Back To Business: This Corporate Travel Season Could Be Telling

Recent demand commentary offers no consensus on whether business travel cuts are permanent. The now-familiar sentiment that traffic numbers at least aren't getting any worse seems about right, but the summer is now over. Airlines in the coming weeks should start to get a better handle on corporate demand and discussions during the next round of airline earnings conference calls in five or six weeks could be telling.
Some airline leaders and industry analysts seem to be coming to grips with the likelihood that that business travel won't recover as quickly--or perhaps to the same degree--as it had following previous economic recessions. "There will be a longer-lasting impact--people will be more sensitive to appearances--after the downturn we've just been through," Continental Airlines CEO Larry Kellner told me a few weeks ago.

"In every downturn we have seen a lag in the return of the high-yielding premium customer and this go around will be no different. In fact, it will probably be more depressed than we have seen in the past," American Airlines vice president and general sales manager Kurt Stache added during a conversation that same day.

J.P. Morgan analysts in a Sept. 10 research note wrote that "any argument as to why demand ought to recover (and just how quickly) becomes immediately suspect," partly due to corporations replacing some business travel with remote conferencing technologies. "The cost-driven earnings upside that many companies are experiencing may suggest that these air-alternatives are finally being taken more seriously," according to the note. "Perhaps potentially most alarming from the legacy airline perspective is that business travelers actually like traveling less and are becoming increasingly accustomed to doing just that. With technology and financial services remaining disproportionate consumers of air travel, we’ll see if this phenomenon reverses next year, though recent results for both sectors hardly appear to have been negatively affected by the grounding (or near-grounding) of employees."

Despite what they described as the "still precarious situation in terms of traffic, pricing and fuel input costs," J.P. Morgan analysts said "our industry fundamental thesis is improved and our credit recommendations reflect this less bearish, perhaps dare we say somewhat bullish stance."

Winter is "not expected to witness the level of upheaval that we feared just a few months ago," they wrote. "We simply cannot ignore recent economic data and growing evidence of global economic improvement. As such, we believe the industry is on the verge of turning a financial corner." J.P. Morgan also deemed "unlikely" any bankruptcy filings by a major U.S. carrier before spring.

The note also pointed to "the six broad industry fare increases since late spring and recent slowdown in the pace of promotional activity" as an indicator that airlines no longer are "over-correcting" for demand declines.