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and Tourism in the Context of War |
ISSUE #1 - DOMESTIC LEISURE TRAVEL
MARCH 26, 2003 This TIA Travel Outlook is the first in a planned series focusing on important market segments in U.S. travel and tourism in the context of war and a continuing soft economy. Additional outlooks will focus on business travel and inbound international travel to the U.S. Leisure travel has been the relative �star� in the U.S. domestic travel constellation, although its luster has dulled in recent months. While domestic leisure travel increased 1.7 percent in 2002, growth was much subdued in the waning months of the year, and weakened even further this year in the weeks leading up to the start of the war. In the short-term, leisure travel is likely to be depressed even more by a combination of factors:
In the short-term, expect the fear about war in Iraq and the rising threat of retaliatory terrorism here at home, coupled with the downward spiral in consumer confidence, to further delay recovery of the travel industry and to put a damper on spring travel. Also expect many of the emerging patterns in leisure travel to continue and perhaps even intensify:
Certain destinations such as those near to major population centers could benefit as closer-to-home destinations, accessible by highway, continue to gain in popularity. If gasoline prices remain high this spring, however, this market could be negatively affected as well. Most consumers anticipate an additional gasoline price increase and think that the increase will be temporary. If it is temporary, gasoline prices in and of themselves are unlikely to depress leisure travel. (3) Air travel - both business and leisure - is likely to continue to suffer. During the 1991 Gulf War, domestic air travel was depressed in terms of passenger volume for about a year, leading to four years of losses totaling $13.1 billion. This time around, domestic air travel has already been weak for almost two years and has yet to recover to pre-9/11 levels. Leisure air travel, while down in 2002, has been providing whatever �lift� we have seen, with losses only about half as great as for business air travel. (2) Air passenger revenues fell 26 percent below 2000 levels in 2002, and are now running at 1995 levels. If the war in Iraq lasts one quarter, forecasts are for a 15 percent decline in air traffic during that period, and total 2003 losses of $10.7 billion. (2) The U.S. lodging industry seems to be recovering a bit faster than the airline industry but has also weakened in recent months. U.S. hotel room demand actually increased 0.8 percent in 2002, but was still down 2.7 percent compared to 2000. This was driven by growth in leisure travel demand, while business lodging demand remained depressed. (6) Federal security alerts have had immediate short-term effects on lodging demand. Within one week of each of the seven federal security alerts between October 2001 and November 2002, U.S. hotel occupancies declined an average 3.5 percent. (7) Hotel bookings in the coming weeks of the war are expected to be down 5 percent from prewar projections. If the war is brief, hotel RevPar is likely to decrease 1.5 percent in the first half of 2003, followed by a return to growth in the second half. (7) Travelers will enjoy a �buyer�s market� as travel suppliers continue to offer new bargains, as well as flexible and liberal refund policies as they have been doing in recent weeks to spark business and quell customers� anxiety. Nominal (not adjusted for inflation) airline ticket prices are now at their lowest since 1987. (2) Overall consumer spending, including travel, is likely to slow further in the near-term. While travel has grown very slightly in volume (due to the relative strength of leisure travel), travel spending has been down. (8) If we are lucky, a quick resolution to the war in Iraq could result in at least some recovery in leisure travel by the all-important summer season. In the initial days of the war we experienced a resumption of the �CNN� effect, as people opted to stay home and watch the war coverage rather than venturing out. 63 percent of Americans say they are following news of the war very closely, slightly below the 70 percent who did so during the early days of the 1991 Gulf War. (3) But, 18 months of existence in a post-9/11 environment has likely made
for hardier consumers, who have learned to weigh the risks and rewards,
and who are anxious to get on with their lives.
If the fighting ends quickly most economists expect the economy to gain significant momentum. Once the situation in Iraq is resolved, businesses will likely resume spending and hiring, which will boost consumer confidence and economic growth, as well as consumers� willingness to spend, including for travel. In the absence of terrorist attacks here at home, Americans are likely to be anxious to resume leisure travel as soon as possible and may even boost their travel significantly because of pent-up demand. Based on a survey conducted in late January, consumers� interest in travel continues its upward trend. And consumer perceptions of the affordability of travel, while down significantly from late 2001 and early 2002 when a flurry of discounts were announced in response to the aftermath of 9/11, are still quite positive. (9) The consensus is that oil prices will plummet rapidly following resolution
of the war. Falling gas prices, coupled with Americans� ever-constant
preference for auto travel that has only become more entrenched over the
last few years, could help stimulate auto vacation travel this summer.
But if the war continues longer than expected, if it is not the success that many expect, if other geopolitical uncertainties remain, or if terrorism resumes once again within our own borders, the prospects of a full recovery in leisure travel, and of a healthy summer season, would dim significantly. Footnotes:
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Contact:
Travel Industry Association
of America
www.tia.org |
Also See | Expect a Long, Slow Road to Recovery for the Travel and Tourism Industry / TIA / Oct 2002 |
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