U.S. Travel Outlook | Research and Trends from Suzanne Cook, Ph.D. | USTA

U.S. Travel Dashboard | November 2009 The United States is certainly not the only place showing depressed levels of travel this year. The U.N. World Tourism Organization has been reporting major losses for global tourism as well, forecasting it to be off between 4 and 6 percent in 2009 - the first loss since the less than 2 percent decline reported in 2003.

Dear Travel Colleague:

I have just returned from U.S. Travel's annual Marketing Outlook Forum (MOF) where more than 50 of the best analytical and marketing minds in our business provided tremendous insights to help us prepare for 2010 and beyond. They also gave us lots to think about! I want to personally and publicly thank all of our speakers for sharing their time and expertise at this event. Here are some highlights:

Better Economic Performance Expected Ahead

The recession - now being called "The Great Recession," the worst since the 1930s - is over, but good luck surviving the recovery!, according to that now famous Newsweek cover, and seconded by our MOF speakers.

After a prolonged decline, the economy is officially expanding again. According to initial estimates, the economy grew at an annual rate of 3.5 percent during the third quarter of 2009, slightly beating economists' expectations. Real GDP growth has not been positive since the second quarter of 2008. Better economic performance is expected in the months ahead, but economic recovery is likely to be quite weak in 2010 before accelerating in 2011.

A New Normal?

Consumer confidence remains tepid. The Conference Board Consumer Confidence Index®, which had declined in September, deteriorated further in October and is still well below an index value of 90, the minimum level generally associated with a healthy economy. The University of Michigan's Consumer Sentiment Index, however, did show an uptick in its September survey - rising to its highest level since the start of 2008 - so that's good news.

A lack of recovery in consumer spending remains the real problem. Jon Clifton, Deputy Director of The Gallup World Poll, told the MOF audience that Gallup sees a new intensified, paycheck-oriented spending pattern and a reduced willingness of consumers to use credit. Discretionary consumer spending has been consistently running about 30 percent below last year throughout 2009. This spending pattern is likely to continue for at least the next few years and maybe as long as five years or more, according to Mr. Clifton.

Traveler Sentiment Stabilizes as Travel Prices Fall

In the travel arena, U.S. Travel's October Traveler Sentiment Index™ (TSI) (a derivative of six attitudinal variables monitored through our TravelHorizons™ survey, co-produced with YPartnership), declined slightly from its July 2009 level and is still nearly 10 percent below its March 2007 benchmark, but it has made up for at least some of the losses experienced in 2008. Dramatic improvement in consumers' perceptions of the affordability of travel has been the major driver behind the improvement in the TSI. This perception that travel has become more affordable reflects, of course, significant reduction in the costs of many travel services. According to our Travel Price Index, travel prices are down more than 8 percent year-to-date through September compared to the same period of last year, while the Consumer Price Index overall is down less than 1 percent. U.S. Travel's "Money Available for Travel" Index improved a bit in October but is still 28 percent below its March 2007 base.

Declines in Travel Bottoming Out

For the first nine months of 2009, we estimate that U.S. domestic travel overall was down 3.8 percent. Leisure travel has held up better than other types of travel but is still off 2.7 percent so far this year. Domestic business travel has been much more negatively affected, declining 7.5 percent year-to-date through September, with greater declines in the meetings sector than in transient business travel.

Early signs of improvement are apparent in the transportation data, but auto travel is the only sector that looks to have turned the corner, showing modest growth since April. Amtrak had a record year in FY 2008 and reports that ridership has remained relatively strong, albeit with some regional variations.

The U.S. airline industry continues to struggle, but it appears to be on the cusp of recovery - one that will likely be much more volatile and weaker than previous recoveries, according to the International Air Transport Association. And according to the Air Transport Association (ATA), domestic passenger enplanements declined 2 percent and international enplanements fell only 0.5 percent in September as compared to the same month last year. These results are quite a bit better than were apparent during the first and second quarters of this year. But it took lots of cheap tickets to get people onto airplanes. The average price travelers paid to fly one mile in September was nearly 17 percent lower on domestic routes and about 20 percent lower on international routes than in September of last year. As a result, U.S. airline passenger revenue fell 21 percent in September, its 11th consecutive year-over-year drop.

According to Duane Vinson from Smith Travel Research (STR), who addressed MOF delegates, the U.S. lodging sector may now be hitting bottom as well. After many worrisome months, demand - in terms of room-nights sold - did improve somewhat this past September, but was still down 3.3 percent and is down 7 percent for the year-to-date. But data for the first two weeks of October show encouraging signs. Transient occupancy was positive for the total U.S., as well as for the luxury and upper upscale groups and in many of the census regions.

But, any "improvement" in demand is coming at a great cost to the U.S. lodging industry in terms of revenues. In September, average daily room rates (ADR) fell another 10 percent and are now down about 9 percent for the year-to-date. The combination of falling demand and major losses in ADR has resulted in significant drops in Revenue Per Available Room (RevPAR) - still off nearly 16 percent - again an improvement over prior months but a double-digit decline nonetheless. For the year-to-date, RevPAR is down more than 18 percent.

Mark Woodworth of PKF Hospitality Research concluded that we are at the bottom of the hotel market cycle and that lodging will recover but that it will lag other industries. While demand might look better as early as the first quarter of 2010, average room rates and RevPAR are unlikely to enter positive territory until the fourth quarter of 2010. And other MOF speakers concluded that RevPAR could take even much longer - perhaps until 2011 or 2012 - to recover in certain segments such as the groups, meetings and conventions market.

