It seems that the travel industry can’t catch a break. After the almost complete standstill of 2020 and 2021, it appears that things may just get tougher.
With COP27 having just taken place, the environment is now firmly in the public consciousness. Sustainability has always been a lingering thought at the back of the heads of travelers and businesses, but now it’s come to the forefront, both due to personal and regulatory reasons.
This begs the question: What does this mean for corporate travel? Let’s take a look.
The current situation
It seems that corporate travel is starting to recuperate worldwide. This means that businesses can finally turn their attention once more to travel and how they approach the topic of sustainability. After all, we are in the age of ESG scores and increased scrutiny from the public.
One of the more promising signs of this is in Asia Pacific. A massive 86% of businesses are actively considering sustainability when managing their corporate travel.
More importantly, this represents a change in direction of businesses in the region, where cost savings used to be the main focus.
Many companies see sustainability as an investment - not something that comes naturally by changing up processes. So the, how much does such an investment cost?
The price of sustainability
First, it should be noted that concerns over the environment didn’t exactly come out of nowhere. Sustainability has always been in the minds of corporations and travelers alike and so the industry has already worked towards reducing its footprint. And let’s not forget the regulations.
The Paris Agreement gave EU countries until 2030 to reduce emissions by 55%, a task that corporations were looking to contribute to.
This has since been built upon by the Glasgow Climate Pact, which promises to revisit emission reduction plans in 2022 – likely to bring about more stringent requirements and increased costs. Ultimately, this is likely to lead to an increase in air ticket prices.
Airlines themselves are taking it upon themselves to become compliant and improve in the name of sustainability. Their efforts towards reducing their carbon footprint will increase R&D costs as they develop more efficient aircraft, produce sustainable aviation fuel and more.
It’s also worth mentioning that outside of sustainability, there are numerous other factors at play too. The pandemic has played a part in this expectation of increased costs, as airlines need to recover some of the losses they suffered from the last two years.
Another issue to contend with is the effect of the pandemic on the pricing system. Airlines have a notoriously complicated pricing system. They rely on many different data points to determine which price to ultimately show the traveler.
Importantly, this combination of scientific calculations and models utilizes historical demand data – something that is now lacking from 2020 and beyond . No one can say for sure what effect this will have on pricing airline tickets, but it may result some differences.
That’s not to mention the high costs of fuel at the moment, either. So, what do the numbers say?
How much are corporate travel costs expected to increase?
The Global Business Travel Association (GBTA) and CWT recently released some numbers in its 2022 Global Business Travel Forecast that outline the expected rise in costs related to business travel .
The forecast report covers the three main costs associated with business travel - airfares, hotel and ground transportation. Here's how much they're expected to increase:
- Air travel: 3.3% in 2022 and 3.4% in 2023
- Hotels: 13% in 2022 and 10% in 2023
- Ground transportation: 3.9% in 2022 and 3.0% in 2023
Naturally, there are numerous factors to this increase. The pandemic in particular saw prices decrease in some areas. But sustainability is definitely a contributor to this rising cost of corporate travel.
With such a perfect storm, the picture starts to become clear as to why in the short term, and possibly the longer term, ticket prices will remain high. But on the road to truly sustainable travel, there are more costs to consider.
Every business has a certain amount of carbon emissions that cannot be avoided. This is where carbon offsetting enters the fray.
It's basically a compensation scheme that allows individuals or corporations to pay and invest in programs that reduce or remove carbon from the atmosphere in some way.
For example, customers can pay to offset the carbon released from their flight - the fee they pay can then go towards running a carbon capturing plant or protecting a forest being cut down.
There is a lot of research and analysis that goes into these schemes to determine how much carbon it removes and the cost for each unit.
Ultimately, for every flight or hotel stay, businesses aiming for net zero or highly reduced carbon footprint will need to pay a premium to offset these unavoidable emissions - yet another cost to consider.
How much of a problem is that though?
Despite all this, businesses have been resilient. Leaders are adamant on the need to travel for business and stage face to face meetings, and cost doesn’t seem to be a big factor in this.
For one, over half expected prices to rise for corporate travel anyway due to the pandemic. Despite this, 48% still expected to travel more in the next few years .
They’re also open to paying a premium for a higher class. Safety is still a major concern for travelers and the leadership after all, and so the extra space afforded by business class is seen as a worthwhile investment.
All this, together with the 86% of Asia Pacific businesses also showing hardiness, shows that things are moving in the right direction for sustainability in corporate travel.
Corporate social responsibility and the environment
The general consensus is that businesses will need to play a big part in the reduction of global emissions. That’s because customer demand is now being shaped by how businesses respond to the sustainability topic, with many people focusing on how corporations are tackling the issue .
Thankfully, there are a few ways businesses can go about this.
As a first step towards making business travel more environmentally friendly, they can inform their employees on the topic and generate awareness on all hierarchy levels. Knowledge and education are key to promote understanding and awareness. Thankfully, it is becoming easier to obtain relevant data to build a greener travel policy.
This is what enables them to track, analyze and report on the company’s carbon. The options to improve this footprint are countless, from carbon compensation projects to choosing eco-friendly accommodation and transportation, including airlines with a modern and fuel-efficient fleet.
Unfortunately, many businesses have not yet (or are unable to) set net-zero targets for their operations, including over half of FTSE 100 companies .
In practice though, we’re starting to see some changes. Priorities are changing as business travel has become less important for internal company purposes, thanks to the use of video conferencing technology .
For the flights they do take, they are looking to meet face to face with partners and suppliers instead. They’re also combining business with leisure in single trips, getting even more out of every journey.
Even when on the ground, there are a few ways to be greener. Thanks to advancing digitalization in the sector, it’s now possible to avoid printing tickets, reducing the amount of paper and waste produced. The likes of MaaS make public transport to and from the destination more attractive and convenient too.
The bottom line
By no means will corporate travel come to an end – we’ve discovered businesses are pretty adamant about that. This is despite the belief that costs will rise too. Instead, we are looking again at a shift of priorities in how travel is used by businesses to get the most bang for their buck.
Combined business and leisure travel? We’re already seeing that. How about packed itineraries? The days of single-meeting trips are going. In general, this will likely have little impact on what can be seen as the ‘new normal’ following the reset that was brought about by the pandemic. Sure, prices are likely to rise, but for many businesses, that is a price worth paying – especially if it is in the name of sustainability.
Subscribe to our newsletter today to keep up with our latest releases.