How changes in corporate travel could undermine airlines
At BA's AGM last week, Willie Walsh its ceo, spoke of a "structural shift" in how corporates ctravelled. He predicted a permanent drop in the number of business people travelling premium class and lower fares for those who did.
This week, Theresa Villiers, the shadow transport spokesperson for the UK Conservative Party, used a similar phrase - "culture shift" - to describe a changing attitude towards flying, especially in business travel.
Mr Walsh did not delve too deeply into his theory nor did he produce any figures. No doubt BA experts have done their own analysis and the ceo can also point to the statistics from the International Air Transport Association (IATA) which show that premium travel has dropped every month for the last year. This in itself, however, is not evidence of a "structural shift" and can be explained away by the recession.
At the event which Ms Villiers was speaking, there was far more evidence that things were changing in a way which will augur badly for airlines, especially legacy ones like BA, Air France KLM and Lufthansa.
This event was the launch of the World Wildlife Fund UK's (WWF) One in Five Challenge which seeks to persuade companies to cut their business flights by 20% by 2014. David Nussbaum, WWWF UK's ceo, said it was the first scheme of its kind in the world.
Mr Nussbaum marshalled some familiar arguments, notably that the rapid growth of aviation and its consequent carbon emission is likely to negate much of the carbon reductions achieved by other industries.
He also made the valid point about the greatly improved technology for alternatives to travel, like telepresence, webinars and video conferencing.
"Modern technology means that people do not need to do so much flying. People can keep connected without the need for so much flying," he said.
He said the One in Five Challenge was a "practical approach to help companies reduce their reliance on business flying."
Ms Villiers said the "scale of the calamity coming to us" meant there was a need for a "culture shift."
Honing in on business travel, she said there was a "potential for cost saving in business travel" and a case for "reducing the need for business related flying and long distance flying which have an impact on the quality of life."
She added: "We need to reduce the need for face to face meetings."
While this could be dismissed as a politician just saying what her audience wanted to hear, the companies which have already signed up for the Challenge demand attention. So far they include Capgemini UK, Vodafone UK, Marks and Spencer and Cisco UK and Ireland.
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Christine Hodgson |
It was Christine Hodgson, Capgemini's ceo technology services for North West Europe, who presented a scenario which would have made any airlines executive present distinctly uncomfortable. Capgemini is a people company, Ms Hodgson said, used to sending people around the world to meet and deal with clients. Travelling is a core part of the business.
"Business travel is vital aspect of our business. Our model is built around mobility. We provide people expertise and it is not unreasonable that our clients want to see us," she said.
But in 2008 an analysis by Capgemini found that its carbon footprint for 2008 was 50,000 tonnes. Of this, 69% was generated by the use of energy, like electricity, and 29% was by business travel. In the light of this, the company decided to cut its CO2 emissions by 20% by 2014 - right in line with the WWF project - and by 35% by 2010.
Specific to this aim was the wish to reduce travel by 30% by 2014 which is above the WWF objective. So company which in the past has had to travel is now seeking ways of travelling less, not just as a way of riding out the economic storm but as a fundamental change in policy.
Clearly some companies have an interest in persuading others to make more use of alternatives to travel, being manufacturers of such technology. Both Vodafone and Cisco fall into this category.
But there is also a business case for the 20% reduction. Gordon Baker, chairman of JMP Consultants which will audit the scheme, said: "We have worked with WWF to design a challenge that creates the business case for change."
He said the benefits of changing travel policies was not always clear, either from the financial or carbon perspective. "The One in Five reporting process changes this and helps businesses account for the total cost of travel. Companies succeeding in the Challenge will not only demonstrate their carbon credentials to consumers and suppliers but also show that a reduction in business flights improves business operations and the bottom line.
"Low carbon travel and alternatives are now a positive proposition for successful business," he said.
While this scheme is just in its infancy and just a handful of companies have signed up, the prospect that it might become the "thing to join" is a real one, not least because of the current economic pressures.
Nor it is isolated. PwC in London has aimed to cut the number of flights for the past two years while at least on UK government department has incentives for those who travel by rail rather than plane. Again neither of these has been initiated because of the recession. There are also major companies which are taking a radical look at their travel policy and aiming to draw up new guidelines based on the ROI of a trip and to see if the trip objective can be equally achieved through alternatives.
This could all leave airline with a significant number of empty seats, whether premium or economy in their planes even after the economy picks up. This could cause further cuts in capacity and/or frequency which seems to be what WWF is aiming for.
This clearly is not something airlines would welcome. Airlines are suffering mightily at the moment although sympathy migth be limited. If there is a genuine and significant shift away from business flying in the next few years, the already rocky finances of carriers will be further undermined.
If this is the type of scenario that Mr Walsh envisaged when he spoke of a structural change, he may also being seeing a long term if not permanent dilemma for carriers: if you take out your premium seats, you takeout you profits; if you leave them in and they stay largely empty, what then?
There is of course a fundamental flaw in the WWF scheme. It paints business travellers as the "villains." They will argue - correctly - that they bring in wealth and jobs and that far more people travel on leisure than on business. Bashing a business might be safer than suggesting people as individuals should cut the number of their flights for holidays or visiting friends and relatives. With the genie of cheap flights out of the bottle, this may not go down so well. But if WWF is serious, this must surely be its next campaign.