does the timing of a recovery, but in the short term, suppliers have no choice but to sharply scale back any expectations of a turnaround.
For example, small business bookings from Texas increased between April and mid-June, when the state had entered a new phase of reopening, according to American Airlines chief revenue officer Vasu Raja. But larger corporate bookings during that period "didn't really change at all," even as Texas reopened, he said last month during the carrier's second-quarter earnings call.
"It's likely to think that for a period of time that business bookings as we've historically thought of them will be different, and companies are unlikely to go and resume their economic life, and there's a lot of uncertainty around what smaller companies will do," Raja said. "We are planning for some very conservative assumptions."
Since mid-June, Covid-19 cases in Texas sharply spiked to new highs and the state reimplemented restrictions on indoor gathering, among other facets. And while government restrictions certainly have played a key role in grounding business travel, U.S. Travel Association president and CEO Roger Dow suggested another significant obstacle was closer to home: corporate policies that currently restrict business travel.
"This was brought up as a problem as to how we are going to get these policies to change, and the corporate travel director is looking at what we are doing as an industry," Dow said last month during a webinar hosted by the Meetings Mean Business coalition. "Right now, no matter what we do, until they change those policies, it's going to be very hard."
Dow suggested corporate lawyers are advising human resources executives to instruct wary employees not to travel if they feel unsafe. As a result, USTA is pushing the federal government for liability protection for facilities on a national level, at least through 2021, Dow said.