EXAMINING CURRENT TRAVEL INDUSTRY TRENDS
The US Travel Association (formerly Travel Industry Association – TIA) offered this outlook: Though signs of economic healing are on the horizon - increased consumer optimism, comparatively lower gas prices, a stabilizing housing market - most economists warn that we are likely to experience further declines in the near-term before seeing GDP swing into the black, hopefully by Q4 '09. When recovery comes, it is expected to be subdued, reflecting what is being called a "new normal" in consumer attitudes and values (spending less, saving more), and the $773 billion U.S. travel industry may still have some major adjustments to endure. In this month's Outlook, I explore pressing topics including industry performance measures, new forecasts and surveys, the impact of H1N1 on travel and international visitation to the United States.
Positive indicators continue to accumulate, though it is still too soon to herald a recovery. On the plus side, gasoline prices are down significantly from last July’s highs, housing demand has started to stabilize, and U.S. Treasury Secretary Timothy F. Geithner said recently that “the financial system is starting to heal”. Consumers are becoming more optimistic, with many surveys showing improvement in May. The Conference Board’s Consumer Confidence Index™, after a pickup in April, rocketed to its highest level in eight months in May to come in at 54.9 (1985=100), up from 40.8 in April. Lynn Franco, director of The Conference Board Consumer Research Center, concludes that “while confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us."
We're Not Out of the Woods...Yet
But, most economists warn that we are likely to experience another quarter or two of economic decline before seeing GDP swing into the black, hopefully by the fourth quarter. Recovery - when it comes - is likely to be subdued. Even as consumer confidence begins to rebound, spending continues to disappoint. While consumer spending rose at an annualized rate of 2.2 percent in Q1, declines were posted in both March and April. It is expected to remain very weak throughout the rest of this year, even among upper-income Americans whose spending has declined at an increasing rate in recent months, according to Gallup. Rising unemployment (8.9 percent in April - the highest rate since 1983) is certainly one of the major reasons for this intensifying frugality. This will likely not improve for months to come as joblessness is projected to average close to 10 percent in 2010.
The “New Normal”
Looking ahead, the all important question is whether this situation is temporary or if instead it reflects what is being called a “new normal” in consumer attitudes and values. A recent Gallup survey identified a troubling one-third of Americans who report spending less and 27 percent who report saving more in recent months, and who intend to solidify these behaviors as their "new, normal" pattern in the years ahead. If current spending levels do become the "new normal," then both the U.S. economy and its $773 billion travel industry may still have some major adjustments to endure.
Industry Performance - Still Playing the Waiting Game
NOTE TO ARVC MEMBERS: The information below relates to the hotel/motel industry. Reports from our members indicated reservations up and most had a very good Memorial Day weekend. KOA reported being up 3% and Leisure Systems reported their Yogi Bear Park’s to be up 5% since the beginning of the year. They both reported that reservations are coming in later than normal with many making reservations for the first summer holiday weekend just a week before the event.
Unfortunately, the travel industry continues to share in consumer spending lassitude. Smith Travel Research (STR) reports that the U.S. lodging industry experienced April losses very similar to those posted in March: demand was down 8.3 percent, occupancy fell 11.1 percent, average daily rates (ADR) lost 9.4 percent and revenue per available room (RevPAR) plunged 19.5 percent. The weekday business segment remains weaker than weekend leisure, and luxury hotels continue to be the hardest hit, in part because of a backlash against corporate meetings and incentive travel. STR believes, however, that it’s as bad now as it’s going to get, hovering near the bottom of the cycle. This conclusion is mirrored in The Rubicon Perspective, a monthly newsletter that reports on advance reservation and group sales data from the largest hotel chains, which reports that while the deterioration of demand and rate continues, the pace of that deterioration has slowed markedly.
The Air Transport Association (ATA) reports that the recession is still taking a major toll on commercial aviation, with passenger enplanements on U.S. airlines down 6.3 percent and revenues down 18 percent in April as compared to the same month in 2008. Declines continue to extend beyond the mainland United States to the trans-Atlantic, trans-Pacific and Latin markets. Rail travel also fell in April and is now off nearly 6 percent for the year to date.
In the cruise industry, a return to the homeport - a port that can be reached easily by car rather than flying - phenomenon that started after 9/11 is evident, but now many travelers don’t want to fly to reach their port of departure because of the cost rather than fear. New marketing efforts are being deployed to stimulate demand, including offers of much reduced deposits and - taking a page out of the auto companies’ playbook - job-loss insurance, which enables customers to cancel at any time up until their cruise departs if they become unemployed. Similarly, online travel agencies, such as Expedia, Travelocity and Orbitz have joined Priceline in eliminating consumer booking fees on flights and adopting a variety of price guarantees for consumers.