How COVID-19 Will Affect Business Travel In the Near Future

It goes without saying that the impact of the COVID-19 pandemic has been absolutely devastating globally, affecting all aspects of our lives.

There can be no doubt that one of those areas is our mental wellbeing, due in large part to prolonged harboring in place, working from home, practicing social distancing, inconsistencies of when to wear a mask or mask to wear, and more. According to a June 2020 study by McKinsey & Company, this pandemic has sent the average life satisfaction rating to a 40-year low in Europe.

The economic ripple effects are just now beginning to fully unfold and make their presence known. As usual, small businesses—beauty shops, nail salons, fitness centers, dry cleaners, restaurants, and the like—have been dealt the hardest blow. 

A June 2020 Business Insider article reported that the pandemic could force the permanent closure of as many as 85% of independent restaurants by the end of the year, according to the Independent Restaurant Coalition.

Obviously, the crisis duration plays a key role in the total potential impact as it has already highlighted the financial fragility of many businesses.

In the travel industry thus far in 2020, the supplier impacts are staggering in terms of lost business, lost revenues, furloughs, and layoffs. 

Many businesses that were on transaction-based pricing models in the travel industry were also devastated by the rapid shutdown of travel beginning in late March. These businesses, such as travel management companies, must now revaluate not just their pricing models, but also their  TMC and buyer relationship as a whole. As an example, some TMCs are looking at charging every caller a “contact fee,” while some are looking at the elimination of the transaction fee model and moving to a straight management fee. This presents a dilemma, as travel buyers have often been of a different mindset favoring the transaction fee “pay -as-you-use” model.  JTB business travel said in a September 3 article that it is taking a different approach to its service offering, and wants to move to an initiative called “experience zero “which is a fixed-fee pricing model based on overall  company travel volume, and the scope of services a client wants and pays for. Fair to state some of this would have been unheard of pre-COVID-19

Another paradox we must also consider is the high-cost impact of shutting down and restarting the economies across countries, states, and localities. These actions have no doubt taken their toll on businesses across the globe.

In its simplest form, one must keep in mind that an economy only functions when there are people who are able to act as producers and consumers…and no, I don’t believe we are geared to simply buy everything online. We are, after all, social by nature, and while we can and have adapted rather quickly to changes, we want to return to some sense of social normalcy.

 

What is the COVID-19 surcharge, and what does all of this mean for us in business in the near future?

From my perspective, it is going to mean that travel will end up costing the consumer and businesses more money. My rationale for this statement is simple:

  • In all probability, there is going to be more travel supplier consolidation, which will result in less supply available in the end.
  • In addition, someone will have to pay for all of this new health and safety, be it with new processes, new cleaning protocols, new detection equipment, new disinfectants, new plastic dividers, or new masks.

The reality is: Suppliers cannot be expected to cover all of these new costs and thrive, much less survive. They will have to be passed onto the end consumer.

While I do think there will be some bargain deals in the near term, these will be short-lived as it will ultimately become a sellers’ market for the near future.

What is crystal clear will be the need for expense transparency going forward. With the continued impact of COVID-19, there are health and safety expenses that typically do not have defined categories within expense systems, and as a result will be placed into ‘”other” or “miscellaneous”’ categories. Just think about the shift from air flight cost to mileage expensing for local or regional travel that may take place. Both of these areas can be fraught with opportunity for fraud, hence alignment with your expense and audit teams will be paramount.

Another cost containment consideration: Departments’ travel budgets may be drastically reduced going into 2021 as businesses strapped for cash focus on travel restraint, and the use of technology for sales and servicing remotely.  Taking a phased approach for travel concentrating only on business-essential or revenue-generating travel may be a consideration.

As we return to travel in 2021, only then will we realize our need for the acceptance of new travel financial allowance realities, and the high cost of this lowly disease.

 

 

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