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Carriers Optimistic As Corporate Travel Revenue Soars

By Jay Boehmer / April 27, 2010 / Contact Reporter
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Airline revenues from corporate travel are approaching levels last witnessed in pre-recession 2008, far higher than levels registered in the downturn's valley a year ago, major U.S. carriers reported during first-quarter earnings calls this week and last. The year-over-year growth in corporate travel revenue—in some cases, exceeding 30 percent—speaks as much to the relative health of the market as to the severity of the recession last year.

"The quarter's improvement was driven largely by improving business demand," US Airways president Scott Kirby told investors and analysts on Tuesday. The carrier reported corporate revenue growth of 35 percent in the first quarter from the same period last year, "though remarkably," Kirby said, "it's still down 6 percent compared to 2008."

Kirby, like other airline executives who expect a sustained corporate travel recovery this year, said business demand has grown and pricing is firming and would continue to do so.

April is proving a good start. "We will continue to see a strong year-over-year pricing environment and improving corporate demand, with booked corporate up 45 percent year-over-year thus far in April, and overall booked yield up 20 percent thus far in April," Kirby said. "Both are still slightly below 2008 levels, though we are getting close to the 2008 levels of both yield and business demand."

Delta Air Lines CEO Richard Anderson said the carrier checks the pulse of corporate sales on a weekly basis, and said total corporate revenue grew an astounding 61 percent year over year in its latest weekly snapshot with the number of tickets sold up 46 percent. "If you look at the trend line over the last year, it's a steady upward slope to the right," he said during the carrier's earnings call last week. "Admittedly, we're on top of some pretty easy comps considering that a year ago, heading all the way into June, we were on a decline."

Delta president Ed Bastian, however, told one analyst, "We're not quite to 2008 levels, but we're close to 2007 levels, and we expect to be close to 2008 levels probably by the end of the year."

CFO Tom Horton last week said of American Airlines' corporate travel trends, "unit revenues have nearly returned to 2008 levels." Business travel demand continues to accelerate, Horton reported. In the first quarter, the carrier saw revenues in that segment increase by more than 17 percent—the result of both more traffic and higher fares—and those trends built as the quarter went on. "Importantly, March showed even more improvement, as domestic corporate revenue increased close to 30 percent year over year," he said. "We are seeing companies loosening restrictive travel policies and increasing travel spending to stimulate their own business activity."

Though other airlines did not provide as much detail on corporate-specific revenues and bookings, the anecdotal evidence from United Airlines and Continental Airlines pointed in the same direction for the corporate sector.

"One of the key areas driving the strong growth was improvement in both load factor and yield in our premium cabins as corporate travel begins to return," United president John Tague told investors yesterday.

Continental Airlines executive vice president and chief marketing officer Jim Compton said the carrier is seeing more bookings within 14 days, an indicator of a healthy business travel market.

Despite trends that continue in a positive direction, Continental CEO Jeff Smisek took a more cautious tone than some competitors in his full year outlook. "A certain amount of caution regarding business trend is warranted, as we are uncertain as to the level to which business travel will return," he said.
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