U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
Contact Us
Share
Archive
ustravel.org
November 2011
Research Review HIGHLIGHTS FROM THIS ISSUE 2001-2011: A Decade for the Record Books! Transportation Slow Moving International Visitation - A Bright Spot Lodging Indicators Strong STR Lodging Forecast Travel-Related Spending Trends Looking Ahead - A Confusing Economic and Consumer Environment Consumer and Traveler Confidence in the Tank Travel Inflation Changing Consumers Leisure Travel Intentions Soft Modest Recovery for Attractions Cruising Remains Strong National Parks Trends Other Leisure Activities The Mainstreaming of Ecotourism and Travel among those with Disabilities Business Travel Continues its Long Road Back Forecasts for 2012 and Beyond Light around the Corner
EXAMINING CURRENT INDUSTRY TRENDS We enjoyed a very enlightening Marketing Outlook Forum (MOF) recently in Fort Worth, Texas. I want to thank sincerely the Fort Worth Convention and Visitors Bureau; the Omni Hotel; all of our partners, sponsors and exhibitors; our wonderful U.S. Travel Association team; and all of our delegates for their contributions to making this such a successful event. I also thank, of course, all of our speakers, including many of the industry's leading analysts and marketers. General agreement was shared that the first half of 2011 was better than earlier anticipated, but that growth has slowed, mirroring the slowdown in growth of the U.S. and global economies, which is likely to continue into 2012. By now, all delegates to the Marketing Outlook Forum have received a link to all of these presentations, including my wrap-up presentation on which this month's newsletter is largely based. Attendees may also access several additional white papers written for this event. Others may purchase all of these very helpful materials soon.
1 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
We are accepting preorders now. 2001-2011: A Decade for the Record Books! This year, 2011 was, of course, the 10th year since the 9/11 attacks, but also the end of an extremely challenging decade for the travel industry, globally and nationally. The past 10 years of political and social changes, financial- and health-related setbacks, and natural disasters all over the world, have been very sobering. Yet, there are lots of positive things to recognize about the decade: an industry and a people that all showed great resilience, renewal, rebirth, recovery, resourcefulness and self-reliance. During the past decade, domestic travel volume increased about six percent from 1.89 billion person-trips in the year 2000 to projected just over two billion this year, but there have been lots of up and downs. The greatest declines occurred in 2008 and 2009 in wake of the financial meltdown. In total, U.S. domestic travel declined nearly 3.5 percent in 2009 and that followed the earlier two-percent decline suffered in 2008 in the wake of record high gas prices and the financial crisis that began in late summer, as well as a steep reduction in business and meetings-related travel. Certainly, 2009 was the worst year experienced by the travel industry in a very long time; some even say it was the worst year ever. However, 2010 turned out to be a better year as the industry recouped much of our losses, but not all of them, at least in terms of travel volume. Domestic leisure and business travel increased almost 3.5 percent. So far this year, leisure travel seems to again be outperforming business travel. In 2011, U.S. Travel expects travel volume to reach, and in fact slightly exceed, the record enjoyed in 2007 so this recovery has taken four years, at least in terms of overall travel volume. The first decade of this century has also been very challenging for inbound international visitation to the U.S. After reaching a record of more than 51 million visitors in 2000, travel to the U.S. fell dramatically, and declined in 2001, 2002 and 2003, to only 41.2 million visitors, according to the U.S. Department of Commerce's Office of Travel and Tourism Industries. In 2004, inbound international travel began to recover and it actually surpassed the previous record in 2007, when 56 million international visitors came to the U.S. Then, the global recession hit. Global travel, including travel to the U.S., plunged five percent in 2009, but by 2010 we were in recovery mode once again. In fact, international visitation to the U.S. set a new record in 2010, when 60 million visitors from Canada, Mexico and overseas countries came to the U.S., nine percent more than in 2009. Nearly 60 percent of all international visitors to this country are from Canada or Mexico, a very important part of our visitor mix. But the U.S. benefits most from longer-staying and higherspending overseas visitors and these trends over the past decade have been troubling. A total of 26 million overseas visitors came to the U.S. back in 2000, and we did not recover that number again until just last year, when volume reached 26.3 million – 11 percent more than in 2009 but only one percent more than in 2000. U.S. Travel projects continued growth this year – up to 27.9 million overseas visitors in 2011. Over the past decade, the U.S. has clearly missed out on the global boom in international travel. This failure of the U.S. to compete successfully in the international tourism arena resulted in what the U.S. Travel Association named, "The Lost Decade." If we had simply kept up with the worldwide growth in international long-haul visitors, the U.S. would have captured an additional almost $300 billion in international visitor spending and created an additional 441,000 jobs, stimulating economic growth and job production that our country so desperately needs.
