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Clear evidence of both resurgent transaction volumes and, at least in the airline sector, improving revenue trends, has meant that corporate travel demand, after finally turning positive in late 2009, has maintained some momentum in early 2010. Though it may be too early to describe the recovery as sustainable, reports of a slow but steady rise in business demand during the past few months have come from many industry circles.
Airline executives speaking during the past two weeks on conference calls with the investment community and news media provided some of the latest commentary. "In January, our corporate contract bookings are up roughly 10 percent compared to the same period last year," said Delta Air Lines president Ed Bastian. "While this partly reflects easier comparisons, business travelers are returning. And as we see volumes improve, fares also are improving, albeit at a more graduated pace."
After seeing corporate revenues trends "accelerate during the fourth quarter," United Airlines president John Tague said, "For January, I expect corporate revenues will be up about 10 percent year on year, on a lighter schedule." He also noted that transatlantic premium cabin bookings increased 5 percent during the fourth quarter.
American Airlines, too, saw corporate business "accelerate toward the end of the fourth quarter," said CFO Tom Horton. "Our view for January and beyond, at least for the foreseeable future, is a continuation of that improvement. We've also seen that premium demand on peak days of the week is on the upswing. It seems that we're seeing some return of the business traveler in the long-haul markets, and that's where the money is."
According to Continental Airlines chief marketing officer Jim Compton, the carrier's high-yield revenue (including corporate revenue) was down 1 percent in December after being down as much as 38 percent in May, and current quarter trends indicate "a pickup" in bookings inside of 14 days.
"Our corporate accounts are telling us that travel budgets are still fairly tight. That said, we are seeing business travel slowly come back," Compton said. "In addition to easing restrictions on front-cabin bookings, some accounts are permitting travel for internal meetings, which has stimulated a small pickup in group bookings. We have also seen a pickup in corporate bookings from the financial sector."
As usual, Southwest Airlines CEO Gary Kelly provided commentary in the other direction. While he conceded that business traffic since last summer "may have gotten better," Kelly attributed lagging performance in short-haul markets to "a softness in business travel," and said he doesn't expect much improvement in 2010.
"People change their habits," he said. "The sales guy that used to take one trip a month, all of a sudden discovers that they only need to travel once a quarter. The spending on a discretionary item like travel in business will not change overnight. CFOs won't stand for it. We just know that's the way corporate America behaves and is very disciplined in that regard. There is no belief on our part that you will see a strong rebound in business travel."
A Brighter Big Picture
Nevertheless, plenty of data indicate some degree of business travel recovery is underway. On a macro level, total U.S. travel agency sales experienced year-over-year gains in November and December, the only months of 2009 to show improvement, according to ARC. Total agency transactions grew in each of the last three months of the year. A better indicator of business travel, total sales among the "mega" travel agencies--American Express, BCD Travel, Carlson Wagonlit Travel and Hogg Robinson Group among them--in November and December increased 6 percent and 5 percent, respectively, ARC reported. On aggregate, that group had seen total sales slide as much as 25 percent earlier in 2009.
On an individual agency level, American Express experienced an even steeper drop in corporate travel sales than the industry at large--as much as 42 percent year over year in last year's second quarter--before climbing back to a more modest 5 percent decline for the fourth quarter. The company's Global Commercial Services unit, which includes its corporate card and business travel operations, in the fourth quarter achieved 6 percent revenue growth, an 8 percent increase in business billed to cards and 7 percent higher average card holder spending, year over year.
"Corporate card/commercial services has historically functioned more as a V--it usually holds on longer in a slowdown, drops more sharply and then comes up sharper than the rest of the business," said American Express CFO Dan Henry last week during a conference call with analysts. "This time, we're seeing the same thing. Commercial services came back sharper than the rest of the businesses."
In a recent filing with the U.S. Securities and Exchange Commission, Travelport GDS cited a "turnaround" in corporate travel, and explained that its large global corporate agency accounts "returned to growth year on year in the fourth quarter, with monthly volumes in November and December 2009 increasing by 1 percent and 4 percent, respectively." Overall, according to Travelport, worldwide fourth-quarter bookings in its global distribution systems--Apollo, Galileo and Worldspan--grew by 5 percent year over year, the first quarter to show an aggregate increase since mid-2007. The improvement accelerated as the quarter progressed, including a 10 percent increase in total booking during December, and 11 percent and 14 percent increases, respectively, for processed air segments in November and December.
Air Analysts Also Bullish On Corporate Demand
In the past two weeks, Wall Street analysts issued research notes in which they expressed optimism for the airline sector, driven partly by positive demand commentary from carrier executives. Noting that U.S. airlines' mainline system revenue in December increased 8.8 percent sequentially from November--"far ahead of the typical 1.5 percent sequential relationship observed in 2004-2007"--J.P. Morgan Securities analysts wrote that "2009 represents a record November-to-December demand surge."
According to UBS analysts, "there is true underlying demand strength." They noted that February unit revenues are "currently outpacing January by about 5 percent" and are expected to "widen over the next few weeks." For March, UBS analysts expect "double-digit" unit revenue growth.
"We expect corporations to travel more as the year progresses," UBS wrote. "Given tighter capacity, this will likely enable airlines to better yield manage their aircraft. Load factors are already at all-time highs, so we believe airlines will displace leisure passengers with corporate customers. This hurts online travel agencies as bookings will flow to corporate travel management companies and away from them."
Business Demand Still Lagging In Lodging Sector
According to UBS analysts, "On the hotel side, things look better, as we expect average daily room rates to rise as corporate travel returns."
Smith Travel Research reported a 1.4 percent drop in demand (room nights) for the fourth quarter, the "best quarterly performance of 2009," and occupancy gains in 11 of the 25 largest markets. According to recent presentations by STR president Mark Lomanno, the luxury segment has experienced several months of demand growth between 5 percent and 8 percent.
"The high-end business travelers will drive the shape of recovery almost certainly," according to Lomanno.
But widespread recovery across all categories is not yet evident. Marriott International, for example, this month said fourth-quarter unit revenues likely were not as bad as first expected, but still were probably down 13 percent to 14 percent in North America and down 14 percent to 16 percent outside North America. "We've also seen business travel and large meetings start to pick up, which is big for our industry," CEO Bill Marriott wrote on his blog this month. "It will take some time to get back to where we were before the start of the worst downturn I've ever seen, but it's reassuring to see we’re moving in the right direction."
Choice Hotels International, which is less business-oriented than Marriott, has not seen positive corporate trends, according to executives speaking this month with investors. "[Corporate demand] has been pretty flat to down," said CFO David White. "It certainly has been weaker than the leisure travel side of things." White also noted that "the bigger corporate accounts tend to be holding up better right now than the smaller corporate travel accounts."
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