Navigating a New Landscape

It’s difficult to predict what 2010 will bring to the travel industry, but we take a look to see if we might find better days ahead.

Remember Dec. 31, 1999? Y2K stories dominated the headlines with many pundits predicting that the world would come crashing to a halt at the stroke of midnight. Planes would stop flying, banks would halt trading and technology would grind to a virtual standstill, all because of a technical glitch that might not allow computers to process the change from ’99 to ’00.

Hiker // (c) 2009 Steve Cole

Now, 10 years into the new millennium, much of the global conversation is focused on how airplanes are grounded and banks are failing. Rather than a major computer malfunction, however, a nose-diving economy has accomplished at least part of what doomsday theorists were anticipating 10 years ago.

While we are nowhere near the catastrophic events predicted for the first part of the millennium, to be sure 2009 was one of the most difficult years in recent history.

Now, as 2010 looms on the horizon, the question on everyone’s mind is, “Have we come through the worst of it?”

So far, current economic predictors haven’t been much help in answering that question.

In September, Federal Reserve chairman Ben Bernanke declared the recession officially over. But what should have been generally welcome news came with plenty of caveats to expect a weak economy for some time to come.

While economic predictors must always be taken with a healthy dose of caution, it seems that these final months of 2009 will be a time of particularly conflicting data.

The Worst Is Near, Hopefully
Earlier this month, MSNBC.com reported that the “… unemployment rate has hit double digits for the first time since 1983 — and is likely to go higher.” This difficult truth, while not unexpected, was tempered somewhat when, on the same day, the site also released the headline, “Slowing job losses signal recovery.”

While we probably haven’t yet heard the last of the “things are really bad” message, happily the sentiment appears to be increasingly tempered with the addition of “but, the worst might be nearly behind us.”

Although some experts believe it is too early to be talking about recovery, it seems that what might be the source of some of this conflicting data is that people are generally starting to feel a new sense of hope.

While hope alone may not be enough to turn things around, it certainly can’t hurt.

In the words of Dr. Norman Vincent Peale, author of The Power of Positive Thinking, “Change your thoughts and you change your world.”

The travel industry, too, is beginning to adopt a new hopefulness.

Not surprisingly, the last couple of years were a rough time for travel. In 2009, total travel expenditures in the U.S. are expected to reach just $712 billion. Put in perspective, this equates to a loss of nearly $61 billion in income in just one year. Furthermore, the U.S. Travel Association has estimated that some 400,000 tourism jobs were lost in the U.S. over the past two years.

On the brighter side, in early November, the U.S. Travel Association released a study estimating that 2010 will see modest increases in leisure, business and inbound international tourism. These increases are anticipated to replenish some 90,000 jobs back into the U.S. workforce.

As tourism professionals slowly start to believe that better times might not be far off, they are now wondering if the recession will leave permanent scars.

From Y2K to N2K
According to the latest “National Leisure Travel Monitor,” an annual study of leisure traveler intentions, the consumer mindset is changing. The era of carefree, “that’s what credit cards are for” spending may be a thing of the past.

The study, authored by YPartnership/Yankelovich, Inc., calls this new mindset “N2K (Need 2 Know): The Squeeze Economy” and suggests that we are at the crux of a wholesale shift in attitude towards consumer spending.

The study found consumers are changing how they make purchases based upon their economic anxiety, a mindset that encompasses all economic concerns, both actual and perceived. The first response to economic anxiety, according to the study, is that consumers are finding cheaper ways to buy without making sacrifices. If sacrifice becomes necessary, convenience, indulgence and novelty tend to be the items that consumers are most willing to trade off.

Quality and service, on the other hand, will continue to be important factors in the consumer buying process.

Only a small percentage of those surveyed said they would accept low quality in return for cheaper pricing. Service is an area that remains especially important to consumers, with the study reflecting a small rise in the percentage of consumers who expect service to get better in difficult times.

While consumers may be making more compromises than ever before, the good news is that travel continues to be a highly regarded commodity. Of respondents surveyed, 64 percent agreed with the statement, “Even though there are many things I would like to own, I prefer spending my money on experiences that will enrich my life — like travel, vacations, theater, good restaurants, etc.”

Redefining Value
As Americans redefine how they make their buying decision, the travel industry is paying attention.

“This is an extraordinary time for the travel industry. We’re experiencing what could be a long-term attitudinal shift in how consumers and businesses view the fundamental value of travel,” said Dr. Suzanne Cook, senior vice president of research for the U.S. Travel Association. “Business as usual will not cut it; travel marketers must understand the changing mindset of the traveler and adjust accordingly.”

