Business class for USD 20,000 means flight coach or not at all

Business class for USD 20,000 means flight coach or not at all

Business class for USD 20,000 means flight coach or not at all

Business class tickets at US$20,000 mean staff fly coach or not at all

The costs of flying are causing the company to reconsider business travel and use lessons learned from the pandemic. (PHOTO: Al Drago/Bloomberg)

By Angus Whitley and Danny Lee

(Bloomberg) — Flying business class has always been beyond the capabilities of most fliers. Now even companies can’t afford prices that have risen as the world tries to reconnect in the wake of Covid.

A round-trip business class flight on the longest routes, between New York and Sydney, for example, can cost more than US$20,000, roughly double the price from pre-pandemic days.

“Demand clearly outstrips supply,” said Nick Vournakis, executive vice president of corporate travel management firm CWT. “At some point, companies will say enough is enough.”

Tight travel market

As Covid restrictions eased around the world, airlines struggled to reactivate their fleets and bring back staff quickly enough to cope with the growing appetite for air travel. There is limited capacity and seat availability. Higher fuel costs have also pushed prices up.

According to CWT and the Global Business Travel Association, business class airfares will increase by 45% in 2022 and a further 6.2% next year. Business-class tickets for flights leaving the US rose 52% between January and August, a steeper increase than in economy and premium economy, travel manager TripActions said.

With companies grappling with costs, corporate travel is back on shaky ground, having yet to recover from virus-related shutdowns. It’s bad news for the airlines. Business travelers represent 75% of a carrier’s profits but only 12% of passengers, according to travel software firm Trondent Development Corp.

“We’re seeing a hyper-awareness around spending,” said Marcus Eklund, global CEO of corporate travel management company FCM.

Must be economics

Checking prices to fly colleagues to a team gathering in Bangkok, Sydney-based management consultant Dhruv Sharma found his budget couldn’t stretch to business class, the usual choice, without doubling to $6,000 per person. “It has to be economics,” he said.

Sharma is trying to soften the blow for those going to Thailand by offering time off when they return to Australia. Nevertheless, he expects 20% of his colleagues to resign because they become flight instructors.

Bill Gates, the billionaire Microsoft Corp. founder, predicted in late 2020 that more than 50% of business travel would disappear after the coronavirus. Qantas Airways Ltd. chief executive Alan Joyce put the possible decline closer to 15%.

Regardless of the final number, travelers have largely been weaned off business travel because Zoom has shown what can be accomplished without getting on a plane. The recent increase in prices makes the benefits of video calling even more pronounced.

Boston-based consulting firm Refine and Focus, which works on projects around the world, was wary of paying for unnecessary trips even before the pandemic. Rising flight prices and an inflationary increase in expenses have pretty much put the whole company on the ground.

“We have almost stopped traveling,” said Purnima Thakre, the firm’s co-head. “For a given project, I’d rather pay people better than spend the money on plane tickets.”

Prices are fluid and some routes are more extravagantly priced than others. Delta Air Lines Inc. and IAG-owned British Airways Plc will charge more than $10,000 to fly London-New York round-trip in business class next month, according to travel portal kayak.com.

Return flights London-Sydney business class with Singapore Airlines Ltd. costs around $12,000. Closer to the top of the market, Qantas and United Airlines Holdings Inc. want more than $22,000 for premium return seats from New York-Sydney.

The shift coincides with rising inflation and fears of a recession. Any return to pre-pandemic business travel of $1.4 trillion won’t come until 2026, according to the Global Business Travel Association. This is up to two years later than the union previously expected.

More than ever, companies are choosing flights based on price rather than airline loyalty programs to maximize travel budgets, said Martin Ferguson, head of public affairs for American Express Global Business Travel.

Southwest Airlines Co. last week reported a slowing recovery in business travel, with revenues from the segment down 26% in July and 32% in August compared to the same months in 2019. American Airlines Group Inc. CEO Robert Isom said this month that large corporate clients such as investment bankers are about team 75% reimbursed, lagging behind the decline of smaller companies.

The concern about ticket prices is to some extent masked by the lack of planes in the air, as it makes demand seem strong enough to keep prices high. Globally, international capacity is still 25% below 2019 levels, according to travel data provider OAG.

Cashed-in leisure travelers are also snapping up some of the comfortable seats vacated by business customers. In step with savings and air miles accumulated during shutdowns, vacationers have emerged as a target market for the premium seats at the front of planes.

But it still leaves a gap.

Risk for airlines

“The risk the airlines take is the longer they don’t attract them back, the more behavior changes,” said Virginia Fitzpatrick, Sydney-based Asia Pacific director of consultancy Partnership Travel Consulting. “They need to get them all back because corporate travel fuels the profitability of the airlines.”

Lendlease Corp., a Sydney-based developer whose projects include the 9/11 Memorial & Museum in New York and Malaysia’s Petronas Twin Towers, said the cost of flying is prompting the company to rethink business travel and apply lessons learned from the pandemic.

“Our employees are getting smarter about how they travel – staying longer to get the most out of their journey,” said Frank Krile, head of risk at Lendlease. “They are also more aware of what can be done online as opposed to what is best done in person.”

While Lendlease booked 60% more flights in the six months to August compared with a year earlier, the number of trips remains well below pre-pandemic levels, Krile said.

In Sydney, consultant Sharma is struggling to see how he will get his team together when airfares are prohibitive.

“We have the ability to get people flying, but this is an unprecedented challenge,” he said. “It’s a little frustrating.”

© 2022 Bloomberg LP

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