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Society Of
Government Travel Professionals
6935 Wisconsin Ave. #200
Bethesda, MD 20815, 301/654-8595
FAX: 301/654-6663, govtvlmkt@aol.com
http://www.government-travel.org
News Release: Travel Industry
Indicators
By: James V. Cammisa, Jr
E-mail: tvlind@cs.com
www.travelindicators.com
Planning for 2005 is now a priority, and there
is optimism that recovery and momentum seen in
travel this year will carry forward to the year
ahead.
Economic projections for 2005, while reflecting
slower growth than was seen this year, still are
positive. Consensus estimates are for a U.S. Gross
Domestic Product increase of 3.5 percent, down from
the 4.3 percent expected this year.
Travel industry growth, based on GDP
relationships, are a starting point in most
forecasts. This year there was a close to 1 to 1
relationship between domestic travel trip volume
and real GDP. Over the decade of the 1990s, the
relationship was 0.90 to 1. Using this latter
historic norm, a 2005 travel projection based on
GDP growth would be at +3.2 percent.
Consumer economic indicators for the year ahead
are positive, and this will bode well for leisure
travel.
Business economic indicators show the same
pattern of slowdown versus 2004, but acceptable
performance that will sustain the recovery we're
now seeing in business travel. Corporate profits
won't be at the double-digit rates we saw this
year, but at more normal historic levels. While
T&E budgets will continue to be tightly
controlled, the cutbacks we saw during the downturn
years of 2001-2003 are now history.
Business travel strengths are clearly boosting
performance in the hotel sector. Marriott, Starwood
and Hilton all reported strong third quarter
profits, driven by the increases in business travel
that are boosting weekday occupancies and average
room rates. Hotel sector forecasts are now for a 6
to 10 percent increase in RevPAR this year,
followed by another 5 to 7 percent gain next year.
In terms of the bottom line, PFK Consulting
projects that the average U.S. hotel property this
year will show a 17.9 percent increase in operating
profits.
Car rental operators have had little success in
restoring pricing power.
Major domestic leisure destinations all will
show impressive recovery figures when year-end
performance tallies are made.
Inbound foreign arrivals from other world
regions also are on the upswing, but there is still
further to go in matching the peaks of the year
2000. The 2000-03 fall-off was a whopping 30
percent. It may therefore take another year or two
to make up this deficit. Encouraging factors that
will contribute to further recovery are the
projected strengths of the worldâ?Ts
economies and the purchasing power of foreign
currencies. The International Monetary Fund (IMF)
estimates worldwide economic growth in 2005 at a
robust 4.3 percent.
Outbound international travel weaknesses also
now appear behind us. But, as with inbound foreign
travel, there's still further to go. The cost of
European travel is of course an inhibiting recovery
factor, with the euro expected to continue its
strength versus the dollar.
Airlines continue to be the laggard in an
otherwise bright picture for the travel industry as
a whole. While worldwide airline traffic has
rebounded, carrier financial results have been
horrendous. For U.S. carriers in total, the
quarterly loss will reach $1.0-$1.5 billion, with
the annual losses expected to approach $5 billion.
Losses of this magnitude rapidly deplete airline
operating cash, and are therefore
unsustainable.
Possible bankruptcies still unclear at this
writing, would mean half of the nationâ?Ts
air capability in bankruptcy and under court
control. Though there is now some progress being
made in industry labor cost concessions, what is
not going away is their abnormally high jet fuel
expense tied to $50/barrel oil. Most futures
contracts, 18 months out, are still for $40/barrel
oil, well above the $20-$30 level the airlines had
been used to.
Airline liquidations may therefore be on the
horizon.
Loss of airline services would be one of the
fallouts of a liquidation. Service disruptions,
inconveniences and other negatives, could make a
liquidation a disturbing development.
Trend Watch Pricing Power Recovery an Important
Goal in 2005
It is now clear that 2004 will be a year in
which there was a travel demand recovery, with our
industry matching the levels of trip volume reached
in the benchmark year 2000. The key challenge now
in the year ahead is for long overdue supplier
pricing recovery.
Most all travel providers will be faced with
increased operating costs in 2005, particularly
rising labor expense. A third of car rental
facility expenses are payroll related, almost 40
percent for the airlines and 45 percent for the
average hotel property. As a labor-intensive
industry, the rising costs of employee benefits hit
our industry hard. For all U.S. industry, while
wage and salary costs have risen only 12.7 percent
since 2000, employee benefit costs have jumped by
25.3 percent. As most know, the latter has resulted
from the sharp rise in health care costs.
Industry pricing increases will therefore be
necessary both to cover these higher operating
costs and make up for the long overdue absence of
travel price increases. Some of the pricing
recovery will come automatically as demand
strengthens and one's customer mix improves with
the rebound in higher yield business travel. But
organizations will have to take other steps. These
include better managing their inventories to
deliver maximum yields. Efforts to lower
transaction costs, through lower middleman
commissions, also improves yields. A higher
proportion of Web and direct bookings should
therefore be a goal in 2005.
Another opportunity area that has been given
less attention by our industry is in trading up
customers to higher-priced/higher-yield travel
services.
While pricing power recovery is clearly an
industry necessity in the year ahead, it won't be
achieved simply by raising base prices for one's
travel product. Consumers resist paying more for
the same. Much more imagination will therefore be
required, using a variety of different pricing
skills. These pricing strategies should be an
important part of everyone's 2005 marketing
plan.
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