The general sentiment among major airline executives these days is that, while business travel volumes and yields are down, the steep drop-off appears to be leveling. But they all agree that the demand and revenue environment remains highly unpredictable. Meanwhile, any discussion on "stabilization ... may not be enough," according to a Wednesday research note issued by J.P. Morgan analysts. "While we recognize stabilization is the precursor to eventual recovery, we are increasingly concerned that meaningful recovery may prove several months away." Airline leaders speaking in recent days to analysts and media shared their perspectives on how quickly business travel would "snap back" once that recovery comes.
"You can see it turn pretty quickly," said Continental Airlines CEO Larry Kellner, speaking Wednesday to analysts and media. "What we have seen in past downturns is that companies that were leaders also got back to traveling more quickly. Things seem to feel better today than they did 45 days ago, but I am not sure if that is simply because the pace of the decline is slowing or because things are actually stabilizing. I feel confident that demand can come back on the business side fairly quickly because business travel, while it occasionally can sound glamorous, isn't that glamorous. Businesses travel because they need to."
"If history is any indication, companies will not stay that hunkered down because travel is an integral part of the business," said American Airlines CEO Gerard Arpey. "They need to have sales conferences, go to conventions and drum up business. If the economy begins to pick up steam, that will bode well for our traffic in the back half of this year. If history is any indication, in my experience, companies can turn travel on just as quickly as they can turn it off."
Southwest Airlines CEO Gary Kelly had a slightly different take. "Every recession, this happens: Business travel gets cut, and it doesn't snap back, at least according to history," he said. "It didn't in '91 and didn't in 2001. Once business travel steps in, it is very dependable but there is no reason to believe--by history--that business travel is going to bounce back anytime soon."
The differing perspectives can be explained by differing corporate client rosters, according to United Airlines CEO Glenn Tilton. "Each of us has a different network, and each one of us has different business customers who will respond to different signals from the economy," he said. "If you are a long-haul international carrier--and both we and American are--that [premium cabin] business tool is very important. Moving those folks back up to the front of the airplane is a very important decision for those folks to make, and it has real consequences.
"Businesses that are doing business from the center of the United States to Beijing, Shanghai or Incheon are not keen to have their valuable talent experiencing any discomfort against that which they have grown accustomed for very long," Tilton continued. "At the first indication of some confidence with business travel managers, it is something they will want to return to the toolkit."
UA COO John Tague added, "corporations' ability to maintain this degree of discipline is not permanent." The airline reported a 30 percent drop in first-quarter premium traffic.
Continental's Kellner expects companies, when they do ratchet travel back up, to exhibit "an awful lot of discipline in how they travel." But he also suggested that "if you are going back and forth between the U.S. and Europe 25 times a year, it is difficult to have a policy saying you have to do that in coach and work when you get there." Continental's transatlantic "average selling fare"--as measured on tickets purchased for flights between the end of April and the end of May--is down 35 percent.
In recent conference calls detailing another quarter of financial losses, airline executives walked the line between optimism and realism. "While we have seen signs of stabilization in revenue trends, at the same time, we haven't seen any indications of improvement," said Delta Air Lines president Edward Bastian. "Corporate travel trends continue to be soft, but the pace of decline in business yields and bookings has definitely slowed."
Continental agreed. "We don't yet know how deep or long this recession will be, whether or not we've hit bottom, how long we'll bump along the bottom once we hit it and what our rate of climb out of the bottom might be," said president Jeff Smisek. "All we can say now is that the rate of decline of our [unit revenue] appears to be decelerating as compared to the rate of decline we experienced in the first quarter."
At Southwest, "I am certainly not ready to call the bottom just yet," said Kelly, noting that booking levels specifically for "close-in, full-fare business travelers" were less discouraging in March and early April. "At this point in time, there is no way to predict what we might see [in May] yet."
Regarding pricing, Kelly said, "We are certainly on sale this year and were not last year. We have adjusted to the environment, which means we definitely need to get out there and sell as many seats as we can." It also means the carrier won't add bag fees. "We don't believe that it would be revenue positive to us any more than we would argue to you that we can push through a $10 fare increase right now," Kelly explained.
Continental's Kellner also noted "a lot of summer sales going forward." Added Smisek, "We continue to see a relaxation of fare rules, thus lowering the fences between business and leisure demandand allowing business travelers to book at much lower fare levels."