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ustravel.org

August 2011

Research Review HIGHLIGHTS FROM THIS ISSUE Economic Stats Continue to Disappoint Consumer Confidence...Not There! The Hotel Industry Continues to Show Solid Performance Demand for Air Travel Continues to Slow Despite Challenges, Optimism about Travel Builds Leisure Travel Intentions and Travelers' Changing Vacation Habits North American Cruise Industry Continues to Prosper Business Travel Recovery Still Underway Strength in International Inbound Travel Continues Heads Up Travel Researchers! CTP's Coming Out Party Online Travel Trends Marketing Outlook Forum

EXAMINING CURRENT INDUSTRY TRENDS Once again, talk has resumed about the possibility of a double-dip recession. Will we ever catch a break? But also once again, we see some reasonably good performance coming from the U.S. travel industry. Economic Stats Continue to Disappoint By now, economists expected the economy to be showing signs of improvement, but recent data have been disappointing, suggesting that a more troubling and fundamental slowdown may be underway. Just released annual revisions to the national accounts by the Bureau of Economic Analysis (BEA) show that the 2007-2009 recession was significantly deeper than earlier thought. From the start of the recession in late 2007 to its end in June of 2009, the U.S. economy shrank 5.1 percent, 1 percentage point more than previous estimates. More troubling, growth slowed sharply in late 2010 and nearly stalled in early 2011. Revised Q1 2011 estimates show growth of only 0.4 percent, which remained weak in Q2 at 1.3 percent. Problems were centered in the consumer sector. Consumer spending was flat during Q2, compared with the first quarter. The economy has still not rebounded. Concern remains about an even weaker economic performance in the near term. The housing sector, while still very soft, is showing some positive signs. According to the National Association of Home Builders (NAHB), housing starts were up a respectable 14.6 percent in June and the NAHB's Housing Market Index rose in July; although, both remain at exceedingly low levels. Existing home sales softened further in June, according to the National Association of Realtors.


The employment situation, while still weak, improved somewhat in July, as the U.S. economy added 117,000 jobs, exceeding the growth economists had been expecting, according to the U.S. Department of Labor. Additionally, June's payroll additions were upwardly revised to 46,000 from an initially reported increase of 18,000. Companies added 154,000 payrolls in July, surpassing forecasts for growth of 100,000 and the unemployment rate fell to 9.1 percent, from 9.2 percent in June. In other glimmers of good news, inflationary pressures seem to be easing now that oil prices have ended their rapid rise. The Consumer Price Index (CPI) decreased 0.2 percent in June on a seasonally adjusted basis, reflecting a 6.8 percent drop in gas prices. Over the past 12 months, the CPI is up 3.6 percent, while travel prices have risen more than twice as much (+7.6%). Leading the gains over the past year are gasoline prices (35.5%). According to AAA's Fuel Gauge, as of August 2, regular unleaded gasoline averaged $3.70 a gallon nationwide, almost a dollar more than one year ago. Amidst the concerns, other bright spots include business investment growth, which picked up in the second quarter. The low U.S. dollar is helping sell domestic products overseas where economic growth is strong. Although, hit hard by supply interruptions from the earthquake in Japan, car sales are expected to rebound in the second half of the year.

Destination Travel Insights U.S. Travel, in partnership with American Express Business Insights, has developed a new tourism spending report series, “Destination Travel Insights.” Offering in-depth analyses of domestic and international inbound travel spending in specific markets in the U.S., the quarterly reports – and the spending trends they reveal – are a powerful new marketing resource for travel service providers. Offered exclusively to members and designed with the state tourism, DMO, attraction and corporate travel marketer in mind. These reports are based on an annual subscription model and sent four weeks after each quarter ends, so the insights are fresh and current. These reports have been normalized to reflect same customers/same merchants and the sampling data has been aligned to reflect the entire U.S. population. View the domestic and international sample reports.

Consumer Confidence...Not There! Not surprisingly, all of the talk about the debt ceiling, coupled with the dismal job market, high gas prices, and the current economic "soft patch" have weighed negatively on consumer attitudes. Consumer confidence remains weak, although improved slightly in July, rising to 59.5 from 57.6 in May, according to the Conference Board. However, the other leading monitor of consumer confidence – the Thomson Reuters/ University of Michigan's Consumer Sentiment Index – continued to fall in July to 63.7, down from 71.6 in June, its lowest level in two years. The Bloomberg Consumer Comfort Index also fell to a minus 46.8 (-46.8) in the period ending July 24, the lowest since May. Especially troubling is that confidence deteriorated in six of the seven income categories, including households making more than $100,000 a year. Gallup reported similar results. Nearly three-quarters (73%) of Americans surveyed over the July 22-24, weekend said the U.S. economy is getting worse, up 11 percentage points from the three days ending July 6, and the worse level for this measure since March 12, 2009. Gallup's Economic Confidence Index also fell sharply to negative 46 in the three days ending July 24 – worsening from negative 30 at the beginning of the month. Negative perceptions appear to be a part of the upper-income psyche as well. Unity Marketing's


Luxury Consumption Index, based on a survey of 1,272 affluent luxury consumers (avg. income $301.8k; median net wealth $856k), took the steepest quarterly plunge in Q2 2011 since the depths of the recession, dropping by 16.8 points to 66.0 points, significantly lower than Q1's level of 82.8. In addition, the average amount spent by affluent consumers on luxury goods and services in the second quarter of 2011, declined by 8.4 percent from the first quarter and dropped 18.4 percent over same quarter last year. After tumbling in April due primarily to the rising cost of gasoline and forecasts that gas prices could reach $5.00 during the summer, U.S. Travel's Traveler Sentiment Index™ (TSI) recovered in July, rising to 88.5 from 83.9 in April. Although up 5.5% from April, the TSI is still down 11.5% from the March 2007 base of 100. All six TSI indicators improved between April and July with the affordability of travel index increasing by nearly 30% as concern over gas prices moved from front page headlines. July's travelhorizons™ survey reveals that the price of gasoline, however, remains the top financial factor influencing leisure travel from now through January 2012, followed closely by the cost of airfares. The most recent Tourism Economics' Leading Travel Indicator (LTI) (see dashboard) reflects the rising uncertainty about the economy among U.S. adults, particularly over the past several weeks as Congress has debated the federal budget and national debt. Weakness in consumer expectations and the labor market are the leading contributors to the LTI, resulting in an anemic 1 percent growth in tourism over the next six months - falling below the 1.5 to 2.5 percent growth realized over the past six months. Consumer spending is weak and disposable income is failing to keep pace with rising travel prices. At the same time, consumers continue to be wary of the immediate future and are beginning to save more than recent months. The Hotel Industry Continues to Show Solid Performance Despite the challenging economic environment, the hotel industry continues to outperform many other sectors. According to Smith Travel Research (STR), in June, the industry finished the month with the highest revenue per available room (RevPAR) since August 2008 (+7.8%). Other year-over-year results for the month included: increased demand (+4.9%), increased occupancy (+4.2%), and increased average daily rate (ADR) (+3.5%). The luxury segment experienced the largest increases in the three key performance metrics and year-to-date; RevPAR is up 12.3 percent in this segment, greater than other price tiers, but still 7 percent behind the 12-month moving average. Year-to-date through June 2011, the U.S. hotel industry's occupancy rose 5.0 percent to 59.2 percent, ADR increased 3.3 percent to $100.54, and RevPAR was up 8.5 percent to $59.49. HotelNewsNow.com shares STR's latest forecast. In other hotel-related news, a new Cornell Center for Hospitality Research (CHR) study proposes a uniform sustainability reporting framework for the hospitality industry. Increasingly, travelers want to know the carbon footprint and other sustainability information connected with their hotel stay but it has been difficult to compare one hotel to another. This report, available at no charge, analyzes factors, and explains how measurements can be compiled to report on sustainability performance.


Demand for Air Travel Continues to Slow

To view the monthly data for these and other current indicators, click here.


According to the International Air Transport Association (IATA), growth in global passenger demand for air travel softened in June, rising 4.4 percent over the prior year. Latin American carriers experienced the highest growth levels with a 14.3 percent increase over June 2010. European carriers are showing the second most robust expansion of demand (+8.9%). North American carriers experienced only a 2.4 percent increase in demand. According to Air Transport World, IATA cautions that business confidence has been "deteriorating steadily," noting that in May and June, "confidence levels fell to the levels last seen at the very start of the economic recovery and in early 2008, when premium travel was growing at a low single figure pace." IATA warned that "we may well see a slowdown to a more moderate pace of expansion." In the United States, the Air Transport Association (ATA) reported that passenger revenue rose 8 percent in June 2011, compared to the same month in 2010, marking the 18th consecutive month of revenue growth. Domestic revenue growth seems to be slowing as it is elsewhere around the world; although, ATA cites continued strength in Latin American and Caribbean markets. In terms of volume, domestic enplanements on U.S. carriers increased only 1.5 percent in June, while international enplanements were up even less at 1.2 percent, primarily reflecting the softness in travel to and from the Pacific region. Year-to-date through June, domestic passenger demand is up 2.5 percent but still below pre-recession demand. International demand is up 3.2 percent yearto-date through June and has finally exceeded the 2007 level. Despite Challenges, Optimism about Travel Builds Despite the economic “soft patchâ€? and ongoing challenges, there is general optimism that both business and leisure travel will continue to improve. The latest edition of The Pegasus View reports that summer travel has been strong. The corporate hotel market saw global bookings increase 8.8 percent in June. Suggesting the durability of corporate travel demand is the on-going rise in average daily rate (ADR). Globally, ADR has steadfastly grown by more than 5 percent this year over last. Global leisure bookings also grew 7.3 percent over the prior year. Global distribution services (GDS) forward-looking global data shows corporate travel forging ahead. Bookings show potential for growing at a pace of up 15 percent over the summer, with possible stronger growth for the autumn conference season. ADR looks to continue solid growth over the prior year through September, with the potential for easing up in October and November. Alternative distribution site (ADS) channel forward-looking global data points to more positive news for leisure travel too. Bookings look to grow by nearly 10 percent over the prior year through the second quarter and rates show a healthy growth too. Leisure Travel Intentions and Travelers' Changing Vacation Habits In yet another positive sign, the July travelhorizons™ survey reveals an increase, although slight, in leisure travel intentions from last July: rising to 56 percent from 53 percent. Leisure travel intentions historically run ten points below the percentage of U.S. adults who report having taken leisure travel trips. While leisure travel may be up, many Americans can never really escape from the office. A new Adweek/Harris Poll finds that among the 40 percent of U.S. adults who say they have taken or are planning to take a vacation this summer, almost half (46%) say that they will (or did) work on their vacation. Men (54%) are more likely than women (37%) to work on their summer vacation, and among different age groups the chosen vacation-work style varies as well. More than eight in 10 Americans (81%) vacationing this summer say they will bring (or brought) at least one technology device (such as laptop or tablet computers, smart phones, MP3 players, etc.) on their vacation . WiFi and electricity isn't all that leisure travelers need on vacation. New findings indicate that they are looking for amenities that aren't always found at a traditional hotel. Amenities such as


are looking for amenities that aren't always found at a traditional hotel. Amenities such as privacy, a better sense of local culture and personalized service, which can be found at B&Bs and inns. According to the newly released Ypartnership/Harrison Group 2011 Portrait of American Travelers study, conducted among 2,539 U.S. households, 13 percent of leisure travelers reported staying in a B&B within the past year. But a much greater percent (79%) say they intend to stay in a B&B at some point within the next year. North American Cruise Industry Continues to Prosper Despite the weak economy, the cruise industry continues to prosper. According to Cruise Lines International Association, the North American cruise industry generated 329,943 jobs that contributed a $15.2 billion wage impact on the U.S. economy last year, a 5.1 percent increase in employment and a 7.0 percent rise in wages over 2009. The total cruise industry's economic impact in the U.S. in 2010 was $37.85 billion of gross output, a 7.8 percent increase over last year. Business Travel Recovery Still Underway Business travel spending and volume remained steady in Q2 2011, according to the Global Business Travel Association (GBTA). Spending reached an estimated $62.2 billion, up 6.3 percent compared to Q2 2010. Travel prices are on the rise, with increases expected to continue throughout the rest of 2011 and to be in the 4.5 to 5 percent range. So far in 2011, it is estimated that when adjusted for price increases, spending on business trips will remain relatively flat; companies will keep travelers on the road at a similar pace to 2010, but are paying more per trip due to higher rates. Also, U.S. companies are upping their investment in international travel. Total spend on trips abroad is estimated to hit $31.8 billion in 2011, a 9.1 percent increase over 2010 and a substantially higher rate of increase than total spending growth. Nevertheless, reflecting the softer than expected economy, GBTA has lowered its 2011 growth estimate for the number of U.S.-originated business trips to 2.3 percent, down from 3.4 percent. With increased travel-related costs (such as airfare), spending by business travelers is still expected to grow by 6.8 percent to $107.2 billion in 2011, and another 5.8 percent in 2012. Convention-related travel is also expected to grow in 2012 after a stagnate 2011. Strength in International Inbound Travel Continues According to the U.S. Department of Commerce, 5.5 million international visitors traveled to the United States in April 2011, a 13 percent increase over April 2010. Travel originating from overseas was up substantially (+24%). Increases were posted in seven of the nine overseas regions, with declines of four percent in travel to the U.S. from Asia and one percent from the Caribbean. For the first four months of 2011, visitation (18.4 million) was up 5 percent compared to the same period in 2010, and 8 percent (7.8 million) among overseas visitors. International visitors spent $12.5 billion in April 2011, 20 percent more than in April 2010. During the first four months of 2011, international visitors spent 13 percent more than they did during the first four months of 2010. China has continued, and will likely continue, to gain importance as an inbound market for the United States. According to the U.S. Department of Commerce's sponsored China Travel Trade Barometer, a majority of the Chinese tour operators surveyed (June 16 – July 1, 2011) reported higher bookings in the second quarter 2011, increasing from 16 to 20 percent, on average, compared to second quarter 2010. In addition, nearly all trade (92%) projected third quarter 2011 bookings from China to the United States will increase. Over the next six months, the top motivator for travel to the United States was reported to be the exchange rate to the U.S. dollar. Direct air service to desired locations and promotion by U.S. destinations and businesses were also listed as motivators for increasing bookings. Visa processing time ranked as the top deterrent for travel to the United States. Pandemics and epidemics (e.g., H1N1 Flu) ranked as the second most concerning. Heads Up Travel Researchers! The BEA recently released annual revisions of the U.S. International Transactions Accounts. These changes improve the reliability and consistency of the statistics and address important new developments in the U.S. and international economies. Despite several relatively large


new developments in the U.S. and international economies. Despite several relatively large changes to other accounts, this annual revision has not significantly altered the overall picture of U.S. international transactions for the past several years and has only slightly impacted the travel and tourism-related data. Revisions to a number of Office of Travel and Tourism Industries reports are now available. CTP's Coming Out Party The Corporation for Travel Promotion (CTP) plans to stage a "coming-out party" at the World Travel Market in London this November, to unveil its brand identity and sketch out the theme for America's global marketing campaign. According to CEO, Jim Evans, the campaign is targeted to launch at the ITB Berlin travel show in March. Evans said he expects the CTP will have $150 million in industry and government matching funds for marketing in its first year. Online Travel Trends What is the Micro-Tripper? The short-term, purely spontaneous travel enabled by the flash sale, group buying and private-travel sale start-ups. Purpose? Create market share rather than intrude upon existing business. With the number of Americans owning tablet devices forecast to increase at a compound annual growth rate of 51 percent between 2010 and 2015, tablet commerce is expected to grow rapidly over the same period, offering consumers a portable yet highly engaging shopping experience, according to a new report by Forrester Research in partnership with Bizrate Insights. As adoption grows, tablets will likely provide at-home and portable (but not truly mobile) shopping experiences, while the role of smartphones solidifies as a complement to the in-store shopping experience. While new communication devices and social media are growing rapidly, according to AdAge, "traditional outlets are thriving in the lives of consumers today, and they form the core of how most consumers interact with media." Mendelsohn Affluent Barometer of affluent Americans (those with at least $100,000 in annual household income) found that of the 1,000 surveyed, 93 percent read hard-copy print versions of magazines. The same pattern is clear across all media the vast majority consumes content through its most traditional outlet: magazines and newspapers in print, websites on computers, video through televisions. Even as today's younger generation show more cross-platform "experimentation," they too tend to consume media through its most traditional outlet. Econsultancy’s new Internet Marketing Strategy Briefing covers important online trends in digital marketing including customer centricity, channel diversification, data, social media and content strategy, and discusses 11 ways to measure the value of social media. Marketing Outlook Forum To learn more on online travel trends attend the session, Ensuring the Best in Marketing Channel Integration: Case Studies in Success, at U.S. Travel's upcoming Marketing Outlook Forum, being held on October 26 - 27 in Fort Worth, Texas. Join U.S. Travel Research Subscribe

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And, that's not all! Already slated to address the most important strategic forecasting conference of the year are J. Walker Smith, Executive Chairman of The Futures Company, Adam Sacks, Managing Director of Tourism Economics, Jim Evans, CEO of the Corporation for Travel Promotion and many more industry marketing and research experts. Registration is open – to learn more, visit the U.S. Travel Association website. I look forward to seeing you all there! In the meantime, enjoy the rest of your summer – traveling, I hope!


U.S. Travel Outlook August 2011