Delta, US Airways See Business Demand Strength Building - Business Travel News

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Delta, US Airways See Business Demand Strength Building

July 24, 2013 - 03:20 PM ET

By Jay Boehmer

Driven by strength in the banking and financial services sector, Delta Air Lines executives on Wednesday disclosed yet another quarter of solid year-over-year corporate revenue growth. The trend has accelerated in recent weeks, according to the carrier's executives, who expect such strength will continue through the year—the result of corporate share gains and growth in overall spending among current clients.

While US Airways, which also released second-quarter earnings on Wednesday, shared fewer metrics with regard to the corporate revenue environment, executives pointed to "improved business demand" as the quarter wore on.

Delta's year-to-date corporate revenue grew 4 percent from the same period last year, but "are up 8 percent in the last four weeks, driven by strength in the domestic market," president Ed Bastian told analysts and media Wednesday during a quarterly earnings call.

"The improving momentum we've seen throughout the quarter continues into our summer bookings," he said.

The strong corporate revenue mostly is the product of "organic growth" among established clients, Bastian said, though Delta executives made several references to winning additional corporate share.

Bastian said the banking and financial services sector "led all sectors in growth, posting double-digit year-over-year increases, proof that our efforts, especially in New York, are paying off."

Indeed, Delta's average fare per mile on New York routes outpaced the systemwide average, according to executives, suggesting strength in pricing there during a quarter in which overall yields largely were flat year over year.

Meanwhile, Bastian pointed to "solid corporate share gains" on the Atlantic, where he said fares continued to grow year over year. The carrier expects that trend to accelerate once the carrier on Jan. 1, 2014, launches its proposed joint venture with Virgin Atlantic, pending an ongoing regulatory review.

While the "overwhelming lion's share of the improvements is coming from the financial services and the banking sector," Bastian noted that the technology sector also has posted "double-digit" revenue gains.

Corporate revenue from Delta's manufacturing base also "has picked up," growing year over year by high single-digit percentages, though revenue from the defense and transportation sectors declined, Bastian said.

It's still "early" and the visibility is "preliminary," but the carrier's read on the post-Labor Day shoulder season is "encouraging," said Bastian.

Looking even further ahead, Bastian cited a recent survey of the carrier's corporate clients in which "80 percent indicated their second half of the year spend on Delta will either be maintained at the same pace or increase on a year-over-year basis."

Meanwhile, recalling the demand shocks that stemmed from the U.S. federal government spending cutbacks, known as the sequester, that began in the first quarter, US Airways president Scott Kirby during the carrier's earnings call Wednesday said "demand did improve throughout the second quarter," noting that especially in June "booking volumes for business demand got stronger."

He noted such strength contributed to a June unit revenue increase of 1 percent year over year, "compared with our initial guidance of flat to down 2 percent."

"What happened in the March-April timeframe, though, was all the noise about sequester, and problems in Washington caused other business demand to decline," Kirby said.

Those declines have reversed, according to Kirby, and "business demand strength in particular is continuing into the third quarter."

The same cannot be said for the government travel sector. US Airways' government revenue during the quarter declined 37 percent from the same period last year, "about the same as what it was in March," Kirby said.  

Kirby also said transatlantic premium demand has been strong, with "demand from corporate customers" for its lie-flat product "up 16 percent in the second quarter. As we continue to improve our penetration of corporate accounts on the continent, that has helped our European performance significantly."

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