The Sweet and Sour of the Travel Economy
The Chinese character used to write the word ‘crisis’ is a combination of two characters: Danger and Opportunity.
Rising fuel prices and reductions in business travel raise questions about the vitality of the travel industry as a whole, and sparked a furious push for value and bargains among travelers.
The current economic crisis presents some challenges to traveling abroad, but, but there are plenty of opportunities to be teased out for the savvy traveler.
First, some background details and an update:
As recently as last Labor Day, when the busy summer travel season ended, analysts were betting that the softening economy brought on by the crisis in U.S. and global credit markets would trigger a reduction in travel and tourism.
The potential for this scenario to become real sparked consulting firm PricewaterhouseCoopers to reduce projections for hotel demand for 2008.
At that time, the company projected occupied room nights to fall just short of their projected 2007 growth of 1.4 percent, while projecting a slightly weaker growth through 2008.
These reduced forecasts are significant, because demand for lodging and air travel remained high through the summer, with a record of over $10 billion in hotel rooms sold in July. Moreover, air travel for the Labor Day weekend stood at nearly 16 million people, an increase of nearly 3% over 2006.
In July, American Airlines announced that its booked load numbers were higher than for the same period the year before.
For years, hotels have enjoyed seemingly endless growth and high demand. Presently, more and more hotels are offering bargains to entice travelers.
Currently, Marriott International’s web site details more than 1,500 bargains at its U.S. hotels, while Choice Hotels International, operators of the Econo Lodge and Comfort Inn hotels, is wooing customers with a free night’s stay for every after two nights spent at one of its hotels.
Meanwhile, with oil hovering at $100 a barrel, the high price of fuel presents a serious challenge for airlines. Even those that are flying full, as many still are, face strong competition in a market that makes it nearly impossible for carriers to raise fares enough to offset higher fuel costs.
In some ways, it’s understandable that analysts remained guardedly optimistic through summer, even as they paired back their forecasts, since leisure travel generally falls off after Labor Day and business trips are usually booked well in advance.
However, with the rapidly expanding home mortgage crisis, and rising fuel and food prices dovetailing with a recession in the American economy, analysts are increasingly concerned that fewer people will take vacations and that leisure travel businesses will have to cater more for consumers seeking deals.
Las Vegas
Back in the day when gambling was almost non-existent in most of the country, and Las Vegas shared a reliable pool of gamblers with the small number of horse tracks and other limited legal gambling ventures, the city and the gambling industry were long considered to be ‘recession-proof.’
Those days are gone. With Las Vegas facing competition from multifarious gambling incarnations across the country, from legal state lotteries to Indian casinos and riverboat operations, Las Vegas is just as vulnerable as other industrial cities to the whims of economic fortune.
That vulnerability has manifested mainly on the lower end of the Las Vegas hospitality and gambling spectrum. However, Las Vegas is looking to an influx of international visitors buoyed by the weak dollar, coupled with more Americans traveling close to home to help offset what might otherwise be a bona fide downturn in their business.
Accommodations in Las Vegas have seen some weakness, while international travelers looking to capitalize on the cheap dollar are helping to shore up the gambling and entertainment economy in Las Vegas.
U.S. vacationers who cannot afford to travel abroad will likely help soften the impact. Online travel agencies that can offer bargains on hotel rates, car rentals, and other entertainment packages will fare better than those who fail to capitalize on this facet of the market.
Online travel agencies are concerned that a decline in travel will hurt their business, but hopeful that an increasing number of bargains and incentives being offered by the travel and hospitality industry will offset any losses.
To avoid potential economic damage, U.S. hotel and casino businesses are beginning to aggressively court European travelers, who may be less affected by U.S. economic softness.
That said, there are genuine concerns on the part of the executives within the gambling and hospitality industry who are concerned that their fate might rest on the vitality of the international economy.
For companies that sell travel bookings, economic downturns can represent a mixed bag. On the one hand, a domestic recession tends to erode the demand for travel, while at the same time boosting demand for bargains.
The downside of that is that corporate margins tend to suffer in either scenario. When bargain hunting reigns, companies are forced to increase their volume to make their margins.
As airlines and hotels find themselves with unused inventory, they will send more unsold rooms and seats to online agencies.
Look for online agencies to play a more significant role in the vitality of American travel and tourism companies, while those companies with a strong international presence will likely fare better than their solely domestic counterparts.