Ground Truth: Covid Changes Business Travel

Chris Rose, March 17 2021.  chris@campaignstrategy.co.uk

“Grounded Aircraft at HKG” by Samson Ng . D201@EAL is licensed under CC BY-NC-SA 2.0

The aviation industry and airlines in particular have had a pretty free-ride on climate change so far but the covid pandemic has created a new reality: it turned out that most air travel for business was not needed.  The economic case for air travel and thus airport capacity and pubic subsidies to airlines, has been severely weakened and it’s the attitude of corporate customers rather than airlines that will be key deciding any post-covid ‘new normal’.

On top of that, a significant side-effect of the near-shut down of passenger aviation, is the revelation that FFPs or Frequent Flier Programmes are critical to the economics of many airlines*.  Sometimes they are worth more than the transport activity of flying passengers. This was covered in the financial press but seems not to have filtered through to political thinking on transport.

In other words, aviation Business as Usual is being sustained by a marketing exercise, which extends to hundreds of banks and retailers outside aviation.  So far this seems to have escaped any scrutiny in terms of carbon accounting.  One professional in the business travel industry who is concerned about climate change said to me that allowing FFPs in the context of a Climate Emergency is “equivalent to promoting Frequent Smoker Programmes”.

Should they chose to use it, this new context provides climate change-makers with a golden opportunity, and not just around the coming COP26 climate summit.

The Great Grounding Experiment

Flying for business was running hot before covid struck in early 2020.  Since then it has reduced 70 – 90%, yet business itself has continued.  The pandemic created what was otherwise impossible: a vast experiment in interruption of a behaviour so taken for granted and unquestioned that stopping it would have seemed, unthinkable.

The rapid replacement of air travel with Zoom, MS Teams and dozens of other digital communications tools, coupled with lock-down working from home, has fast-tracked change that otherwise might have taken decades.  This has gone on long enough for the new behaviours to spread to all levels in companies and across sectors and countries. Like climate change itself, it’s become a new ‘social fact’, and video-conferencing may be to aviation what renewables have been to fossil fuels.

Those in the behaviour change business, from social marketers to market entrants with new products, know only too well that it’s very hard to stop an established behaviour but once a new one becomes a habit, it’s rarely reversed.   The extended covid great-grounding has revealed the potential for business benefits, such as huge reductions in T&E (Travel and Expenses) budgets and greater productivity.  Where these coincide with a desire to ‘be green’, corporates have unexpected headroom in cutting carbon.

This is pretty much unassailable evidence of feasibility, far stronger than arguments, modelling scenarios, proof-of-concept pilot studies or campaign demonstrations.   The only question is how much of this windfall will be retained, and that partly depends on what advocates and politicians do. 

‘Way Below Pre-Covid Levels’

At the Brussels-based group Transport and Environment, Andrew Murphy, Director of Aviation says:

“Now is the time for responsible companies to commit to keeping their business-travel carbon emissions way below pre-covid levels.  We will also ask them to rethink any involvement in frequent flier programmes.  This is climate action that the corporate world can lead on, quickly and easily: it’s already been market-tested”.   

Jump On A Zoom, Not On A Plane

The international business travel world has been awash with discussions about what the ‘new normal’ for air travel will look like ‘after Covid’.

Bill Gates sparked a vigorous debate when he opined that 50% of it will never return.  This matches the long-standing weary acceptance in many organisations that ‘half of it is un-necessary’.   See for instance this interesting podcast from Business Travel News. Guesstimates vary (eg Ideaworks are more bullish about recovery, putting permanent losses at ‘just’ 19 – 36%) and I’m told that executives at London Heathrow are expecting any recovery to take at least two to three years.  Lufthansa also says not until 2024.

Supplier sectors like training have been almost completely substituted by video-conferencing and in some businesses intra-company meetings, presentations and project work have been systematically replaced.  Releasing budget (only 17% of an ‘average’ business travel budget is the actual air-ticket cost) and saving staff time spent traveling to, from and recovering from international trips, is increasing productivity.

What is certain is that as legacy carriers in particular rely on the higher spend of business travel for much of their profit, their viability and that of the associated sector of business-focused hotels, exhibitions and conference centres are deeply affected.  Only about a fifth of passenger air travel is for business but it makes up around three quarters of the profits.

The first lockdowns brought a ‘Spring of Zoom’ (or more often, Teams), giving many senior managers their first taste of self-controlled remote-working.  Their “it actually works!” experience happened at the same time as  many costly city-centre offices were running almost empty and new commercial office developments were being postponed: mutual reinforcement for the idea that ‘things really will be different’.

