PASSENGER TRAVEL OUTLOOK
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ecently, I watched a rerun of “Catch Me If You Can.” One scene in particular caught my attention. A story was told about two mice that fell into a bucket of cream; one drowned while the other kept paddling, so much so that he whipped the cream to butter and was able to escape. It is an amusing anecdote, but it carries a meaningful message for those of us engaged in the Passenger Travel business. Ask anyone—regardless of profession—how business is going these days and you will hear the same thing; they are either doing MORE with LESS, or expect they will have to do so in the future. Why is this? The answer is not as simple as it seems. Over the past several years, the world’s economy has scrambled a number of eggs and some countries are emerging stronger than others. Brazil, Russia, India and China, the BRIC countries, are expected to contribute much more to the global economic growth this year. BRIC may further lead the world economy in a post-crisis era, should their aggressive industrial restructuring and the transition of economic growth patterns be realized. Furthermore, the BRIC countries also have ample funds to better overcome crisis. To more fully understand what we are dealing with, let’s look at some facts. The Power of Creative Thinking The recent unrest in Middle East and Africa and the March 11th earthquake in Japan remain causes of near-term concern across all industries. Continued gains in manufacturing, exports and employment are expected to fuel growth, though a weak housing sector, high gasoline prices and the impact of Japan’s earthquake on the automotive industry may impede recovery. In the travel industry, options that reduce waste and cut costs that are passed on to the end user will make the differ-
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D o in g Creative soluM o re tionsWin it transportah tion, L lodging essand even
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struction will prevail. Doing more with fewer resources will become the new rule. Travel managers are asking employees to spend fewer nights on the road, stay at lower cost hotels, rent smaller cars and, in some cases, book cheaper flights that aren’t nonstop. Industry Indicators The May update of USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing from 3.0 percent to 3.4 percent during the second half of 2011. The US Department of Commerce released the real US travel and tourism output from fourth quarter 2010, pulled from US Travel and Tourism Satellite Accounts (TTSAs). According to its report, output increased (adjusted for changes in price) at an annual rate of 2.5 percent, following an increase of 8.6 percent in the third quarter of 2010. By comparison, real gross domestic product (GDP) increased 3.1 percent during the fourth quarter. As one of the top-grossing US exports, the travel and tourism industry’s effect on the United States’ economy and international commerce, in general, has been an area of nationwide focus. The travel industry’s recovery is a crucial piece in recovery, and tracking this eco-
August 2011
nomic indicator provides insight into the state of the US economy and highlights both potential and emerging trends. This is interesting as the real travel and tourism spending increased 2.5 percent, representing the fourth consecutive quarter of growth. In percentage terms, real spending on shopping exhibited the largest gains, increasing 6.2 percent during the quarter, followed by traveler accommodations (5.8 percent) and passenger air transportation services (3.6 percent). Furthermore, overall growth in prices for travel and tourism goods and services increased 3.4 percent in the fourth quarter, following a 0.2 percent (revised) increase in the third. The slowdown in real spending on tourism mainly reflected a deceleration in international air transportation, primarily due to a strong upturn in prices and a slowdown in revenue. Employment in air transportation services increased 1.6 percent in the fourth quarter. This increase was offset by decreases in traveler accommodations of 3.3 percent and recreation and entertainment of 5.2 percent. In the fourth quarter of 2010, US economic output returned to its pre-recession level and the economy is expected to grow faster in 2011. Although business travel spending remains stagnant due to the implementation of smart traveling policies, it was initially driven by cost cutting measures. As business travel is making slow gains, the industry is enjoying the outcome. According to Associated Press; “The average price of a domestic roundtrip ticket before taxes climbed to $350 last year, 12 percent higher than in 2009. Over the same period, the number of fliers on US airlines rose about 4 percent”. However, since the price of oil dictates the percentage of profitability for the airlines, at $100/barrel, airline fuel costs make up 35 percent of all operating costs. Ten years
