A First Look at Prospects for the U.S. Travel Industry in 2004
Highlights from TIA’s annual Travel Marketing Outlook Forum
By Donald F. Holecek, Director of the MSU Tourism Resource Center

The Travel Industry Association of America (TIA) held its annual U.S. Travel Marketing Outlook Forum during the third week in October in Austin, Texas.  The event attracted approximately 500 industry leaders from across the country and featured a wide array of speakers who shared their perspectives on the U.S. travel industry’s recent performance and future prospects.  What follows are highlights from my notes from the conference, some of which are aggregations from multiple speakers and all are subject to a degree of recall bias which comes with interpreting one’s less than complete and totally readable notes.
 
Attractive Market Niches:

Boomers – Unless one was been sleeping under a rock for a long, long time, he/she is amply aware of growing dominance of boomers in the tourism market, but our assumptions about them and their expectations may not be complete.  Boomers are unlike their parents in several important respects.  They are healthier and have a higher propensity to travel which most of us already know.  But, they are retiring later in life, are more likely to be in second on third marriages, and are prone to fight becoming old through what they do when traveling, what they purchase on trips, and who they choose as travel partners.  They are likely to hold the prime positions wherever they are employed and to remain active business travelers to an older age.  However, they are also more likely to be accompanied by spouses than younger business travelers, as most readers would expect, and by children, which I wouldn’t have expected.  The children may be their own (the Viagraâ influence), stepchildren of a younger spouse from a previous marriage, or grandchildren whose parents are divorced or who both work.  Spouse and children’s programs are becoming valuable additions to include in the agendas for business meetings and professional conferences, but this hasn’t come to the attention of the majority of business meeting and conference planners based upon my recent experiences.

Youth Travelers – Youth travel has grown 10-20% for the last several years, 10% alone in 2002 which was not a good year for overall travel.  About 25% of international trips are taken by youths less than 25 years old.  It seems that parents, and probably grandparents, are willing to make sacrifices to insure that their children and grandchildren can enjoy enriching travel experiences.

Disabled Travelers – It is estimated that 15% of the U.S. population is disabled, but this market niche does travel.  About 70% reported taking a pleasure trip in the last two years.  For obvious reasons, the disabled plan their trips carefully and are active seekers of information about places with suitable facilities.  The number of disabled will increase as the U.S. population continues to age, so this travel market niche is becoming increasingly important.  Accommodating these travelers need not entail major additional investments if requirements of the disabled are recognized when planning new facilities or facility renovations and if staff are trained to be sensitive to what disabled travelers need to enjoy their visit.

Cultural Travelers – The statistics presented by various speakers indicate that cultural tourism is also a growth travel sector.  However, defining what is or isn’t part of cultural tourism arose as an issue when one speaker suggested that more than 70% of all U.S. domestic travel is culturally related.

Trends:  

Taxes – Government’s propensity to levy more and more taxes on travel appears to be escalating as they seek additional revenues to offset deficits linked to the anemic performance of the overall economy.  Taxes on air travel have almost doubled over the last ten years, accounting for an average of 26% on airfares in 2002.  The rental car tax rate now averages 24%.  Fortunately, Michigan’s tourism industry is not as dependent upon fly/drive travelers as states like Florida, but we should recognize that our tourists are likely targets for proposed new taxes as the state confronts yet another substantial budget deficit this fiscal year.

Hotel and Motel Sales – Over the last couple of years, hotel and motel sales have been “soft” during the week but “solid” on weekends.  Average daily revenue on weekends has actually increased steadily since 2000.  Improvement in profitability in this sector largely rests on filling more rooms during the week, either as a result of the return of the business traveler or via boasting meeting/conference and leisure traffic mid-week.

Minority Population – The minority component of the U.S. population is growing at three times the rate of the overall population.  Over the next 25 years, overall population will grow 20% but the minority population will grow by 60%.  Our data suggest that few Michigan destinations currently attract a significant percentage of minority travelers, a challenge to be overcome or Michigan’s overall share of the future traveler market will erode.

Labor Market – There was much discussion concerning what has been labeled the “jobless recovery” of the U.S. economy.  Recovery of employment typically trails recovery of the overall economy, but the lag this time around has been exceptionally long in duration.  Not only is it taking longer for the unemployed to find work, they are far less likely to be hired back by their previous employers or even in the same industry or type of job they previously held.  The recent recession appears to have accelerated changes underway in the make-up of the U.S. economy, which has been led by rapid growth in productivity, especially in the manufacturing sector.  It is estimated that two out of three people returning to the labor market are taking jobs that pay less than what they earned previously.  This would appear to be a negative trend given the important role manufacturing plays in Michigan and adjacent states from which the majority of our tourists are generated.    

Discounting Grows – U.S. consumers are increasingly wedded to discounts on whatever they purchase, while they are also less optimistic about their future incomes.  This is realistic in light of prevailing economic conditions in which supply generally exceeds demand, both for labor and for most of the products that consumers purchase.  The cruise industry’s response to this environment has been to discount prices to fill every cabin on every ship leaving port.  Airlines have reduced prices and flights to better balance supply and demand, while containing costs.  Their strategy is to: a) discount prices to maintain sales volume, b) cut costs to shore up profit, and c) expand product offerings and point-of-sale promotion to build sales per customer (e.g., food purchase on some flights and special dining options on some ships).

Pricing Power Diminishes – With supply exceeding demand, producers cannot sustain price increases.  Consumers are amply aware that they are in the driver’s seat when it comes to price, and they are in a better position now than ever before to price shop, because the Internet makes comparing prices quicker and simpler.  With the exception of a few luxury products (i.e., some imported cars, the best accommodations on cruise ships and at prime resorts), consumers know that waiting to purchase yields a lower price with minimal risk of the item being out of stock.  This is the reverse of behavior consumers exhibit when demand exceeds supply.  To avoid disappointment and higher prices, consumers purchase early when prices are inflating and the products they want are in short supply.

Destination Preferences – U.S. travelers continue to favor domestic destinations, avoid air travel, and stay close to home.

Partnering – Partnering has become increasingly popular across all sectors of the travel industry.  Interest is being driven by the need to cut costs (i.e., by sharing promotion expenses) and at the same time to add value for an increasingly sophisticated, budget conscious and time stressed traveling public.

Forecast:  

The Economy – GDP (Gross Domestic Product) is projected to increase 4.4% in 2004 vs. about 3% in 2003, while Personal Disposable Income will increase by 4.3% in 2004 vs. 2.9% in 2003.  Unemployment, however, will be relatively high at 5.7% vs. 6.0% this year, nationally.  Inflation is expected to fall slightly from an already low 2.4% this year to only 1.5% next year.

Travel – Travel spending in the U.S. will increase by 4.4% to $568 billion but won’t surpass the record level achieved in 2000.  Business travel volume will be up 4.2%, the first increase since 1999, but spending growth will continue to lag growth in volume.  Leisure travel will increase by 3.2% vs. a 2.8% increase in 2003, but growth in spending is expected to lag growth in volume.

The forecast for the economy and the overall travel industry is moderately upbeat for the first time in a couple of years.  But, every year brings new surprises.  Unfortunately, in the last couple of years, the industry has had to contend with many more negative than positive surprises.  Hopefully this pattern won’t repeat in 2004.