After experiencing a switch to online board meetings, Maurice Gallagher, chairman and CEO of Allegiant Travel Company  acknowledged that video is a “viable alternative to business travel”.  He told shareholders:

“streaming capabilities from companies such as Zoom, Google and Microsoft have come into their own …

“Just like all things new, there were problems in the first few tries but when you have to use it, when you have no choice, you figure it out … I now appreciate the tremendous savings of time and additional productivity”

He added that unlike past episodes of reduced air travel, this time senior executives “understand the power of this technology and appreciate the ability to reduce travel and entertainment expenses in the coming months and years … Conferences and trade shows still have merit and there are businesses who believe face-to-face meetings are critical competitive requirements” but financial savings and greater productivity “has to have an impact on the return of business travel”.

Top Travellers

The top 100 business travellers by company – from Business Travel News based on air tickets bought in the US.  

The top 10 biggest corporate fliers listed above are all in the digital and knowledge economy, such as consulting, in which face-to-face contact was assumed to be vital but much of it turns out not to be.  The carbon footprints of these companies are largely made up of indirect or ‘Scope 3’ emissions, such as business travel.

Many of the companies on this list also have specific carbon-reduction targets.  Some have targets that break out or specify business travel reductions.

Deloitte is among the 43 companies for example, listing ‘business travel’ as a component in their commitments to meet a ‘1.5C’ climate target submitted under the SBTI or Science Based Targets Initiative.  271 companies appear on the Carbon Disclosure Project (CDP) ‘A List’ for climate commitments, for example including Apple, Bayer, Pfizer, Microsoft and Unilever.   Over 30 companies have joined the Climate Pledge to achieve net zero ahead of the Paris requirement, initiated by Amazon and Global Optimism.  This includes Atos, Brooks, Canary Wharf Group, Coca-Cola European Partners, ERM, Groupe SEB France, Harbour Air, ITV, Microsoft, Neste, Rubicon, Unilever, and Vaude.

In short, the corporates leading the charge on climate are now in a good position to consolidate the climate-dividend of the covid grounding and break the trend of rising emissions from business travel.   And in a bad position not to do so.

Greta and Sustainability

“Grève du climat – Greta Thunberg” by DeGust is licensed under CC BY-NC-ND 2.0

The covid grounding effect has landed on top an existing trend to factor in sustainability in corporate Travel Policies.  Numerous blogs, statements and surveys in the business travel sector note that while, spend on business travel had reached record levels, it was already widely accepted that one of the main future drivers would be sustainability. Before the 2009 Copenhagen climate COP, Paul Tillstone of travel company Festive Road which advocates ‘purposeful travel’, started ‘Project Icarus’ which tried to get the business travel industry to address climate change.  Following the 2008 financial crash such initiatives fell off the corporate agenda but the general agreement is this time it’s different.

He and other travel management experts take part in CACTUS (Climate Action for Corporate Travel Urgent Solutions group), launched by Helen Hodgkinson, formerly of Barclaycard, which has engaged corporate travel customers on issues such as setting carbon budgets for travel.

Greta Thunberg’s leadership of the climate movement in 2018-19 has been credited as stimulating corporate action.  A retrospective on 2019 in Harvard Business Review stated:

‘another critical protest movement that grew this year came from employees. More than 8,700 Amazon associates signed an open letter to CEO Jeff Bezos demanding the company develop an aggressive climate action plan. Microsoft employees staged a walk-out in September to protest the company’s “complicity in the climate crisis.” Companies that want to attract and retain the best talent must have a strong climate strategy’.

In an article The Rise Before The Fall summarising the 2019/20 BTN Top 100 Survey, Elizabeth West wrote:

Total business travel spend for the largest 100 corporate travel programs measured by U.S.-booked travel volume rose again in 2019. U.S.-originating travel as estimated by BTN for these programs hit $11.8 billion, its highest point ever.

Deloitte again captured the top spot in BTN’s annual list with $583.1 million in U.S.-originating air spend …

She added that:

There was just one trend other than managing through the Covid-19 crisis that dominated the psychology of Corporate Travel 100 companies in 2019 and 2020: How to make business travel more environmentally sustainable. Even for companies that significantly expanded their travel spend in 2019—like Deloitte and EY and Microsoft—the drive to reduce emissions was palpable among these large global corporations. 

