Air travel
budgets and volumes are poised to return to pre-recession peaks by the end of 2012,
and airlines will maintain or even further pricing power and negotiating
leverage in the meantime, according to a Morgan Stanley survey of 273 corporate
travel buyers released on Friday. Though corporate travel demand is increasing,
buyers continue to closely manage spend, largely maintaining premium-travel restrictions
deployed during the downturn.
"Our survey suggests that airlines are competing less aggressively using
corporate discounts," Morgan Stanley aviation analyst William Greene
reported in a research note, which found percentage-off discounts are falling
from 2008 peaks. Last year, the report noted, airlines began lowering many discounts
from a range of 21 percent to 30 percent down to levels below 20 percent.
"Importantly, our most recent survey suggests this trend continues,"
Morgan Stanley reported.
With discounts falling, buyers expect corporate negotiated airfares
to grow next year by mid-single-digit percentages. The airlines' pricing power
is attributed not only to growing demand, but also to the "enhanced market
power" that has resulted from legacy carrier consolidation and the growing
dominance of antitrust-immune joint ventures on international routes, Morgan
Stanley reported.
Of the
respondents, 81 percent expect corporate air bookings to grow next year. Of
those, about two-thirds said growth would exceed 5 percent. "This is consistent with anecdotes we’ve heard suggesting
that while corporate spending on non-critical business travel remained tight in
2010, it may begin to relax incrementally as economic conditions continue to
improve gradually in 2011," Morgan Stanley noted.
According to the survey, 60 percent of
respondents expect their corporate travel budgets to surpass pre-recession
peaks by the end of 2012, though 15 percent indicated "their corporate
travel trends are permanently impaired." Greene reported that a stronger-than-expected
economic recovery could propel budgets to peak levels even sooner than the end
of 2012.
"Even if economic trends do
surprise corporate travel managers to the upside, companies are unlikely to
relax premium travel policies at this point in the cycle," Morgan Stanley
noted, as more than 70 percent of the respondents expect to maintain their
"existing, conservative" premium-travel policies, with fewer than 10
percent expecting to loosen them.