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The work from home wave could reshape airline travel

Posted: 1:50 PM, Mar 23, 2020
Updated: 2020-03-23 16:06:01-04
The work from home wave could reshape airline travel

As the coronavirus spread globally, a canceled work trip here and there turned into a worldwide shutdown for business travel by air.

The global airline industry is now on the brink of collapse. And while pressing pause for a few days or a week is strange enough, a freeze on business-class travel that lasts for several weeks or months has the potential to reshape why people fly.

After a decade of huge growth, airlines are preparing for a staggering drop in revenue worldwide. Concerns over the coronavirus have crippled demand for flights, which in turn has caused many airlines to ground their fleets and lay-off staff.

Recently JetBlue CEO Robin Hayes called this financial situation for airlines, "at least as bad as 9/11 if not worse."

But even with a bailout, it could take months for travelers to fully return to the skies. In the meantime, a lot of business will go on without air travel.

With huge advances in telecommuting and a growing acceptance of working from home, businesses have taken to platforms like Slack, Zoom and Skype to carry on with meetings while many miles apart.

To understand the impact of losing business class travel, you have to understand how valuable business class tickets are to airlines. It might just be a few seats, but on many flights, premium seats actually account for most of the money the flight will make. Let's explain.

Let’s look at a roundtrip flight scheduled for the first week in August between JFK and LAX. The round trip fare for an economy passenger costs $509. For a business class passenger that seat is $1,867. And finally for a first class passenger the cost is $2,032. In total, if everyone pays full price for their ticket, the airline makes $97,362.

But notice the distribution. If you do the math, you see that although business and first class travelers only make up 28% of the passengers on the flight, they account for 60% of the flight's revenue.

This model doesn't describe every flight. But when it comes to airline economics, business and first class passengers have an outsized impact on many airlines' revenue.

"They care a lot about business class travelers," says airline pricing expert Andy Boyd. "The other part about the business class travelers is not just the seat but business travelers become very connected with their brand and they fly a lot. It’s not just the money they make from the one seat, but what they get over time."

Boyd literally wrote the book on airline ticket pricing. He believes airlines could bounce back, but he also says the virus could accelerate some trends already in motion for business travel.

"It could be a catalyst," Boyd says. "But what is really interesting, the new generation has grown up with technology, with cell phones. The fact that you are doing what many older people would call, very informal communication is more and more accepted as formal communication. So as young people who have grown up with technology get older, they may find that they are just as happy doing things over the phone as they are getting on a plane and going somewhere."

Those combined factors could spell long-term impacts for the airline industry beyond the spread of the coronavirus.

"Normally I would tend to say we would just get over it and the world would just get back to normal," Boyd says. "But with this particular virus and the way that people have responded to it, we may see some actual real changes to the way that both business and economy travelers travel."

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