 EY is looking to cut net carbon emissions to zero by the end of 2020; the Covid-19 crisis and travel suspension will likely contribute handily … Oracle has implemented a stringent policy that limits employee travel to “business-critical” trips. Likewise, Dell’s travel strategy also now puts a much heavier emphasis on meeting the company’s longer-term sustainability goals.

She goes on to mention Siemens,  Novartis, SAP and Citibank, concluding: “ The message from global companies is clear on the sustainability issue: Business travel may be largely suspended for now, but when it comes back, it’s going to look different”.

‘But It’s A Perk’

George Clooney in the movie Up in the Air.  [Photograph: Allstar/Dreamworks pictures/Sportsphoto Ltd]

In the 2009 Hollywood movie ‘Up In The Air’ George Clooney played Ryan Bingham, a specialist in firing people in corporate restructures, who rarely stops flying.  He ‘aspires to earn ten million frequent flyer miles with American Airlines’.  Romance and tragedies are precipitated when Bingham is challenged by younger exec Natalie Keener who advocates cost-cutting through video-conferences.

Until recently, air travel was seen as in the “too difficult box”: a hard to change ‘perk’ on the one hand and assumed to be critical for winning new business, project management, auditing and other vital functions.   Yet companies have survived managed without it.

True, some corporate executives will rail against any loss of business flying perks. One in a vast multinational told me:

For senior execs, as a generalization, traveling on business is a defining feature of their life. … Not being on a plane twice a week is really denting their identity. A senior XXXX guy in Singapore told me half jokingly that as soon as they reopened Australia he would go there to meet customers, even though customers didn’t want to meet in person and he may have to do it over Zoom from a hotel room in Sydney. These guys aren’t used to spending time at home with families, it’s just not who they are [of course some will love it, but I think many don’t].

Yet such changes can be achieved.  It’s largely forgotten now but in the UK at least, any suggestion that corporates might change their car fleets for environmental reasons used to be met with the ‘perk’ argument: a company car formed part of the remuneration package, from top exec’s to ‘travelling salesmen’.  But the tax rules got changed and company car fleets, and remuneration packages changed.

Pivotal to flying for business as a perk, is membership of a ‘Frequent Flier Programme’.  Anyone can join one and you may not even need to do any flying these days but it tends to be people flying for business who are the most ‘frequent fliers’.

FFPs: Keeping the Airline Model Aloft

From Forbes Magazine

At present most companies (German ones possible excepted?) allow staff flying on tickets paid for by the company, to keep the ‘points’ or ‘miles’ generated by individual membership in FFPs or Frequent Flying Programmes, which all airlines seem to have. (Technically, the points are probably the property of the company paying for them).  The top 100 airline loyalty programs are together worth around $200 billion.

FFPs are a fascinating case study in brand extension and clever marketing incentives which play on social reflexes established in the ‘jet set’ age of the 1960s and 1970s as mass air travel took off: creating a feeling of exclusivity.

To begin with (1970s) FFPs were simple loyalty programmes – you could redeem points and generate a new air ticket.  Over time, airlines changed the value of miles so you had to fly more to ‘earn’ a ticket and also over time, they became ways of generating cash more than loyalty.  ‘Partners’ such as banks (which issue airline-branded credit cards commanding a premium) and a host of other companies from fashion to electronics, provided deals and discounts to FFP members in which they can ‘redeem’ points against almost anything, from food and drink, to luxury goods, petrol or hotel rooms.

FFPs enable members to access a host of small esteem-generating advantages in the stressful and annoying airport environment hosted by airlines: priority boarding, access to lounges, upgrades, easier changes to tickets etc., even in an extreme case, a limousine to ferry you to the aircraft. Today it’s said the ‘real value’ lies in acquiring personal data, and the most valuable data is from people who fly a lot, as they are generally the wealthiest.  Apparently people are more willing in the air travel environment to share data in order to get ‘free perks’ than they would be in the normal world.

The remarkable thing about FFPs (which are usually owned not by an airline but within an airline group, such as Avios which is part of the IAG group which also owns British Airways) is that they can now have a higher market value than the flying business of the airline.  This only emerged because airlines facing bankruptcy once flights were grounded by covid, had to use the value of their FFPs as collateral, in order to raise loans from governments and the markets.  Papers filed with the US Securities and Exchange Commission by Delta and United laid out the ‘licence-to-print-money’ financial model of the FFPs, which are akin to a private currency whose value and exchange rate is set by the airlines, in great detail.

