Delta Air Lines entered 2013 with healthy corporate demand
growth. But following a "strong January and February," the carrier in
mid-March "saw a drop in close-in bookings as well as some softness in
leisure demand," CEO Richard Anderson said during the carrier's quarterly
earnings call on Tuesday. US Airways, which also reported earnings on Tuesday,
witnessed similar trends in business demand, but neither carrier sees the sky
falling.
Delta president Ed Bastian said the federal budget sequester
has depreciated demand not just directly from the government but also from
contractors, and coincided with continued "economic sluggishness" and
an increased payroll tax that together softened overall business demand during
the first quarter.
Bastian said that within its corporate client portfolio, the
"defense business" represents about 3 percent of corporate revenues,
and that segment's "ticketed revenues over the last four weeks are down
about 15 percent to 20 percent."
Despite such ominous signs, Delta reported yet another
quarter of year-over-year growth in corporate revenue, up 6 percent from the
same period in 2012. Bastian also again claimed continued growth in
"corporate revenue share." He also said that summer bookings are
"in line with expectations" and that "corporate demand remains
strong."
Meanwhile, Delta executives suggested the airline priced fares
too aggressively during the first quarter. Their initial view of demand,
Anderson said, gave the carrier's revenue management department a "yield
bias versus a load-factor bias."
First-quarter numbers bear that out, as yield—a
representation of fare per mile—grew 2 percent year over year, but traffic
declined by 1 percent. "We're making the necessary calibrations to our
revenue management systems to address the current revenue environment,"
Bastian said.
At US Airways, president Scott Kirby also pointed to
government cuts for "a decline in business demand that began in the weeks
leading up to the sequester," which took effect in March.
Government revenue, which according to Kirby represented
about 3 percent of US Airways' total 2012 revenue, declined during this year's
first quarter by 37 percent versus the prior-year period. While Kirby did not quantify
it, he said demand from contractors likely was also impacted.
"Business demand is much more volatile than leisure
demand," Kirby said. "As we've seen in the past, when the headlines
are bad, we see business demand drop off quickly, but when the headlines are
good, it also bounces back quickly. Leisure demand, on the other hand, is much
more stable and is a better indicator of the strength or weakness of the
underlying economy. As long as leisure demand remains strong, it usually
indicates that the economy is at least doing okay, and that eventually
translates into good corporate results, which translates into increasing
business demand. The good news is that leisure demand has remained quite strong
thus far in 2013."
US Airways did not report corporate-specific revenue growth
figures.