Business class for $28,000 means staff fly economy or not at all

A return business class flight on the longest routes, between New York and Sydney, for instance, can cost more than US$20,000 (S$28,000). PHOTO: ST FILE

SYDNEY - Flying business class has always been beyond the means of most mortals. Now even companies cannot afford the fares, which have soared as the world tries to reconnect in the wake of Covid-19.

A return business class flight on the longest routes - between New York and Sydney, for example - can cost more than US$20,000 (S$28,000), about double the price from pre-pandemic days.

"Demand is clearly outstripping supply," said Mr Nick Vournakis, executive vice-president at corporate travel management firm CWT. "At some point, corporates are going to say enough is enough."

Tight travel market

As Covid-19 restrictions eased around the world, airlines struggled to reactivate their fleets and bring back staff fast enough to cope with the growing appetite for air travel. This has limited their flight capacity and seat availability. Higher fuel costs have also pushed up fares.

According to CWT and the Global Business Travel Association, business class airfares will be up 45 per cent in 2022 and another 6.2 per cent next year. Business class tickets for flights leaving the United States jumped 52 per cent between January and August, a steeper increase than for economy and premium-economy, travel manager TripActions said.

With companies baulking at the costs, corporate travel is back on shaky ground, having not yet recovered from virus-related lockdowns. This is bad news for airlines. Business travellers represent 75 per cent of a carrier's profit but only 12 per cent of passengers, according to travel software firm Trondent Development.

"We are seeing a hyper-awareness around spend," said Mr Marcus Eklund, global managing director at corporate travel management company FCM.

Has to be economy

Checking fares to fly colleagues to a team gathering in Bangkok, Sydney-based management consultant Dhruv Sharma found that his budget could not stretch to business class, the usual choice, without doubling to US$6,000 a person.

"It has to be economy," he said.

Mr Sharma is trying to soften the blow for those who go to Thailand by offering time off when they get back to Australia. Even so, he expects 20 per cent of colleagues to pull out because they will be flying coach.

Mr Bill Gates, the billionaire Microsoft co-founder, predicted in late 2020 that more than 50 per cent of business travel would disappear after the coronavirus. Qantas Airways chief executive officer Alan Joyce put the possible decline at nearer 15 per cent.

Whatever the final figure, travellers have been largely weaned off business trips because Zoom has shown what can be achieved without getting on a plane. The recent surge in fares is putting the benefits of video calls into even sharper relief.

Boston-based consulting firm Refine and Focus, which works on projects across the globe, was wary of paying for unnecessary trips even before the pandemic. Rising airfares and an inflationary spike in expenses have pretty much grounded the whole company.

"We have almost stopped travelling," said Ms Purnima Thakre, the firm's co-head. "For any given project, I would rather pay people better than spend that money on air tickets."

Fares are fluid and some routes are more extravagantly priced than others. Delta Air Lines and IAG-owned British Airways are charging more than US$10,000 to fly London-New York return in business class next month, according to the travel portal.

Return London-Sydney business class flights with Singapore Airlines are going for about US$12,000. Nearer the top of the market, Qantas and United Airlines want more than US$22,000 for premium return New York-Sydney seats.

The shift coincides with rising inflation and fears of a recession. Any rebound to pre-pandemic corporate travel spending of US$1.4 trillion will not come until 2026, according to the Global Business Travel Association. This is up to two years later than the association previously expected.

More than ever, corporations are choosing flights based on price rather than airline loyalty programmes in order to maximise travel budgets, said Mr Martin Ferguson, head of public affairs for American Express Global Business Travel.

Southwest Airlines last week flagged a slowing recovery in business travel, with revenue from the segment down 26 per cent in July and 32 per cent in August compared with the same months in 2019. American Airlines chief executive Robert Isom said this month that large corporate customers such as investment bankers are about 75 per cent recovered, lagging the rebound by smaller businesses.

Concern about fares is to some degree being masked by the lack of planes in the air, as that makes demand appear strong enough to keep prices high. Globally, international capacity is still 25 per cent below 2019 levels, according to travel data provider OAG.

Cashed-up leisure travellers are also snapping up some of the comfortable seats vacated by business customers. Flush with savings and air miles accumulated during lockdowns, holidaymakers have emerged as a target market for the premium seats towards the front of planes.

But that still leaves a gap.

Risk for airlines

"The risk the airlines are taking is that the longer they don't attract them back, the more behaviours change," said Ms Virginia Fitzpatrick, Sydney-based Asia-Pacific director at advisory firm Partnership Travel Consulting. "They need to get them all back because corporate travel fuels the profitability of airlines."

Lendlease, 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 making the company rethink business trips and apply lessons learnt during the pandemic.

"Our people are becoming smarter about how they travel - staying for longer to make the most of a journey," said Lendlease chief risk officer Frank Krile. "They are also more conscious of what can be done online versus what is best done in person."

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

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