Value was a much-used catch phrase for the travel industry in 2009 and will continue to be an important conversational piece for the foreseeable future.

Even during the worst of the economic pinch, high-end hoteliers were reluctant to reduce hotel rates, concerned that consumers may come to expect these lowered rates as a new standard. Instead, they offered add-ons, such as food and beverage credits, rounds of golf or spa treatments to make their pricing more appealing.

While travelers came to expect and seek out added value, hotel rates still declined. According to a report by Smith Travel Research, the national average daily rate dropped nearly 9.1 percent in 2009 to $98.01.

As newer and better offers kept rolling out, consumers learned that there may be some truth to the adage, “Good things come to those who wait.” Now more than ever, consumers are willing to wait for last-minute, rock-bottom pricing.

In fact, the “National Leisure Travel Monitor” reported that 38 percent of respondents booked a last-minute trip in 2009, a five-point increase over 2008. The average planning period for last-minute travel was just 16 days in advance of departure.

The shift in focus toward last-minute travel planning is causing some travel marketers to reevaluate how they are rolling out deals. Some are even starting to discuss a time, in the near future, when discounts are not a key component of the marketing message.

The Wall Street Journal agrees. Earlier this month, the publication released an article predicting that today’s travel values are about as good as things are going to get. According to the article, “… hotel prices are likely to stay relatively stable during the next few months. By the middle of next year, they may even start to inch up.”

The message that exceptional values may soon begin to taper off provides agents with a tremendous opportunity to reconnect with their clients right now.

A Friend Indeed
Marlene Dietrich once said, “It’s the friends you can call up at 4 a.m. that matter.”

By this logic, travel agents may possibly have been some of the best friends consumers could have had during this turbulent economy.

As travelers became stranded by flight cancellations, airline closures, hotel foreclosures and shifting weather patterns, consumers who had the protection of a travel agent behind them were the ones most likely to recover some, or even all, of their travel plans.

Now, with the sheer volume of deals and information available to travelers, agents can again befriend their clients by helping them cut through the clutter of travel messaging and crafting the perfect vacation at a rate that is acceptable to the newly emerging consumer mindset.

Incidentally, just as the new economy may make consumers more reliant on the advice of a trusted travel partner, so too are agents relying on their partnerships for quality
information. According to the American Society of Travel Agents’ annual “Supplier-Travel Agent Marketing Report,” released in October, 71 percent of travel agents
indicated that the economic downturn has made their preferred-supplier relationships even more important.

Agents in the West
As agents and travel marketers redefine how they will engage this newer, more fiscally cautious consumer, agents in the Western U.S. should take heart in knowing that they have a clear advantage over their counterparts throughout the rest of the country.

Every year, TravelAge West in tandem with its sister publication Travel Weekly conducts the Travel Industry Survey to delve into the minds of travel agents. Authored by noted researcher Stanley Plog, the report presents important travel agency trends, with a special focus on Western travel agents versus those in the rest of the U.S.

For 2008, the survey found that travel agents in the 14 Western states represent approximately 14,522 locations (ARC, CLIA, IATAN, home-based and non-accredited). Although Western agents make up 36.9 percent of the U.S. market, they sell approximately $115 billion in travel receipts annually, reflecting 40 percent of the national share.

While the entire travel agent community in the West outperformed its national counterparts by nearly 4.5 percent, when it comes to home-based agents, revenue margins are even higher. Generating an average of $420,000 annually, home-based agents in the West outperformed their national counterparts by nearly 17 percent.

Perhaps the most dramatic figure of all is the ability of Western agents to grow their business, even in a down market. While it is hardly surprising that a strong majority of agencies lost revenue in 2008 (80 percent overall), with an average decline of about 26 percent, nearly 10 percent of agents did report growing their business last year.

Of the agencies that grew their business, agents in the West reported a whopping 61 percent growth rate, as opposed to a 21 percent growth rate from the rest of the country.

Data from the “National Leisure Travel Monitor” found that Western travelers are a lucrative demographic for travel agents. Leisure travelers in the Western U.S. are more likely to have used the services of a travel agent (for an average of 1.8 trips during the past year). Furthermore, while Western travelers are less likely to book weekend trips, they are far more likely to have taken one or more extended trips (62 percent versus 53 percent).

Whether or not a new consumer mindset awaits Western travelers, research indicates that their economic anxiety is lower than that of the rest of the country and that they are more ready than the rest of the country to start hitting the road. The wise agent will be the one that takes advantage of this renewed sense of hope by helping their clients figure out where they want to go next.