Senior industry executives speaking here at The Beat Livethis week said there are some signs of life in business travel of late, although no one should expect a full recovery for quite some time.
"The trends we have seen in the last 10 or 12 weeks is that we are bottoming out in terms of the drops, and we are seeing some pick up in some areas of the business," said Charles Petruccelli, American Express Global Travel Services president. "Systematically, we have been beating our forecast in transaction volumes. That is telling me that at least we are leveling off. Are we out of it? The only person who has said we are out of it is [Federal Reserve chairman Ben] Bernanke, who said technically we are out of the recession. The next few months will tell us more where we stand. We are not going to have a V curve. We certainly are going to have a U curve, which will take some time to come back, and the U will be large. My sense is we are not going to see serious pick up before the end of 2010--serious pick up--that is my own perception."
"It does feel like we're at a bottom, and we haven't seen further declines in overall volumes," said Sabre Holdings chairman and CEO Sam Gilliland. "I have been hearing from customers that they are starting to feel an uptick. It does feel like there is a little bit of a bounce, or a little bit of improvement. I am not willing at this point to call it over and [say] we're on the mend. My more conservative view right now is that we are bouncing along the bottom. It actually may be better than that."
According to Continental Airlines senior vice president of worldwide sales Dave Hilfman, "What we have started to see is that the decline has essentially bottomed out. We are seeing better numbers now, year over year. The decline has decelerated."
"We need three, four, maybe six months to know if we are in the midst of recovery," Gilliland added. "There also has been some talk of bounce back; I don't think we're going to see bounce back. I think there will be very slow, incremental improvements over time. I hope we'll see what Charles expects in the back half of 2010: a pretty nice recovery. Some of the very largest companies in the world say, 'Yeah, we're going to start spending on internal travel again, and we've just got to get our people together so we're going to do that.' They had cut, in some cases, internal travel to zero. So they're starting to travel again. There is pent-up demand. There is a need for people to get out there and sell and manage their customer relationships."
United States First To Show Signs Of Recovery
Hilfman and Petruccelli said the United States was coming closest to rebounding.
Asked whether "offshore" was worse than the United States, Petruccelli said, "Definitely yes, the U.S. is picking up faster. I am surprised with Japan and Asia-Pacific. JAPA normally picks up very fast, and it is not at the moment. And we have quite a large business in JAPA. In Greater China, we have a volume of about $1 billion in sales, so it's serious business. China is starting to see some signs, but Hong Kong is not, Singapore is not. Effectively, the U.S. is restarting slightly better."
The United States is "rebounding better," said Hilfman. "We have seen some of that. It seems like the U.S. is coming back. Europe and Asia trailed the U.S. going into the recession and now clearly they're slower coming out."
A Sense Of Optimism
Asked at the opening of The Beat Livewhether they have more visibility into business travel demand trends than they did six months ago, about half of the more than 90 senior supplier, buyer and intermediary attendees raised their hands. More raised their hands when asked specifically if they feel optimistic about business. Anecdotal as that is, some of the improving sentiment may be a result of other indicators that have emerged recently.
Despite their reticence to claim a recovery in business travel, J.P. Morgan analyststwo weeks ago said: "Our industry fundamental thesis is improved and our credit recommendations reflect this less bearish, dare we say, somewhat bullish stance." Winter is "not expected to witness the level of upheaval that we feared just a few months ago," they wrote. "We simply cannot ignore recent economic data and growing evidence of global economic improvement. As such, we believe the [airline] industry is on the verge of turning a financial corner." J.P. Morgan also deemed "unlikely" any bankruptcy filings by a major U.S. carrier before spring.
J.P. Morgan also pointed to "the six broad industry fare increases since late spring and recent slowdown in the pace of promotional activity" as indicators that airlines no longer are "over-correcting" for demand declines.
Meanwhile, although global premium airline traffic in July dropped 14 percent versus a year earlier, according to the International Air Transport Association, it was the smallest drop-off recorded in 2009. "Premium travel on international markets, which is mostly for business, is closely correlated to world trade, which bottomed out in May and started to turn up in June," according to IATA. "This improvement in cross-border trade is boosting business travel, but demand is still very weak compared to the recent past. Moreover, there are no signs as yet that corporate travel buyers are willing to pay for the more flexible, full service and, for the airlines, higher-yielding premium seats."
Total U.S. travel agency sales in August fell nearly 17 percent year over year, while total transactions retreated about 2 percent, according to ARC. The drop in total sales--roughly even with the decline reported in July--represented the 11th consecutive year-over-year drop. The percentage decline in August transactions was slightly greater than the drop in July.
The "mega" travel agencies, according to ARC, during August experienced an 18.6 percent decline in total transactions, the smallest year-over-year reduction this year and the third consecutive month of less severe drop-offs. Aggregate transaction volume for "online travel agencies" was up 19.7 percent--a slight decline from July's 21 percent increase--while all "others" in August suffered an 8.4 percent drop, larger than the 7.4 drop in July.
"The industry continues to see a reduction in the number of air travelers, despite double-digit declines in fares. While there are signs that improvement may be on the horizon, regrettably the demand for air travel remains weak," according to Air Transport Association president and CEO James C. May.
~ Jay Campbell contributed to this article