Delta exudes optimism about continued pricing traction in the corporate sector

Delta Air Lines is encouraged by growing momentum its ability to increase business fares after battling pricing challenges in that sector for roughly two years.

The airline has previously explained average US domestic business fares declined in the double digits from early 2015 to late 2016. At the end of 1Q2017, the company concluded that prices had regained broadly half of their lost ground.

Although Delta’s business yields were slightly softer than expected in Jul-2017, the airline logged an improved performance in Aug-2017 and Sep-2017, which resulted in a 6% increase in business revenues year-on-year in 3Q2017.

Delta estimates that 50% of the top 100 US domestic business markets were in positive yield territory at the end of Sep-2017, which was a 10 point improvement within the quarter. “We expect those numbers will continue to improve in the fourth quarter,” Delta president Glen Hauenstein concluded.

In Delta’s latest survey of corporate travelers, more than 85% indicated they would maintain or increase spend in 4Q2017 and into 2018. “This is a nine point improvement from last year’s numbers and the best fourth quarter result since our survey debuted in 2011,” Mr Hauenstein stated. “It is also consistent with the trend we’ve seen in our corporate contracted revenues where fares and volumes have recently been in positive territory concurrently for the first time in three years.”

Delta is also encouraged by corporate travel trends in trans-Atlantic markets. “We do see continued acceleration in business travel”, said Mr Glen Hauenstein. He remarked that Europe was exiting a multi-year recession, and the US economy remained strong with “people travelling for business”.

A rebound in international markets along with longer average system stage lengths is driving higher capacity growth for Delta in 2018. The airline is projecting 2% to 3% capacity growth next year versus a 1% increase in 2017.  Delta’s international ASM growth is shrinking by 1% this year.

CHART – Delta Air Lines has reduced its international capacity -1.0% in 2017 following a -0.1% decline in 2016, but plans to expand in this market in 2018Source: CAPA – Centre for Aviation and OAG