Coming up: impact of slumping US economy on travel industry

The US economy without a doubt is slowing but what does that mean for the travel industry?

One answer:

“The pain may not hit the travel industry for months,” suggests Reuters.

The economic downturn is clear.

“US employers sliced payrolls by 4,000 in August, the first drop in four years, a stark sign that a painful credit crunch that has unnerved Wall Street is putting a strain on the national economy,” said CBS News.

The report was much weaker than economists were expecting. They were forecasting payrolls to grow by 110,000.

The recent Labor Day holiday marks the end of the busy summer travel season when demand for hotel rooms, airline tickets and even cruises sometimes begins to fall off.

But continued prospects for a softening economy as well as a crisis in US credit markets has led PricewaterhouseCoopers to lower its own forecast for at least one element in the travel market: hotel demand growth.

“It wasn’t a revision based on performance of the summer. It was more the outlook based on trends in the economy and how they’ll affect the balance of the year,” said Bjorn Hanson, an analyst at PricewaterhouseCoopers.

The company did not envision a major change, however. It predicted occupied room nights to increase by 1.3% in 2007, compared to a previous forecast of 1.4%.

Hotels, which have enjoyed years of booming demand, are also offering incentives that may offset the slightly slowing market.

Choice Hotels International Inc., for example, which operates the Econo Lodge and Comfort Inn chains, is offering customers a free night after two stays at one of its hotels.

Airlines, for their part, saw record load factors during the summer. Carriers are hoping that will continue beyond summer.

“I suspect there is not much of a downturn other than what you’d see seasonally,” said airline consultant Michael Boyd. “The flights will still be full.”

In the cruise industry, the recent bad news was Carnival Corp. announcing it would cease paying travel agent commissions on air add-ons.  But that was hardly a bombshell, since industry statistics show fewer and fewer bookings now include air.
The new policy effective 15 October applies to all agents in North America, and all Carnival brands: Carnival Cruise Lines, Costa, Cunard, Holland America, Princess and Seabourn.

But despite that, expansions continue to be common. EasyCruise, for example, plans to almost triple its size next summer by adding a second ship more than twice the size of its first.

Last year, 12 million people worldwide took a cruise vacation, an increase of 7% over the previous year, according to the Cruise Lines International Association. Global industry revenues increased by 7% and US residents accounted for more than two-thirds of the industry’s total passengers.

The World Tourism Organization agreed earlier this month that the stock market crisis has yet to have a serious impact on world tourism demand.

“And it would take a collapse of the ‘real economy’ for international tourism to be truly affected,” the international organization said.

Report by David Wilkening