02 September 2011

Last 1/3 Year US Market Projection

Every year I play a little game - what will the final part of the year look like. Both for the economy and the Travel sector as a whole post Labor Day.

My usual metrics are to look at airline traffic, hotel occupancy, rates and the economy as a whole.

I don't like to be a pessimistic person - but I am not getting warm and fuzzies about the current state. In my crystal ball I believe we are going to see a general slowdown of the Travel Economy in the last quarter of this year. What are the drivers and the evidence to support my hypothesis?

Starting with the economy - we knew August would not be a positive force on the mood of the economy - blame the politicians for that one. The jobs numbers look poor with zero growth when we need to see an increase of 150,000 new jobs before the unemployment rate falls from its almost historic 9.1% level. Business confidence is not going to be good even if there is a significant boost in jobs programs announced next week by Obama. The best we can hope for is flat for the rest of the year.

During the year - the total amount of airline trips taken have risen about 2-3 points yet the Corporate heavy ARC numbers show a fall of more than 2% in total tickets issued. Further the price of the tickets has risen. We are already (through July showing that nearly 6% total expenditure increase over 2010's numbers. Remember that increasingly ARC's ticket only numbers do not track with the total cost of trips. With therefore a significant additional cost of ancillaries not showing up in the ticket numbers - we are going to see squeezed corporate travel budgets that require some pull back in business travel. I am projecting for the last 1/3rd of the year a pull back of 6% in expenditures to bring budgets back in line. This is going to accelerate the cut in trips compared to 2010 to the tune of about 3-4%. Some chaps who are counting on reaching elite status with their trips in the last quarter better think again.

Leisure travel is also going to see a pull back with Thanksgiving having a bit of a hard time.

I had a scan and looked at deals coming up. International travel ex-USA is not looking promising. Delta recently implemented a second round of cuts in the Winter 2011 schedule. Pulling selected flights rather than cutting routes.

So pricing is holding but I am seeing some new lower priced inventory available. Also pretty good inventory for some international flights on frequent flyer miles.

So boys and girls... there we have it. A quiet last third of the year in travel with numbers down. Batten down the hatches. We might start to also see a few layoffs occurring selectively.


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