Outlook For US Airline Business Travel Remains Grim
April 01 2009 - 1:47PM
Dow Jones News
A sharp slowdown in business travel, the best moneymaker for
major airlines, will cut into U.S. carriers' profits this year, and
the picture doesn't look much better for 2010.
According to the Federal Aviation Administration, overall
domestic air passenger traffic will fall nearly 9% this year, while
international bookings are expected to decline by 2.4%. The FAA
expects to see travel growth return in 2010. But business travel
may take longer to recover.
Business travel, which accounts for most first-class and
business-class ticket sales, has suffered from deeper cutbacks than
leisure travel, as companies face a global recession. Even when
trips aren't canceled, employees increasingly are moving to economy
class seats.
Airline consultant Michael Boyd estimates that trans-Atlantic
passenger revenue, mainly driven by business travel, is down 15
already this year compared with 2008. He said he thinks airlines
will need to keep shrinking capacity this year and into 2010, as
passenger demand remains weak and costs, especially for fuel, keep
rising. "Growth is not in the picture," he said.
Ken McGill, travel analyst at Global Insight, said in a
presentation this week that he believes the U.S. economy will start
growing early in 2010, spurring more interest in leisure travel.
But business travel, hard hit by falling corporate profits amid
dried-up credit markets, will take longer to turn around. There's
also what he calls the "AIG effect," including public scrutiny of
corporate spending, and the potential "vilification of business
travel spending."
The U.S. government's fiscal stimulus plan should increase some
business spending for travel, McGill said, but he predicted that
the number of business trips for the next four years will be
sharply lower than the peak year, in 2008. Overall travel prices
are expected to bottom out in mid-2010, he said. During 2008, he
said, "falling prices will more likely result in a shift in
spending rather than additional spending or trips."
Boyd, who heads The Boyd Group in Evergreen, Colo., said the
first sign of a travel turnaround will emerge when consumers start
booking more trips to Las Vegas. He said he doesn't expect that
market to pick up until 2011, with an upswing in business travel to
come even later.
If travel demand were to pick up next year, U.S. airlines, which
have substantially downsized in the past year, would be unable to
fill the demand, Boyd said. "That would be great for the airlines,
but tough for passengers," and would limit business travel
growth.
Meanwhile, Boyd said, carriers like Delta Air Lines Inc. (DAL),
American Airlines, a unit of AMR Corp. (AMR), and Continental
Airlines Inc. (CAL), have adequate liquidity to weather turbulence
this year, and the flexibility to ground more aircraft if fewer
passengers are flying.
-By Ann Keeton, Dow Jones Newswires; 312-750-4120;
ann.keeton@dowjones.com