“The profitability and the size of these loyalty programmes, it’s the only reason American Airlines isn’t in bankruptcy right now,” Stifel analyst Joseph DeNardi told the FT in 2020. The FT noted that MileagePlus, the United FFP, ‘was valued at just under $22bn in bond documents, while United’s stock market capitalisation is just $10.6bn’, and:

‘Valuations recently put on the loyalty schemes have exceeded the market capitalisations for the airlines themselves — implying that investors value the business of flying passengers at less than zero’.

In October 2020 Bloomberg reported that JP Morgan announced it was working with Affinity Capital Exchange to enable investments in FFPs be traded as an asset class.

Many corporates act as ‘Partners’, buying and then giving away ‘miles’ or ‘points’ (and seats) as incentives. These include many banks and hundreds of other companies.  The British Airways online points shop for instance includes 158 brands such as Dell, GAP, Gucci, Harvey Nichols, John Lewis, Microsoft, Oakley, Tommy Hilfiger and Vodafone. The Quantas points store features over 500 brands including Apple, Bang and Olufsen, Bosch, Calvin Klein, Google, Lego, National Geographic, Penguin, Sony, Swarovski and XBOX.  And so it goes on.  All these companies are not only profiting from frequent flying but lend the soft-power of their brands to the aviation industry.  Many of course have their own carbon reduction policies, yet are complicit in promotion of frequent flying.

Some of the brands supporting frequent flying with the IAG Avios currency (issued by  British Airways, Iberia and Are Lingus but usable on 27 airlines)

What does this mean?  Perhaps that without FFPs, a large part of the passenger aviation business would evaporate.

Which for the climate and thus the great majority of people on the planet who are not ‘frequent fliers’, could be a very good thing.  The airlines don’t want that, and nor do the participating banks who make a ‘staggering’ profit on cards glossed with a flying-brand [see a scathing recent analysis of airlines skirting bankruptcy by industry analyst Hubert Horan in the journal American Affairs].

Conclusion

Global air travel is not a huge contributor to climate change (about 3.5%) but as other sectors decarbonize, it is becoming one.  Business travel is a small part of recent air travel but it is pivotal to the profitability of the current model.  And the freedom to jump-on-a-plane and go without a care, is a legacy of petrol-head days.

Faced with the climate crisis, the strategy of the aviation industry has been to re-assert old assumptions about the value-add of air travel for businesses to maintain political commitment, while framing possible solutions in technical terms: wait for new engines, new aircraft, new fuels.

At a global level the sector has committed itself to a strategy of PR promises that multiple analysts have recognized it cannot keep [eg Evan Davis, BBC] . That worked, until the great covid grounding but the new reality has now shifted who gets to decide.

The airline industry is starting to look a bit ‘stranded’, rather like fossil fuel assets.  Carbon is now on the agenda of Chief Financial Officers through initiatives like the TFCD (Task Force on Climate-Related Financial Disclosures), itself a creature of the G20’s Financial Stability Board.   In February 2020 it had the support of over 1,000 organisations from financial management companies to governments and central banks.  A year later that had grown to 1,700.  It would be interesting to listen in to what the TCFD makes of businesses like FFPs.  Politicians may have yet to grasp the scale and depth of what has happened but it’s the airline’s corporate customers who may decide what happens next.

single aircraft during the first UK lockdown in March 2020

*This surprised me. In the interests of disclosure, I started looking into flying-for-business late last year because the Brussels-based group Transport and Environment asked me to, as it had spotted the potential to realise significant reductions in emissions from business travel.  (This ‘T & E’ is Europe’s expert network on environment and transport matters, and were the first to spot ‘dieselgate’, the emissions-test cheating by companies such as VW).  You can contact Andrew Murphy of T & E here.

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1 Response to Ground Truth: Covid Changes Business Travel

  1. Lee Jackson says:

    This is an excellent observation of the changes playing out in corporate travel behaviour owing to the pandemic. At the very heart of this issue is the fact that Air Travel is one of the most Carbon Intensive Activities on the planet, and any such activity at this crucial moment in time should only be undertaken on the basis of absolute need. Whilst this now puts the business models of the aviation sector under unprecedented stress it is unthinkable at the present time that we close our eyes to the fact that the scale of these businesses may ultimately need to be seen as a dynamic of the world that brought us to the precipice of a 3-4 degree world. With some future introduction of emerging technology (eg electric or hydrogen fuelled aircraft) there is certainly scope for future flight but it is foolhardy now to think that the scale of this activity can ever return to pre-pandemic levels. At the same time this presents enormous opportunities for those involved in the wider corporate travel sector to better scope and plan how travel is managed where it is truly required.

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