U.S. Travel Tracker
In response to the increasing need for timely industry analysis, the U.S. Travel Association, in collaboration with Tourism Economics, is pleased to offer the U.S. Travel Tracker.

Every month, the U.S. Travel Tracker provides subscribers with a one-stop source for analysis covering the economy, travel trends, sector performance and travel forecasts. In addition, bi-monthly web conferences review the latest developments in U.S. travel and how the outlook is evolving.

For more information, visit www.ustraveltracker.com.

Global Tourism in Decline

The United States is certainly not the only place showing depressed levels of travel this year. The U.N. World Tourism Organization has been reporting major losses for global tourism as well, forecasting it to be off between 4 and 6 percent in 2009 - the first loss since the less than 2 percent decline reported in 2003.

But, international travel to the U.S. has been down even more, according to the U.S. Department of Commerce's Office of Travel and Tourism Industries. In decline since the fall of 2008, inbound visitors declined 6 percent in July and are off 10 percent year-to-date. But even more troubling is that international visitor spending plunged 24 percent in July, marking the ninth consecutive month of decreases in international visitor spending. Some of the largest declines have been posted by our top origin markets, especially in Asia, while strength is apparent in some of our top South American markets. International inbound travel is projected to decline 8 percent in volume and 13 percent in expenditures during 2009.

Leisure Travel Continues to Outperform Business Travel

Domestic leisure travel, while still languishing, continues to outperform business travel, posting a 2.7 percent decline in volume and a 10.3 percent loss in spending year-to-date through Q3 '09. Shorter, closer-to-home and less costly travel options continue to be the norm, and some destinations are benefitting from this shift. Jerry Henry, speaking on the outlook for attractions, projected a 4 to 6 percent decline in overall attraction attendance in 2009 followed by marginally better performance in 2010, but he concluded that real post-recession growth is still likely to be 18 to 24 months away.

Intentions for leisure travel, however, remain weak and have actually deteriorated somewhat since this summer, according to our October wave of TravelHorizons™. The number of trips Americans plan to take, however, has increased moderately, so that may help hold up the leisure travel market in the months ahead. Fortunately, there are some positive signs that leisure travelers may be willing to start spending a bit more on their trips. The percentage of planners who said they planned to stay more nights away from home, drive longer distances, spend more on food and entertainment, as well as overall when traveling, and use more expensive hotels all increased this October, as compared to October of last year.

Overall, the prospects for the travel and tourism economy over the short term are brighter than they have been in some time. The Leading Travel Indicator - created by U.S. Travel's research partner, Tourism Economics - is a leading indicator of changes in trip volume over the coming six months and is based on a composite of seven different factors which have proven to show a relationship to near term travel demand. This indicator has shown improvement for five consecutive months through August, suggesting that the bottom in travel demand has probably now been reached and that we should see travel recovery beginning as early as this quarter.

Business Travel Remains Under Siege

There is no doubt that business travel is off rather substantially - down 7.5 percent year-to-date in volume and 13.6 percent in spending through September. Our October TravelHorizons™ survey found that only 29 percent of all U.S. adults said they took one or more business trips in the past 12 months. That compares to 39 percent last October and 40 percent in October of 2007. And business travel intentions remain weak, with only 6 percent of U.S. business travelers planning to travel more over the next six months as compared to the same six month period last year. In fact, 1 in 4 says they will take fewer business trips.

Pent-up demand for business travel is colliding with the realities of a changing corporate culture in which strict controls and efficiencies in corporate travel policies are likely to remain much more focused and professional about their travel management.

The National Business Travel Association is, however, predicting an increase in business travel, reporting that 7 in 10 travel managers expect their business travel volume to grow in 2010. And 56 percent of these travel managers project that their total business travel spend will also increase next year. But most analysts, including those of us at U.S. Travel, expect that there will be lasting effects from this recession going forward and that any improvement in business travel next year will be small. However, a heightened emphasis on the return on investment for meetings and business travel has been bolstered by Oxford Economics' recent findings that for every dollar invested in business travel in the United States, companies realize $12.50 in incremental revenue - a fact that suggests you cannot afford to not travel.

Collapse to Give Way to Modest Recovery

The U.S. travel industry should begin to see a modest recovery - at least in travel demand - beginning as early as late this year and into 2010. In 2010, business travel volume is forecasted to increase 2.5 percent, while domestic leisure travel grows 1.9 percent. Both business and leisure travel should strengthen in 2011.

A slow recovery in international travel to the U.S. is also anticipated. After projected losses of about 8 percent in 2009, total international inbound travel is now forecasted to increase a modest 2.8 percent in 2010, with greater gains in travel expected from Canada and Mexico (+4.0%) than in travel from our overseas markets (+1.2%). In 2010, inbound international visitor spending should be up an estimated 4.4 percent.

MOF Delegates to Receive Complimentary Access to Presentations

We sincerely thank all of you who attended this year's Marketing Outlook Forum and appreciate your support. Within the next few days, delegates will receive a link to gain complimentary access to the extensive set of presentations available from MOF. Others may purchase access to this material by clicking here. We hope you find this comprehensive analysis and in-depth forecasts valuable as your finalize your 2010 plans, and wish you much success in the year ahead.

Sincerely,

Suzanne Cook, Ph.D.