Solid demand and tax cut benefits fuel Delta’s bullish outlook for corporate travel

US major carrier Delta Air Lines is embarking on 2018 with a bullish outlook for corporate travel, concluding projected business travel spend could reach its highest level in three years.

Delta’s 7% growth in passenger revenue year-on-year in 4Q2017 was driven by strong demand and improving business yields. Its corporate revenue growth during the last quarter of 2017 was it highest since 2014, both in volume and growth in average fares.

The airline calculated during 4Q2017 81 of the top 100 business markets were posting positive yields, which was up from 50% at the end of 3Q2017. Delta also enjoyed momentum in its premium product upsells during 4Q2017. First class upsells and its Comfort Plus revenues grew 25% to 30% year-on-year during the final three months of 2017.

“Going forward, we expect corporate revenue momentum to continue,” said Delta president Glen Hauenstein. “Our last survey of corporate travel managers showed more than 88% project their spend will be maintained or increased in 2018.” Mr Hauenstein concluded that is a three point improvement from 2017’s numbers and is the “most positive outlook we’ve seen in three years”.

Overall, Delta concluded its domestic entity delivered a third consecutive quarter of positive year-on-year unit revenue growth, underpinned by both solid demand from business and leisure travellers.

Back in mid-2016 Delta estimated corporate yields were trending down 5% to 7%, and capacity was outpacing demand in the business traveler segment. At that point, strong leisure demand was not offsetting weak close-in pricing.

After the election of Donald Trump in Nov-2016, US airlines enjoyed a bump in business demand, but Delta cautioned that it was not expecting business yield to reach historical highs in the near to medium term. The airline concluded that, on a historical basis, business fares fell by 30% to 40% during 2016.

A new tax scheme recently approve by the US Congress could possibly accelerate the return of business fares to historical levels. The US corporate tax rate is falling from 35% to 22%, and “we’re very excited about the potential for increased business demand with the tax cuts,” said Mr Hauenstein.

He cautioned Delta has not seen that demand materalise yet, but “fare levels are only a few percentage points higher than they were in the trough, so I think there’s a lot of opportunity moving forward as demand continues to improve”.