AULD LANG SIGNS?

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(ORLANDO, FL) -- The arrival of the New Year brings renewed hope that market conditions will improve and the travel industry will begin to show meaningful signs of recovery. There are some anecdotal indicators this is likely to happen, but probably not until the latter half of the year. The culprit remains the languishing economy. And although the most recent GDP numbers provide some encouragement and job losses have abated, consumers have adopted more conservative saving and spending patterns because they remain uncertain about the horizon line and have yet to recover from the systemic shock they experienced while they watched helplessly as a significant chunk of their net worth evaporated during the past 18 months. Many now live in houses worth a third less than they were just two years ago, and they struggle to stay ahead of looming mortgage debt that exceeds even the most optimistic appraisal of their primary asset. So it comes as no surprise that the savings rate in America is the highest we have observed in the past eight years. And therein lies one of the real conundrums facing the economy: how to convince consumers to spend more (particularly on what may be considered a "non-essential" like travel) when they feel they should be spending less?

What does all of this portend for the travel industry? Another year in which value will be in vogue, and both business and leisure travelers will sharpen their travel planning and purchasing skills further to insure they don't overpay. And their discovery and embrace of the next generation of online shopping tools is certain to place additional pressure on margins.

The Outlook for Leisure

What's hot? Drive vacations, mid-priced hotels, low cost carriers, all-inclusive resorts, packaged vacations, and cruises (regardless of duration).

What's not? Luxury hotels and resorts, first class air, five-star dining.

Here's the good news: our various market tracking studies confirm that Americans still view vacations as a birthright. So it comes as no surprise that the majority of adults in the U.S. (now 53% to be exact) are planning to take at least one overnight trip primarily for leisure purposes between now and April of 2010. Here's the challenging news: many of those leisure travelers expect to plan and/or take those vacations differently. Specifically, they are now more inclined to stay in less expensive hotels, spend less overall, drive rather than fly, and look for deals on the Internet than they were one year ago. The one encouraging shift in travelers' sentiment is with respect to the anticipated length of their leisure trips with only half now planning to "stay fewer nights" (down from two-thirds a year ago) as revealed below:



Hence, demand for leisure travel services is likely to remain stable throughout the year ahead, but 2010 will be another year in which suppliers will be battling for market share. One destination's (or property's) gain will be another's loss as overall demand is not expected to grow appreciably. Perceived "value" will remain king, and that means leisure travel service marketers will have to demonstrate even greater creativity with respect to their pricing and promotional strategies in order to attract their fair share.

The Outlook for Business

What's hot? Same-day business trips, coach-class air, upscale lodging at mid-scale prices, free breakfast, and free high speed Internet access.

What's not? First/business class air, hotel suites, limo transfers, 3- star Michelin dining, and awakening to read about your company's profligate ways in the Wall Street Journal.

Unfortunately, demand for business travel services continues to languish and is not likely to improve until we see a significant turn in the economy. Only 18% of U.S. adults are planning to take at least one overnight trip for business purposes between now and the end of April 2010, essentially the same percentage who stated this intention in July 2009 (19%), but down from 23% in April 2009. And the leading indicator of travel intentions among this group of travelers (the net difference between those who plan "more" versus "fewer" business trips) is also concerning: 7% of business travelers are planning "more" while 21% are planning fewer during the next six months. The reasons cited for planning "fewer" business trips, not surprisingly, are a direct result of the current economic malaise. Contrary to speculation, however, very few business travelers are using new technology alternatives as a surrogate for business travel as revealed below:



Both components of demand for business travel services (individual and group) will recover as the economy improves, yet demand from individual business travelers is likely to rebound first. Demand from off-site business meetings and conventions will take longer to materialize because of the lead time required to plan and host such events, as well as the anxiety that still shrouds decisions to meet in what might be misconstrued to be an overly indulgent manner and/or in venues perceived to be too much fun. This conclusion was evident in the results of a national survey of meeting planners we recently completed for the PCMA Educational Foundation and American Express wherein fully 44% of professional planners stated an intention to "plan fewer off-site meetings in 2009/2010 than they did last year." The grass roots campaign just launched by the Convention Industry Council (and eight other national association partners) dubbed "Face Time. It Matters." is intended to revitalize interest in the residual value of hosting meetings "face-to-face," and this effort will certainly accelerate the recovery of demand from the group segment as well.

The Traveler Sentiment IndexSM

One of the most useful tools for navigating the uncertainty of the horizon line (and refining marketing strategy accordingly) is the Traveler Sentiment Index℠ that is published in our quarterly travelhorizonsTM survey. The Index is a derivative of six separate measurements on such things as Americans' perceived "time available for travel," the "affordability of travel," etc., and has been calculated since the first calendar quarter of 2007. After languishing through most of 2007, and falling precipitously in 2008, the index has rebounded to mid-2007 levels, driven principally by a remarkable shift in the perceived "affordability of travel." No surprise here, as most travel services went on sale during the fourth quarter of 2008, and some of the deals were unprecedented. Because the incremental demand required to drive pricing power is not evident in the marketplace right now, it is reasonable to expect that the perception of affordability will prevail in the year ahead. As of now, the Index stands at 90.5, essentially in the same place as the fourth quarter of 2007:



Our expectation is that the Index will continue to fluctuate around the 90 level for the next six months. What happens after that will be a function of the prevailing economic environment and, equally important, how travel service suppliers price their inventory for the latter half of the year.

Auld Lang Syne

So as we gather around the hearth for yet another chorus of Auld Lang Syne, we look to the year ahead with a sense of cautious optimism. Demand for leisure travel services will retain the greatest upside potential, yet only those suppliers who deliver what consumers deem to be excellent value will win the battle for share. Demand for business travel services will recover more slowly, with individual business travelers expected to hit the road sooner, while the merits of meeting "face-to-face" become increasingly evident to those in corporate America who find themselves at a competitive disadvantage because of their hesitation to host or attend "live" meetings and conventions.

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