The number of corporations scaling back air travel spending this year continues to grow, though many airlines said they have yet to see evidence of a dramatic corporate travel demand downturn.
In a UBS survey released this month of 80 companies, half of which spend more than $10 million annually in air, 42 percent said their companies are reducing air expenses this year compared to last. That figure is up from 26 percent in October 2007—the quickest and largest such spike since UBS began conducting the twice-annual survey two years ago.
UBS airline analyst Kevin Crissey said the survey's findings are "directionally consistent with the weak economic data being reported and the historical relationship between airline revenue and the economy. However, if correct, it spells trouble for airlines that clearly need to increase revenue to offset much higher year-over-year fuel prices."
While Randall Kane, partner and chief operating officer at management consulting firm Acquis Consulting Group, said he has not encountered any companies this year that are increasing travel, the UBS survey found that 34 percent of its survey respondents still were planning to up air spend this year and airlines continue to remain upbeat on demand.
"The airlines are seeing demand weakness in select markets and are clearly concerned about the economic outlook, but to date have not experienced the revenue falloff of past recessions," Crissey said.
Continental Airlines executive vice president of marketing Jim Compton, citing internal polling of the carrier's corporate clients, said, "We're seeing some concern with the economy, although less than what we would've expected." Compton said the carrier is seeing softness in the financial services sector, but overall has seen little change since the carrier's last earnings call. The carrier, like its domestic brethren, continually is taking capacity out of the domestic system to cope with rising cost of fuel, though like other airlines during earnings calls last month, Continental said demand this year, so far, has not deteriorated compared with last year.
Delta Air Lines executive vice president of network planning and revenue management Glen Hauenstein said the "rationalization of domestic capacity is allowing us to maintain an optimal balance between capacity and demand," with the domestic market remaining "the weak spot right now and international remains strong." According to Delta president Ed Bastian, the carrier's advanced bookings are "well within line of our projections."
Northwest executive vice president of marketing and distribution Tim Griffin said, "With all the other news about the economy, we have all antennas up and are looking for any signs of downturn, and quite frankly haven't seen it."
Griffin further noted "some few isolated pockets on the corporate side where people might be under pressure themselves and are taking a reduction in their travel budgets, but that seems to be offset largely by others venturing out internationally with the very weak dollar, doing more global selling and pushing," he said. "Overall demand really is quite strong for all the tidbits of bad news that are out in the economic world."
US Airways president Scott Kirby was equally upbeat, calling the demand environment "robust," noting the carrier sees "very little, if any, evidence of a macroeconomic slowdown impacting airline revenues."
Though worldwide airline traffic continues to grow, the International Air Transport Association this year has marked month-over-month declines in demand growth. Its most recent figures show that "real traffic growth" in March was 4 percent. "The slowdown in the demand growth continues the sharp downward trend which began in December 2007 as the impact of the U.S. credit crunch began to be felt in the airline industry," IATA said in a statement.
Though airlines said they have yet to witness the type of demand pullbacks that typically accompany a recession, Crissey said that 34 percent of travel manager respondents to the UBS survey said that airlines have not yet seen the full impact of their cuts.
Business Travel Coalition chairman Kevin Mitchell said there often is a lag between companies cutting back spending and airlines seeing the evidence in their results, noting that surveys like the UBS poll "are really the canary in the coalmine. They're very predictive well before the numbers show up in the airlines' results." Citing anecdotal evidence, Mitchell said, "I have a strong impression that there's a pretty good pullback underway."
Whether companies further restrict use of business class seats, seek travel alternatives, tighten policy, bolster the use of travel approval mechanisms or simply slash, air spend is a ripe area for cuts in times of economic fragility, analysts and consultants said.
"What I am seeing is not so much travel managers focused on budget cutbacks, but the folks above them taking a more active involvement in looking at travel as an area to cut," said TRX Travel Analytics vice president and general manager Dan Pirnat. "It's not personnel, and it's always easier to cut non-personnel items. It's a no-brainer area and CFOs are taking a much more active role in poking around the travel arena to see what reductions are to be had."
For some companies, that has meant more restrictive travel policies and more levels of approval for trips, Pirnat said, while others seriously are considering travel alternatives for certain trips.
"We've always talked about videoconferencing and Webconferencing as a good alternative to save money, but I have yet to see anybody embrace that as a viable option," Pirnat said. "Now, for the first time in my history, we're seeing clients that are much more willing to seriously look at non-travel options for meetings and consider enforcing those under certain circumstances."
Business Travel Coalition's Mitchell also cited the growing visibility of corporate travel's impact on the bottom line as travel departments in the past decade have grown leaner and more cross-functional.
"The downturn in the nineties manifested itself in very crude memos from the CFO saying to cut travel by 20 percent," Mitchell said. "You fast-forward to 2000 and you've got these cross-functional teams put together—IT, HR, purchasing, the travel department, etc. Now, the programs are in place, the controls are in place, the data is there and it's much more sophisticated and the order comes out that says, 'cut.' Instead of the division president getting a report from the travel manger on a monthly basis about activities and exception reporting, that report's going weekly now. Instead of just getting your boss's approval for a trip in many cases it's going to the divisional president's office. This time around it's just about turning that faucet. The control is there and it's a much easier thing to do and it's happening."
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