Legacy carriers say they see premium-travel growth ahead
The high-paying business traveler is returning, but in smaller numbers
Dec. 9, 2009, 3:40 p.m. EST
By Christopher Hinton, MarketWatch

NEW YORK (MarketWatch) -- Legacy carrier executives from Delta to US Airways said Wednesday they are seeing early signs that premium-paying business travelers are returning to the skies, but cautioned growth would be slow.

The airline executives had gathered in New York for an analyst conference to highlight trends in their business following a horrific two years of surging jet fuel prices and a sharp economic contraction that sent demand plunging.

"This environment hasn't been like anything we've seen before," said US Airways President Scott Kirby. "All of us have been scared, frankly."

But things are starting to turn around and are expected to get better next year with positive industry unit-revenue growth, albeit due to a nearly catastrophic 2009.

"We speak of bouncing back, but only because 2009 was so bad that just an anemic move will be significant," Kirby said.

Slammed the hardest was high-yielding premium travel, specifically business travel, as corporations tightened spending in the uncertain economy. Leisure travel remains fairly steady, though carriers had to rollback ticket prices to keep demand going.

Following significant declines in business revenue late last year and for the first part of this year, US Airways saw its first month of growth in November -- up 5% from a year ago, Kirby said.
"This is very indicative of demand recovery," he said.

That observation was echoed among other legacy executives, the heads of the last five old school network carriers that also manage a significantly large number of corporate accounts.

It's also evident among investors, who have bid up the airline sector benchmark to near two-year highs. Since the end of October, the NYSE Arca Airline Index has jumped about 30%.

For Delta Air Lines corporate ticket volumes plunged 35% over April and May this year, with corresponding revenue down about 50%, according to the Atlanta carrier's chief financial officer, Hank Halter.

Corporate revenue represents about 20% of Delta's overall passenger revenue.

Since then, the erosion in volume sales have been decelerating, and crossed into ticket growth in mid-November, though business revenue was still down some 10% from a year ago.

"But that said, you can see a steady progression," Halter said. "It's certainly not a hockey stick, but it certainly is improving and that steady pace continues."

Delta expects to see a return to passenger revenue growth within the first half of 2010, Halter added.

Carriers more sensitive to corporate travel felt the change earlier than other. Over at United parent UAL Corp. corporate and premium travel began returning as early as May.

"Our networks are more closely aligned with corporate and premium traffic than most of our peers," according to Chief Financial Officer Kathryn Mikells. "Domestically, we have fewer seats to fun destinations like Florida and more deployed in places like...New York to L.A., as an example."

Since May, UAL saw steady improvement in both corporate revenues and premium cabin bookings," Mikells said.

"While the numbers clearly are still not where we would desire them to be, it is a very encouraging trend line," she said.

American Airlines parent AMR Corp. said its advance bookings for February are flat versus a year ago with international demand offsetting a decline in domestic sales.

"I think we are seeing improvement in both leisure and premium traffic at this point," said Beverly Goulet, AMR's treasurer.

Christopher Hinton is a reporter for MarketWatch based in New York.