The steady drop in business travel over the last couple years may have bottomed out recently, as worries about the war in Iraq and the SARS virus waned, according to corporate travel firm Rosenbluth International. "We're back at 2002 levels right now, after hitting the bottom before the war and staying flat through April," said Ron DiLeo, chief operating officer of strategic travel solutions for Rosenbluth. According to Rosenbluth statistics, business travel sales are up 20% since the end of the war in Iraq, with international travel also showing signs of life, especially in Asian markets, where traffic has jumped 80% from hitting a low in mid-May amid the SARS scare. Data on revenue during the month of May from the Air Transport Association, the industry's trade group, confirm this trend, with unit revenue, or revenue per passenger, up 1.6% from year-ago levels, a reversal from April's 4.2% plunge. To be sure, though, the year-ago levels were grim. When compared with 2001 levels, the May revenue picture is the strongest in two years -- off just 4.2% from where revenue was before the Sept. 11 terrorist attacks. Goldman Sachs and other brokerages think June unit revenue could be up between 4% and 5%, while the Travel Industry Association of America said business travel will start to increase this summer, moving up 1% from year-ago levels. A poll from Accenture, the consulting firm, found that 80% of respondents said business travel would increase or stay the same over the next six months. Rosenbluth's DiLeo said the increased travel stems from the fact that corporate executives feel more comfortable letting employees hit the road, due to the war's end and the lowering of the terror alert level. "Every corporation was focused on cost reductions, limiting travel budgets, which has caused pent-up demand for travel," said DiLeo.
Any recovery in business travel would be closely linked to a broader economic recovery, which is why analysts use the Institute for Supply Management index as a barometer for business travel. In the most recent data, released on June 2, the index rose to 49.4%, still indicating contraction in the economy and a sign of how weak the recovery is. But that's up four percentage points from April's 45.4% -- a trend that airline analysts have noted. "Our leading indicators of business travel,
like the ISM index and net estimate revisions, continue to give positive signals," said Glenn Engel, airline analyst for Goldman Sachs, in a recent note. "Lately, carriers have indicated an improvement in full-fare volumes. Although improvements can be characterized as small, the changes are still directionally significant following months of steady declines." Airlines are attempting to capitalize on business travel as well. This week, United Airlines, a unit of UAL ( UALAQ), began providing customers with email access while planes are in flight. Last week, AMR ( AMR) unit American Airlines, Northwest Airlines ( NWAC) and four other airlines unveiled promotions that reward business travelers with a free domestic round-trip ticket if they book three round trips before the fall. Yet by offering these perks, the airlines run the risk of watering down their profit margins and turning the premium-priced world of business travel into a less-profitable volume business. Ticket prices for business travel have come down substantially in the last two years, with data from Rosenbluth showing that customers paid $450 per ticket, on average, during the first quarter of 2003. That's nearly $80 less than two years ago. This time around, in order to generate the same revenue, airlines will need to sell more seats. Furthermore, airlines will have to resist the urge to add more capacity as demand increases, since the dilutive effect of adding more flights will sap revenue. As DiLeo pointed out, if airlines had even a little pricing power, the staggering losses might have been less severe. On Thursday, airline stocks were slumping after an analyst upgrade boosted shares on Wednesday. The Amex airlines were off 1.7%, led lower by UAL, which dropped 10 cents, or 13.2%, to 66 cents. Delta Air Lines ( DAL), Continental Airlines ( CAL) and Northwest were all down more than 2%.