2 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
Recovery in travel has been continuing, and in fact, our industry outperformed the overall economy during the first half of this year, according to the Department of Commerce's Travel and Tourism Satellite Account. Early reports suggest that industry performance was better than expected this summer too. However, this rate of expansion is slowing both globally and in the U.S., and in most sectors of the industry. Most economists, including Adam Sacks from Tourism Economics who spoke at MOF, tell us that we should prepare for slower growth in both the economy and our industry in the coming months. Transportation Slow Moving In the transportation sector, the data have been quite volatile but clearly show a slowdown (see dashboard). Amtrak, while outshining other modes for many months, showed very slow growth in ridership in July and August but is still up almost five percent year-to-date through August. Auto travel is very soft with rural arterial vehicle miles (a measure of non-local highway traffic) even declining in recent months, no doubt in response to continuing high gas prices. Automobiles remain the leading mode of transport for U.S. travelers and with gas prices still high, this activity is expected to continue to be fairly weak in the months ahead. U.S. air travel continues its slow rate of growth. Domestic air passenger traffic (enplanements) were up 2.2 percent through August according to the Air Transport Association (ATA), but its current volume remains considerably below what it was before the recession. There have been slightly stronger gains in international air travel, which is up 2.6 percent over last year. International air traffic was stronger earlier in the year but has slowed as well, especially from the Pacific region after the disasters in Japan. Airlines continue to cut capacity and raise fares. Airlines tried to raise fares 19 times this year and succeeded 10 times. Thanksgiving fares are said to be up already six percent and more fare spikes are likely to follow. The Air Transport Association forecasts that 23.2 million air travelers will fly on U.S. carriers domestic and international routes during a 12-day period surrounding the Thanksgiving holiday, a two percent year-over-year decline and 12 percent less than the peak volumes achieved during Thanksgiving 2006. According to ATA vice president and chief economist, John Heimlich, "Passengers still should expect full flights during the Thanksgiving holiday travel season as airlines have begun to reduce capacity and limit the number of seats available for sale due in part to rising cost pressures. Based on published airline schedules, these cuts are expected to continue through the winter." U.S. passenger airlines have reported that during the first nine months of 2011, operating revenues rose 12.7 percent but operating expenses increased even more (16.1%), reducing net income 66 percent from the same period in 2010, and resulting in a narrow profit margin of 0.9 percent. Notably, fuel expenses rose 38.1 percent in the period. International Visitation–A Bright Spot The return of our international visitors is a major positive trend. Through August of 2011, international arrivals rose five percent and spending by these visitors has increased even more (13%), according to the U.S. Department of Commerce's Office of Travel and Tourism Industries. Nearly all of our top origin markets posted gains last year. So far this year, arrivals from eight of our top 10 inbound markets have increased, with travel from some of the emerging markets being especially strong. For example, through August, travel from China was up 37 percent, from Brazil up 27 percent, from Australia up 19 percent, and from France up 16 percent. Many of our other more traditional markets are doing well this year, too, with the UK being somewhat softer, up only one percent. This renewal in inbound tourism from our traditional markets, as well from some of
3 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
the emerging markets that are coming on strong, is creating great new opportunities for the U.S. travel industry. Lodging Indicators Strong According to Steve Hood from Smith Travel Research (STR) who also spoke at the Forum, there has been rapid and quite strong recovery in U.S. hotel demand this year, which has taken many of the leading hotels analysts by surprise. Lodging demand showed its strongest demand rebound ever in 2010 and has now increased for the past six quarters. These gains have continued but slowed a bit in 2011. And this has occurred at a time when supply growth has been very modest, which has boosted occupancy. Room rates are also now beginning to show real signs of recovery, up 3.6 percent year-to-date through September. And, reflecting gains in average daily rates (ADRs), demand and occupancy, hotel revenue per available room (RevPar) has also improved rather significantly too. It is up 8.3 percent so far this year through September. This recovery in the hotel industry has been coming primarily from the upper-end chain segments, reflecting the improvement in the corporate travel segment that many hotels have reported. It's been very much a top-down recovery, but this seems to be smoothing out a bit as other types of travel come back as well. STR recently reported, however, that the shrinking middle class is creating a drag on midscale hotels. Apparently, wealthier travelers are returning to upscale and above hotels, while the cash-strapped are staying with the economy brands. The midscale segment is the only one to continue to suffer ADR declines – its rates are about 20 percent off the 2007 peak, while luxury rates are down 14 percent and economy rates are off about nine percent. Further, occupancy growth in midscale brands is lagging behind that of the other tiers. STR Lodging Forecast For full year 2011, Smith Travel Research, is now projecting a 0.7 percent rise in supply, a 4.7 percent increase in room demand and a 3.9 percent gain in occupancy. ADRs should be up 3.7 percent in 2011, driving RevPar up by 7.8 percent this year. For 2012, demand growth is expected to slow quite a bit to more normal growth (+2.5%), but ADRs will continue to gain ground (+4.9%), pushing RevPar up another seven percent.
