As the crisis has dragged on, corporate travel has remained depressed at well below 20% of its 2019 levels. Indeed, many have speculated about the “death” of business travel. However, Delta Air Lines is not concerned about the future of bits corporate market. Instead, the airline remains bullish on premium travel in the future and is anticipating being the right size for these lucrative travelers.
Delta’s thinking on the future of corporate travel
Delta believes that corporate travel will come and back come back aggressively, according to CEO Ed Bastian. While it is subdued right now, the airline has taken steps to be the right size for the environment. Mr. Bastian stated the following on the airline’s fourth-quarter earnings call:
“All indications are that corporate travel is ready to start coming back, it’ll come back pretty aggressively beginning in the second half of this year. We’re a smaller airline. We’ve got 200 fewer planes today. We’ve already right-sized the business to be smaller, which will help protect the premium revenue sources and the margins of the business … That’s going to be the key to make sure that we protect the margins in an environment where corporate travel will be down for the foreseeable future. Maybe it’s permanently down by a little bit of lower amount, but I’m not ready to declare that yet.”
President Glen Hauenstein added some more color:
“I think when you think about our premium products and services, you also ought to think that these are not only filled by corporate travelers. As a matter of fact, only less than a third of the seats are actually filled by the corporate travelers, and two-thirds are filled by noncorporates. And I think it’s our ability to provide the right products and services for the noncorporates as well with the right set of opportunities so that we can match their preferences to our products and services.”
Where Delta’s corporate customers are
Delta does not see any signs that corporate travel will be a slow, cumbersome recovery. In fact, the results of its survey of corporate customers showed the opposite.
Delta’s corporate customers were split up in the following when asked about the resumption of their travel:
- 40% of the airline’s large corporate customers expect to be fully back to 2019 travel levels by 2022
- 11% expect to be fully back by 2023
- 42% were unsure and needed time to make those decisions
- Only 7% of customers said they were never coming back to 2019 levels
Delta is calculating that 51% of its corporate customers should be back by the end of 2023– with the bulk of those customers coming back in 2022.
Regarding the other 42% that need more time, Delta believes that, conservatively, about 50% of those travelers could come back by 2023, which gets the airline to over 70% of corporate customers back within two years– though it could be higher than that.
Delta’s already getting a premium on revenue
Corporate travel is not all big Fortune 500 companies flying people to Frankfurt or Tokyo for a day of meetings. There are also small and medium-sized businesses that are mostly traveling now and do not just fly up in the premium cabin; some also take up the back of the aircraft. So, the airline is right-sized to serve these customers, which are coming back about five points faster than large corporate travelers.
Also, Delta is getting a premium on blocked middle seats. People who are shopping are deliberately choosing Delta, so the airline does not have to lower its price or engage in fare wars to get people to choose the carrier. The “Delta Difference,” as the team calls it, is paying off, or so it seems.
Moving forward, the airline is bullish on the return of business travel and believes it is set up for it as the carrier takes new aircraft with more premium seats and better premium products. Given how these new aircraft will enter the fleet over time, Delta will be adding capacity and premium seating as those travelers begin to come back.
Do you think Delta’s outlook on corporate and business travel is the right one? Let us know in the comments!