Travel industry on the mend

By Published on .

Most Popular

Perhaps no other industry was shaken as badly as travel and hospitality following the 9/11 terror attacks. After years of steady growth and confidence, fear and uncertainty slowed travel spending by 5.1%, to $550.2 billion, in 2001 and then another 2.4%, to $537.2 billion, in 2002, according to the Travel Industry Association.

But recovery is in sight. The TIA projects spending increased by 2.8% in 2003 and will increase a healthy 5.9% in 2004.

"Things are shifting back in the other direction-albeit slowly, since daily news coverage of such things as Americans being executed abroad still exacerbates fears that we couldn't even conceive of just three years ago," said Chris Moore, account supervisor and travel industry expert at Albuquerque, N.M.-based ad agency McKee Wallwork Henderson.

Industry numbers may be a little misleading for a couple reasons, said Henry Harteveldt, VP-travel research at Forrester Research. "First of all, while travel volumes have rebounded, they are doing so at a decreased unit cost," Harteveldt said. "A recent report from the Air Transport Association said that airlines are earning a little more than 11 cents per revenue passenger mile, which is actually a 1.8% decrease from 2003-when the industry was still reeling from the SARS virus scare and the war in Iraq."

Additionally, Harteveldt said, the TIA gets its figures by estimates on all money spent during travel, including restaurants, entertainment, shopping and incidentals. "From a marketing perspective, however, the travel industry should be defined as transportation and accommodations-or in other words, airlines, hotels and travel agencies, as well as car rental agencies and cruises," he said.

Here's a quick breakdown of the major trends and figures affecting the big three:

n Airlines/aviation: While the Federal Aviation Administration reports that domestic air traffic increased from 574.5 million "enplanements" in 2002 to 587.3 million in 2003-roughly the same levels as 1998-U.S. commercial carriers still reported operating losses of $5.3 billion in 2003 and $10.5 billion in 2002. With so many airlines-most notably United Airlines and Delta Air Lines-in financial trouble, they are looking to cut costs wherever they can.

"For instance, it may seem a little mundane to passengers, but Pepsi came in with a better deal than Coke and replaced them on all United flights," Harteveldt said. "It was a huge savings for the airline."

n Hotels/lodging: There are more than 47,000 properties of 15 rooms or more and 4 million guest rooms in the U.S. that accounted for $105.3 billion in sales in 2003, according to the American Hotel & Lodging Association. Total revenue increased 2.6% from $102.6 billion in 2002.

"The hospitality industry has been drooling over the pending retirements of the baby boomers-if they're not working, they'll be traveling-but the economic downturn has delayed it," Moore said.

One way hotels at both the high and low ends are gaining a competitive advantage is by offering specialized amenities and luxuries, he said.

n Travel agents: There were some 33,000 registered travel agencies in 1986, but there now are only 22,000, thanks to airline cutbacks on commissions and Internet bookings, said David Melhado, VP of travel-related sales for Smithtown, N.Y.-based marketing communications agency Sanna Mattson Macleod.

"But that doesn't include the estimated 200,000 or more travel agents who work for themselves out of their homes," Melhado said. "So while the Internet may have hurt the industry somewhat, it's also helped, too."

Internet booking services have had a positive impact overall on the travel industry, Moore said. "While it's been something of a bane to travel agents, it's completely changed the way airlines, hotels and rental car agencies do business," Moore said. "They saved a ton of money, and they're able to react to inventory shortages almost instantly by offering last-minute deals."

Forrester projects that online travel spending will total $53 billion in 2004, an increase of 26% over 2003, Harteveldt said. "Of that total, airlines will receive $32 billion, hotels $16.4 billion and car rental agencies $2.3 billion," he said.

One side effect of the Internet booking revolution has been that brand loyalty has sharply declined, Harteveldt said. "The transparency of online prices is partly to blame, as are the many cost-cutting maneuvers being made, especially by the airlines, that in turn cut any differentiation," he said.

Marketers wanting to sell to the travel industry need to keep in mind that most companies are interested in products and services that reduce costs, Moore said. "The core message for b-to-b marketers needs to be `I can save you money' or `I can make you more money,' " he said. M

In this article: