12 February 2009

ARC Numbers Collapse

We know that its bad out there. Just how bad is now emerging. So my predictions at the end of 2008 was a further 10% drop in 2009 based largely on the fall in US traffic are looking a little overoptimistic. Transactions are off and accelerating downwards.

Looks like I underestimated. Here is the graphic from the ARC Stats page. This is a good proxy for GDS as well as some underlying market behavior. The worries of Madrid, Dallas and Atlanta must be taking years off some people's life expectancy.

But for once at least let me be the optimist here. I do believe that there are a number of factors at work which have combined to make Jan 2009 appear worse than it actually is. Some are lingering factors from 2008's performance and some are actually a major result of the lack of confidence.

January 2008 still had reasonable confidence by the consumer. As a result there was a significant investment in upfront buying by the consumer for the summer. At the January 2008 Caribbean buyfest - confidence was high that summer 2008 would be a sell out and that indications during cruise wave week were also very positive. Unfortunately that gave a false sense of security but once purchased people were still going to travel.

This year is radically different. Caribbean and Mexico product sellers are all reporting advance bookings way off. Wave week was decidedly down. EVERYONE is cutting capacity. The airlines are looking for a 10% additional cut this year. Just anecdotal from my personal trips this year - I can tell you the airports, hotels, etc are noticeably down. January's Florida inbound traffic through the Malls and hotels was off by more than 20%. Snowbirds didn't come south this year.

The advance purchase window is being plain ignored. Europeans behavior adjusts rapidly to this situation by buying late. US traffic is a little more conservative in its adjustment but so far this year the wallets are clamped shut. Once the profiles of buying patterns adjust - traffic will normalize albeit on this much lower level.


Despite wide exhortations that the great discounts wont last long - I beg to differ. Discounts - and deep ones - are here for a while. I do believe that we are looking at a down market for even longer than most have predicted. 2009 we all know will be one of the worst on record for Travel globally. Recovery in 2010 will be modest. Discounts and last minute behavior will be endemic.

Moreover from a distribution standpoint - I am not bullish on the GDS players. Clearly they are going to suffer now and as they fall below critical mass it makes the holistic single source content model unrealistic and unsustainable.

The emergence of a leaner meaner infrastructure from the end of this down cycle is no longer in doubt. The actual shape and the players composition will however be very interesting. I am prepared to be amazed and excited by this prospect.

Gotta love this industry.....

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