4 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
To view the monthly data for these and other current indicators, click here.
Travel-Related Spending Trends Beverly Anderson from American Express also shared data on travel-related spending on American Express cards, showing that the decline in travel spending appears to have bottomed out but at a level significantly below the first quarter of 2007 level. Of particular note is the lagging performance of spending on corporate cards, again suggesting the challenges remaining in business travel. Ms. Anderson reported that American Express has seen "sluggish" recovery across all industries, but the strongest recovery has been in travel, including fairly robust growth in international travelers' spending with U.S. airlines and lodging properties.
5 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
Particularly interesting was her discussion of the spending patterns by generation and what she called "surprisingly strong spend growth" by younger consumers, while older consumers are still holding back. This pattern was also mentioned by David Sheatsley from the U.S. Travel Association during the "Post-Recession Travelers" session that he presented with Greg Dunn from the Ypartnership. Looking Ahead–A Confusing Economic and Consumer Environment As we look ahead to the rest of this year and into 2012 and beyond, we continue to find ourselves in a time of great uncertainty. The worst recession since the 1930s ended nearly two and a half years ago (June 2009), and the U.S. Department of Commerce has reported that real GDP grew at an annual rate of 2.5 percent in the third quarter, after a much smaller 1.3 percent gain in the second quarter. Unfortunately, however, while the recession may well be over in terms of the classic definition, we heard from many speakers at the Forum that for many Americans, psychologically, it is not. The recovery remains fragile, reflecting the weak housing market, the lack of recovery in the labor market, and depressed American incomes. In fact, household income declined more in the two years after the recession ended than it did during the recession itself. And, a recent analysis showed that since 2000, median household incomes have actually fallen about seven percent, after adjusting for inflation. More and more, we hear about the shrinking middle-class. On top of that, inflation took a bigger bite out of consumers' wallets over the last 12 months, with September marking the biggest rise in three years. And inflationary pressures are particularly high in travel. Add in the ongoing debt crisis, political stalemates, and now the threat of higher taxes and maybe a double-dip recession, it's no wonder Americans are worried and keeping their spending plans pretty much on hold.
Consumer and Traveler Confidence in the Tank The Conference Board's Consumer Confidence Index, which had slightly improved in September, declined again in October to 39.8, well below the level of 90 considered to be reflective of a healthy economy. Consumer confidence is now back to levels last seen in October 2008 in the immediate aftermath of the financial meltdown that started all our problems. Even upper-income Americans' economic confidence has been badly shaken. In August, 80 percent of upper-income Americans said the economy is "getting worse," up from 66 percent in July, according to Gallup, the first time since the financial crisis of late 2008 and early 2009 that upper-income Americans are more pessimistic about the future direction of the U.S. economy than other Americans. Travelers have also become more pessimistic in recent months. Based on U.S. Travel's October wave of travelhorizons™, produced in cooperation with the Ypartnership, the Traveler Sentiment Index™ (TSI) also fell four percent from 88.5 in July to 85.0 in October. In fact, five of the six measures that comprise the overall TSI declined between the two survey periods. Interestingly, the perceived "affordability of travel" increased nearly 10 percent from 86.5 to 95.0 between July and October. This measure plummeted in April to lows last seen going into and coming out of the recession as high gas prices and high airfares took their toll. The nearly 10 percent increase between July and October, although impressive, placed "affordability of travel" still 10 points below the October 2010 "affordability" index and about 30 points lower than the peak July 2009 index as deep discounting made travel more affordable. Travel Inflation While Americans seem to believe that travel has become somewhat more affordable, the fact is inflation in travel prices continue to exceed overall inflation. So far this year (through September),
6 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
