<B> Survey Says: Less Travel</B>
By Jay Campbell
A National Business Travel Association survey of 450 direct members released last week indicated that Corporate America will reduce travel by as much as 20 percent. But airlines have yet to notice the decrease and, instead, reported record third- quarter results.
"Over 69 percent of companies report that in direct response to the economic downturn, corporate travel programs have been strategically realigned within the last 30 days," said NBTA, which conducted the survey Oct. 5-8. "Surveyed corporations will reduce travel within the domestic United States by 20 percent."
In the last 30 days, 53 percent of companies have used video- or teleconferencing in place of travel, 40 percent have altered travel policies, 36 percent have moved to renegotiate with suppliers and 56 percent have moved to reduce the number of traveling employees. In addition, respondents said they will reduce travel by an average of 17 percent overall. Some said they were aiming for savings of $2 million in the next two quarters. Over 22 percent plan to reduce travel to Asia, 13 percent to Europe and 16 percent to Latin America.
The NBTA survey is supported by a worldwide International Air Transport Association survey of 1,000 travelers that showed the percentage of travelers who expect their companies' travel budgets to be cut doubled to 12 percent this year over last. IATA also found that among North American travelers, twice as many as last year are expecting travel budget cuts. "Corporate America is bracing for tougher times," said NBTA president Mark Johnson.
But airlines have yet to observe a measurable impact. In fact, according to Paine Webber airline analyst Sam Buttrick, "Traffic grew faster in the week after the NBTA survey was taken than it had in any week in the past several months. Obviously there's a gap between what corporations say they're doing and the real data. Companies say 'We're cutting;' airlines say 'We're fine.' The truth probably lies somewhere in between."
At the same time, Buttrick acknowledged, "by far the largest risk out of the airlines' control is a major contraction in business travel. Tough new travel restrictions are only as good as the enforcement thereof, and we'll all wait anxiously to see whether these new corporate travel edicts have any teeth or not."
September domestic traffic rose 4.8 percent year-over-year at American Airlines and United; North American traffic rose 11.9 percent. These numbers, however, are bloated by the Northwest Airlines strike, which turned over more than three million Northwest passengers to other carriers.
Though the domestic numbers may not yet show a downturn, United's Pacific revenue passenger miles decreased 3.1 percent year-over-year in September. United's "number one concern is dealing with a possible recession or downturn," said senior vice president of planning Rono Dutta.
But United, the other carriers and the analysts are confident that airline managements now know what it takes to weather a downturn. "We remain optimistic regarding the airlines' prospects due to the continuation of low jet fuel prices, a healthier operating environment and flexibility in fleet plans," said Susan Donofrio, an analyst with BT Alex Brown. "While we don't believe that a recession is imminent, we recognize the potential for a slowdown, given the slowdown in real gross domestic product abroad."
Third-quarter results over the last two weeks are making clear that thanks to the Northwest strike, every carrier but Northwest had a good quarter, said Buttrick. Northwest reported a $224 million net loss for the quarter.
Continental Airlines reported record third-quarter pre-tax income of $247 million, a 33 percent improvement over third quarter 1997. It was the fourteenth consecutive period Continental has reported record quarterly earnings. Delta Air Lines also scored record net income of $327 million for the September quarter, an increase of 29 percent over the September 1997 quarter. Delta's operating margin was a record 14.5 percent.
Southwest's $129.6 million net profit in the third quarter was second only to its second quarter as an all-time quarterly record, and showed a 40 percent increase in year-over-year profits due to a strong domestic economy and jet fuel prices that averaged 44.2 cents per gallon. United also reported record third-quarter net earnings of $425 million.
"Fourth quarter will still be an up quarter, though not on a fuel-adjusted basis," Buttrick predicted. "Earnings will likely be down in the first quarter of 1999, but by historical comparison, both will be extremely profitable quarters.