CHICAGO -- A note of optimism crept into major U.S. airline outlooks in the past week with executives trumpeting the first signs of returning demand from well-heeled business travelers who pay full fares and fork over cash for in-flight perks.
But at the same time, they warn that it's way too soon to declare an industry recovery as a suddenly thrifty Corporate America gropes its way out of a prolonged economic recession and keeps a lid on travel expenses.
Airlines are eager to spotlight evidence of a possible rebound. But for now, the evidence seems largely anecdotal.
"Definitely what we're hearing is that business travel is coming back, but there aren't a lot of senses around business travel fares," said Helane Becker, airline analyst at Jesup & Lamont.
"It's definitely not at price points that we've seen in prior years. And I don't think we'll get back to those levels for another year or so," Becker said. "People are still very price-conscious."
Third-quarter earnings for major U.S. airlines were mixed as carriers grappled with weak demand, volatile fuel prices and competitive pressures. Fuel prices have eased from their 2008 peaks but they have been inching higher for most of 2009.
Becker said earnings statements were especially troubling when she compared year-to-date airline revenue with fuel cost savings. In almost every case, revenue declines outpaced fuel savings, she said.
For example, Delta Air Lines' (DAL.N: Quote, Profile, Research, Stock Buzz) revenue was down $5.3 billion year-to-date, compared with fuel cost savings of $3.6 billion, Becker said.
"That's bad," she said. "There's no other offset."
Shares of U.S. airlines have been inching higher since March, and stock analysts are increasingly bullish. But Becker said the outlook for business travel demand is little reason to buy airline shares.
MODEST TRENDS
"It is not clear that we have got a meaningful and sustained turnaround here, but we have got some modest trends in the right direction," said Tom Horton, chief financial officer at American Airlines parent AMR Corp (AMR.N: Quote, Profile, Research, Stock Buzz), on a conference call last week.
"We have been looking very carefully at demand trends and corporate travel trends in particular, because that is really what has hit the industry so hard this year," Horton said.
"It appears that corporate traffic bottomed out in the May/June time frame, with a trend since that time being modestly positive off of a low base," he said. "We are encouraged by some improvement (in) the recent corporate traffic numbers."
Airlines base business travel estimates on the number of passengers who pay full fares for their tickets. But that metric has become increasingly irrelevant as more and more fare sales permeate the market, said Scott Kirby, president of US Airways Group, last week on a conference call.
"However, we do have some good anecdotal data that we believe is indicative of business demand," he said.
Kirby noted that revenue per available seat mile on shuttle flights, which mainly carry business travelers, was down only 5 percent in October, compared with the 25 percent drop in the second quarter and 16 percent drop in the third quarter.
US Airways' corporate contracted revenue was down 17 percent in the third quarter of 2009, compared with 32 percent in the second quarter and 31 percent in the first, he said.
"So while these statistics alone don't prove that business demand is recovering or that they'll stay recovered, there is strong evidence that it is indeed recovering," Kirby said.
Delta leaders agreed.
"Business traffic is improving more on the domestic side than international, but off of a lower base earlier in the year," said Delta President Edward Bastian on his company's recent earnings call.
Bastian said Delta's total corporate contract volume was down about 10 percent year-over-year in the third quarter. He said the revenue associated with business travel was down 25 percent.
"While we're certainly not happy with the 25 percent reduction, this compares favorably to a 40 to 50 percent reduction that we were experiencing throughout much of the first half of this year," he said.
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