travel prices are up 6.9 percent, according to U.S. Travel's Travel Price Index, as compared to only a 3.1 percent increase in the price of all goods and services as measured by the Consumer Price Index. The real culprit this year has, of course, been gasoline prices, which are up nearly 30 percent through September. Year-to-date through June, airfares are up 10.1 percent, while the cost of lodging, food and recreation are up much less at between 0.2 and 2.6 percent. The greatest concern among travelers, and for destinations that depend on the drive market, is increased gasoline prices. The good news is that gas prices have fallen considerably from their highs of last May. Averaging $3.46 per gallon of regular unleaded on October 22, gas prices are up $0.63 or about 22 percent since last year, but are still below the record peak of $4.11 set in July of 2008. The Energy Information Agency now expects regular-grade gasoline prices will average $3.52 per gallon in 2011 and $3.43 in 2012, so the immediate fear of rapidly rising gas prices seems to have abated. Changing Consumers We heard a lot about the changing consumer at the Marketing Outlook Forum–changing both demographically, as well as attitudinally and psychologically. A general session on the 2010 Census, presented by the Census Bureau's Mary Mulry, and marketing and advertising experts, The Boomer Project's Matt Thornhill and BCF's Art Webb, presented data showing that America's population has become larger, older and more Hispanic and Asian than it was in 1990. It is also much more likely to now live in multi-generational, same-sex or single person households than 20 years ago. The Futures Company's J. Walker Smith, talked about the evolving culture of contentment. He said that in this very volatile, unsettled environment, consumers have become much more vigilant and want to manage their risks. We should, therefore, seek to offer services and experiences that take out the risk as these will resonate with today's consumers. Mr. Smith talked about consumers' search for guidance and support, which are being found in what he calls "circles of intimacy." He said that our approach to consumers is now mediated through other things like social networking. And further, that our contentment is now based more on emotional connections and inner feelings, and less on materialism. He advised us to endeavor to position our businesses at the center of consumer contentment. Finally, he advised that while spending is not back on track, people have not abandoned their desire to indulge themselves and will economize where necessary to get what they want–and what's key is to be at the top of their priority list. Greg Dunn from the Ypartnership also shared a similar sentiment, talking about how these evolving attitudes, coupled with the current economic environment and the ever-changing technology landscape that has enabled a whole set of new buying behaviors, creating a new resourcefulness and a new self-reliance among consumers. Leisure Travel Intentions Soft According to the October 2011 wave of travelhorizons™, 52 percent of U.S. adults expect to take at least one leisure trip between now and April 2012, the lowest percentage posted in October in the five years of the survey and four points below the level recorded in October 2010 – 16 months following the "official" end of the Great Recession. But as an example of what Greg Dunn called a "present-tense reality," consumers are making travel decisions at the last minute. Nearly one-third of Americans said they took at least one last-minute trip in the past year. As of October, 45 million Americans are unsure if they will take a leisure trip in the next six months, which presents an opportunity to influence the decisions of some of those undecided.
7 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
Modest Recovery for Attractions In one of the MOF whitepapers, Herschend Family Entertainment's Jerry Henry reviewed performance in the attractions sector, forecasting that attractions attendance will be up about 1.2 percent this year, with rates up an average of three percent. Growth, however, is expected to slow to less than one percent in 2012. Larger attractions that lost attendance over the past few years have experienced the greatest rebounds, driven by families with children. Universal Orlando Resort's Islands of Adventure, with the introduction of the Wizarding World of Harry Potter, enjoyed attendance growth of 30 percent in 2010 and 68 percent in the first quarter of 2011. We were also very fortunate to enjoy a special presentation at MOF on what it took to make and market this world-class attraction from Alice Norsworthy of Universal Orlando Resort. Cruising Remains Strong In the cruise sector, a slowdown in bookings has been reported, but cruise line executives say it is nothing like it was in 2008. Nonetheless, new promotions are being rolled out. The Cruise Lines International Association's (CLIA) Christine Duffy reports that 14.8 million people, of which 10 million were U.S. residents, cruised in 2010, 10.3 percent more than the year before. CLIA forecasts 16 million passengers for 2011 and expects growth from Baby Boomers, families and multi-generational groups and first timers. Currently, about one quarter of the U.S. adult population has ever cruised. National Parks Trends According to Dean Reeder from the National Park Service, national parks are reporting modest growth in visitation of 1.7 percent this year, slowing to one percent in 2012. They are benefitting from growth in inbound tourism and from tourism becoming more of a focal point for the federal government. The National Park Service is also continuing to invest in domestic travel through broadening relevancy among diverse populations and by working more closely with gateway communities, tourism partners and other land management agencies. Other Leisure Activities A white paper prepared by the National Restaurant Association forecasts a 3.6 percent increase in restaurant sales this year and similar growth in 2012. Spas are also reporting better numbers, but are still 11 percent below their visitation peak set in 2008. To counter perceptions of spas as luxury or indulgent pampering experiences, spas are promoting healthy lifestyles and wellbeing. The Mainstreaming of Ecotourism and Travel among those with Disabilities Finally, there are two very interesting papers on ecotourism (by Kelly Bricker of the International Ecotourism Society) and travelers with disabilities (by Eric Lipp of the Open Doors Organization). Both are becoming mainstreamed activities given the changing demographics of the U.S. population, as well as evolving consumer values and preferences. Business Travel Continues its Long Road Back Throughout the most recent downturn, the story on business travel was even more negative than in the leisure travel arena, but we have begun to see some improvement here. The incidence of business travel has plummeted severely over the past decade and is now at 25 percent of the U.S. adult population taking at least business trip in the past 12 months. This is down a full 15 points from 2007 and down even further from the peaks we saw in the late 1990s, but seems to be stabilizing. Business travel volume has actually increased over the past year. In 2009, we experienced major losses in domestic business travel, which fell 6.3 percent in volume and more than 12 percent in
8 of 10
11/17/11 9:59 AM
U.S. Travel Outlook
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
spending. Losses in meetings travel were greater than losses in the transient business travel segment, but both were affected by the double whammy of the recession coupled with "the AIG effect." Business travel was also depressed by stringent corporate travel policies and technological advances that offer increasingly viable and cost-effective alternatives to travel. In 2010, we began to see recovery in business travel – it rose 3.7 percent over 2009. But performance and forecasts are rather inconsistent. Business travel intentions remain soft but rose two points in October, as compared to July. Adam Sacks told our Forum attendees that corporate profits are high and companies have $400 billion in cash (3% of GDP), but that they have been reluctant to spend on hiring new employees or on business travel. Interestingly, again it seems to be the younger segments of the population that might be our greatest hope in the business travel arena. Intentions to take business trips over the next six months were considerably higher among those in the Gen Y or Millennials (age 18-33) and Gen X (age 34-45) segments of the population in October. Forecasts for 2012 and Beyond U.S. Travel's latest forecast, looks for continued moderate but slowing growth in domestic leisure travel – up 2.2 percent in 2011, 1.5 percent in 2012 and 1.8 percent in 2013. Leisure travel will continue to set new records in terms of volume over the next few years. Also expected are slow but steady gains in business travel – up 1.4 percent this year and up a bit more in 2012 and 2013. We should see an improvement in business travel volume, but it will remain below the 1998 peak. Overall, U.S. Travel's forecast calls for about a two percent gain in domestic travel in 2011, less than the 3.4 percent growth enjoyed last year. This will slow even more over the next few years. This year, the U.S. travel industry should finally surpass its previous domestic travel volume record set in 2007. Expect to see continued strength in the international arena, both globally and to the U.S., but growth will slow to about half the rate of last year. This year, U.S. Travel forecasts a 4.1 percent gain in total inbound travel and a 5.9 percent increase from overseas markets, and slowing to three-to-four percent range in the outer years of this forecast. Also available to Forum delegates is the presentation by the Office of Travel and Tourism Industries that includes somewhat more robust forecasts. And, of course, the expected growth in inbound tourism could be even stronger when Brand USA, Inc. (formerly the Corporation for Travel Promotion) gets its campaigns in the field. Brand USA's Jim Evans participated in the Executive Roundtable at the Forum. Mr. Evans told us that the plans to stage Brand USA's "coming-out party" at the World Travel Market in London in November, when it will unveil a brand identity and sketch out the theme for a global marketing campaign. The Brand USA campaign is targeted to launch at the ITB Berlin travel show in March 2012. Light around the Corner Our journey continues – we're making progress but we still could face many twists and turns on our long road to full recovery. But all of the great speakers at the Marketing Outlook Forum do see light around the corner. We thank them again for sharing their insights, expertise and advice. And thanks to all of you who attended the conference. I hope you found it as useful as I did and that you will achieve much success in 2012. Join U.S. Travel
9 of 10
Research
Subscribe
PowerofTravel.org
11/17/11 9:59 AM
U.S. Travel Outlook
10 of 10
http://www.ustravel.org/sites/default/files/page/2009/09/novem...
11/17/11 9:59 AM